Green accounting, our future

Growth can no longer be measured in strictly economic terms such as the monetary value of output, income or expenditure per head. Additional criteria are needed for green growth.

According to UK economist Tim Jackson: “Prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible.”

Green growth will come from applying green public procurement and green research and development (R&D). Appropriate penalties such as making the polluter pay for pollution and incentives like tax breaks for investment in green R&D are required. However, measuring green growth will need additional criteria such as sustainability, greenness, happiness or wellbeing.

Green or environmental accounting could be the answer. At the corporate level, this requires the identification and monetary measurement of the traditional private internal costs which directly affect the bottom line of the balance sheet. These are ‘direct costs’, such as materials and labour, which are attributed to a product or department and ‘indirect costs’ or overheads such as rent, administration, depreciation, fuel and power.

Above all, externalities such as social and economic environmental costs which impact on the external environment must also be taken into account. Although often ignored, their inclusion as internal items in corporate accounts could mean that scarce resources are more efficiently allocated.

Effective balance sheet

An effective green balance sheet would be either in the red (a loss) or black (profit). However this would only be after including all internal and external cost categories, such as health problems for workers, emissions and pollution of air, land or water, degradation of the natural environment and depletion of finite resources. Internal and external benefits must also be calculated and quantified using monetary measures. These could include savings from new cleaner technologies resulting in lower pollution and better health, new markets and substitution of raw materials or production processes.

Green accounts are a vital part of corporate social responsibility (CSR) and can help with decision making and triple bottom line (TBL) profitability. Essentially an organisation needs to compare the costs of avoiding or preventing environmental damage against the cost of remedial activities.

Using a framework of green accounting would mean that investment decisions are made by comparing the overall private and social costs against the private and social benefits. Using a life-cycle assessment (LCA) means that organisations can make decisions based on calculating environmental impacts at every stage of a product’s life, from raw materials, through production, distribution and final disposal or recycling.

With the EU set to introduce more environmental accounting at national level – see Box – this could filter down to the corporate enterprise level. Increased consumer, citizen and shareholder awareness of sustainable green growth requires a pricing policy that fully reflects the true costs of development. Transparent green accounts would be a key component of a policy based on Beyond GDP.

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