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In this Dec 2004 issue of On
Target :
TBL Accounting arose out of the sustainability agenda which
was long understood as Environmental Accounting”, i.e. an
attempt to harmonise the traditional financial bottom line, with
the environmental bottom line. However, it is turning out to be
not a double bottom-line, but instead a 'triple bottom line',
focusing on :
To achieve the balance implicit in the 'triple bottom line'
concept, we not only need: new forms of accountability, but also
new forms of accounting. This does not mean that every aspect of
a company's performance can - or should - be reduced to a
'common currency' of money values. But if we as a profession are
to manage a given company's performance effectively, then we
need to be able to measure it. TBL accounting provides a bridge
between the conventional or mainstream means of demonstrating
corporate success, and the more unconventional but increasingly
demanding call for acceptance of a corporation's implied
contract with society.
There is ample evidence of mainstream adoption of ethical
investment principles, both in Australia and worldwide, such as
the :
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Establishment of the Dow Jones Sustainability Index.
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Publication of stand-alone social reports by organisations such
as The Body Shop, Shell (UK), and BP (UL).
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Publication of sustainability reports by organisations such as
Baxter International, The Body Shop, Electrolux, Shell, Ford
Motor Company, British Airways, General Motors and TXU Europe.
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Establishment of ethical investment funds in Australia by
Rothschild Australia, Westpac, Tower, AMP, HESTA, UniSuper and
VicSuper.
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Reported assets in ethical investments in the USA and UK growing
by 50% per annum for the past decade with $US2.16 trillion
invested in ethical funds.
The question that must be asked, therefore, is, “What
comprises an organisation's social responsibility?” Most
organisations acknowledge today that they have an implied social
contract, i.e. a "community licence to operate”. Logic
dictates that a corporation's acceptance of its part in an
implied social contract then extends to an acceptance of
accountability for breach of that social contract. As
accountability necessarily requires a system of recording and
reporting performance, then such reports must also be ‘certified’
by independent professionals as to their veracity. As such a
role looks at future impacts of current actions, it is a role
very suited to management accountants.
Some examples of the elements of an organisation's social
responsibilities are found in its record pertaining to the :
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Protection of health and safety of workers.
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Equal treatment of employees.
-
Avoidance of bribery and corruption.
-
Environmental protection.
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Use of child labour.
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Profit generation and payment of tax.
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Provision of secure jobs for its workforce.
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Uniformity of application of standards around the world.
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Responsiveness to public views and concerns about its
performance.
-
Willingness to assist with resolution of social problems.
-
Support for charities and community groups.
-
Support for indigenous groups.
-
Product safety.
Typical measures used in TBL accounting would be profitability
measures such as Economic Value Added (EVA) and Market Value
Added (MVA) where EVA calculates the profits a company after
adjusting for the costs of the capital employed, and MVA
calculates how much value a company has created since it was
founded. In addition to such economic measures, the
environmental measure of Environmental Value Added (EnVA) could
be reported, which among other things, organisations must adjust
their measurements of wealth creation and profit with a charge
for the natural capital employed. Natural capital is a
combination of renewable and non-renewable resources that are
utilised in the generation of economic wealth. Note that in the
case of non-renewable resources, they are often consumed for a
once-off benefit. Even in the case of renewable resources, the
most important values are not in the timber produced by a forest
or in the fish produced by a sea, but in the ongoing capacity of
such ecosystems to produce yields on a sustained basis. It must
be remembered that some types of natural capital may be
substitutable by technology and other forms of man-made capital,
but most are not.
Due to such calculation difficulties in linking economic
results to its impact on natural capital, even companies
pioneering in the environmental accounting field have typically
not yet integrated environmental accounting into their
mainstream accounting, although some are working in this
direction.
Key barriers include :
-
the lack of a standard methodology,
-
the fact that accountants and auditors lack environmental
experience,
-
the difficulties involved in identifying environmental costs
(particularly in companies pursuing integrated investment
strategies), and
-
the valuation of liabilities.
The third bottom line is society measures, i.e. the reporting of
Social Value Added (SocVA). Here, it is recognised that the
ultimate bottom line for any project or business must not only
be adjusted for environmental impact, but also must be adjusted
for impacts on human and social capital. In the case of human
capital, organisations must account for knowledge and skills
developed or lost. For example, in the case of social capital,
the focus might be on the levels of resilience, and the
mutuality and trust in communities be they villages, mega-cities
or world regions.
The likelihood that a credible standard for simultaneously
measuring and reporting against all three 'bottom-lines' will be
available in the near term is good, given, the continued demand
for “Sustainable development”, the extent of public scrutiny
of organisational performance reports, and the numbers and
standing of corporations that have already published social and
ethical reports. Once such standards have been established, the
next logical step is ‘certification’ via some form of an
external audit process. Obviously, the qualification and
training of such professional auditors would need to encompass
techniques and skills far beyond that possessed by tradition
auditors of financial statements. Perhaps, the training
undergone by management accountants best fills this role.
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