by Anne Bunning
Many of us think the environmental crisis is so massive that if the world is to survive, the only option is a revolution in our behaviour, in the way corporations and nations manage the global economy, and in our life priorities. SCSA’s Economy Working Group developed a background paper on just this topic in 2010.
Jane Gleeson-White (JGW) suggests that evolution is a possibility – through accountants.
In Six Capitals (Allen and Unwin, 2014) JGW argues that accountants have the power to hold nations and corporations accountable for their impact on nature.
JGW relates the story of the $200 Big Mac – the 100 times increase in the price of a Big Mac when all the costs are taken into account. These costs include the carbon footprint, environmental impacts of water and soil degradation from production of the ingredients, and the health costs from diet related illnesses such as diabetes and heart disease. The interesting point is that this Big Mac work was done by ex World Bank economist, Raj Patel.
JGW highlights the public subsidy of private business and their profits when environmental costs associated with any production system are not required to be accounted for – or paid – by the business; when the rest of the community has to pick up the health and environment costs through taxes, private and community efforts. Current economic accounting principles assume that all the things provided by nature are free and externalise the environmental costs.
JGW examines the psyche of the corporation – the business entity preferred by big business. A psychological analysis of the behavior of the corporation revealed the corporation as a psychopath: they break the law if they can, hide their behaviour, sacrifice long term welfare for short term profit, are aggressively litigious, ignore health and safety codes, and cheat suppliers and workers without remorse. And when more than half the largest economies in the world are not nations but multinational corporations, the future looks bleak indeed.
The accounting profession is grappling with how to value the intangible wealth of the information age – brands, patents, customer interaction – compared with the obvious visible and tangible goods of the industrial era, and how to create more ‘sustainable’ corporations for shareholders and investors. Yes – sustainable corporations, ones that account for ‘natural capital’; ones that put a money value on the environment.
Traditional industrial age based accounting places a value on financial and manufactured capital. So how do they value Facebook – how could investors value it at $200billion, when the value of its network equipment (computers etc) is about $2billion and it all has to be replaced every three or four years.
The German company Puma was the first large corporation to trial a more comprehensive and integrated reporting framework, in about 2012. Puma included a monetary value on the environmental costs such as air pollution and waste, right through its supply chain, from head office to the production of rubber for the shoes.
The Six Capitals are
- intellectual (these two address the value of bright people and the intellectual property they create)
- social (which represents sustainability issues)
Human and intellectual capital value intellect and the intellectual capital they create; social capital includes the sustainability question; and natural capital values the use of limited resources.
The reporting framework is known as the International Integrated Reporting Council’s Framework (IIRC) and allows companies to shift their reporting focus from short term financial performance to value creation in the short, medium and long terms. The IIRC is being discussed in high level meetings all over the world – including recent G20 and B20 meetings, which had agenda items urging the adoption of this new integrated reporting framework by more countries and more corporations.
So what can we do? SCSA Community Groups could
- become familiar with the Six Capitals concept
- if you own shares, ask your corporation when it will be adopting the IIRC
- if you have super, ask your fund to advise corporations in which it invests to adopt the IIRC
- attend Jane Gleeson-White’s Writer’s Week talk at 3.45pm on 5 March 2015