A classification of
environmental accounting
systems
By J.Richard (2008) ,text
published in « Encyclopédie de la
comptabilité -2009 »
1
Foreword
• Accounting :one of the main instruments of regulation in
the capitalist world (visible hand)
• Most businesses try to maintain their financial capital
with the help of accounting (concept of depreciation);
some without any law
• Without accounting no more dividends ,no more taxes,
may be no more markets!
• Capitalist accounting has changed a lot (phases)
• Financial accounting: the result of a long and tumultuous
process
• Romans :fructus (Hicks); 1200-1300 middle age florantins:capital
and balance sheet;1800-1850:comprehension of the concept of
systematic depreciation;1900- 1945:general appliance of the
concept of depreciation;2000 :no more depreciation? (see fair value
and goodwill)
2
Foreword (end)
•
•
•
•
•
•
•
Curiously today (2000-2010) the question of E accounting for
economy and businesses is marginal in the debate about the
creation of a new economic system in line with sustainable
development
See books of ecological economics: E policy instruments are limited
to command and control instruments,tradable permits and taxation
See financial and management accounting books (generally almost
nothing on the subject
See books of modern finance (BM for ex): nothing
See Grenelle de l’environnement :absence of discussion
Only some theoretical discussions of a new GDP at a very high level
Why? Absence of proposals?or other factors
3
Introduction
•
•
•
Environmental accounting is recent but not totally new
The very first works appear in the beginning of the seventies
1971:in the field of national accounting the AmericanNordhaus and
Tobin publish « Is growth obsolete? »
• 1972:in the field of business accounting the Swiss Müller-Wenck
publishes « Ökologische Buchhaltung eine Einführung » (ecological
accounting an introduction)
• Europe is in advance in the field of business accounting (see
notably Schaltegger , Bebbington and Gray; in France Christophe)
• Very few works but very rich ones and different ones with a difficult
problem of classification
4
Introduction (following)
• We would like to propose a classification
• This classification is based on 7 main criteria
allowing to determinate the nature of an
environmental accounting system
• The criteria are the following ones:
•
•
•
•
•
•
•
1 the direction of the relationship with the environment
2 the dimension of the environment
3 the way of conservation of the capital
4 the spatial dimension of the information
5 the degree of detail of the information
6 the type of valuation of the data
7 the concept of result (income)
5
The proposed classification
S ig le s
(a n g la is )
F ig u r e 1
C la s s ific a tio n o f e n v ir o n m e n ta l a c c o u n tin g
V ie w
IE
EI
STRO NG
M odel
W EAK
W EAK
D im e n s io n
M ACRO
EI
M IC R O
W EAK
M IC R O
M IC R O
EDPA
EDPA
W EAK
M IC R O
W EAK
M IC R O
P r ic e s
S
Y
S
T
E
M
O
F
V
A
L
U
E
S
RC … … .
H
B S O (G )
M P … …
G PI
(G
AV … … …
B S O (G )
SEEA
)
G
(A )
EDPA
(T )
TPA
B S O (G )
V Va lael ue ur sr sE EC C
)
E c o p o in ts ...........
E n e rg ie s
(G )
A
Analytical (accounting)
AV Actuarial value
BMW Brunschweig Müller-Wenk
EC
Ecological
EDPA Environmentally Differentiated Private Accounting
EI
External Internal (view)
EMAS Eco Management Audit
Scheme
G
General (accounting)
GPI Genuine Progress Indicator
GRI Global Reporting Initiative
H
Hueting
IE
Internal-External (view)
LCA Life cycle Analysis
MP
Market Price
NRE New Regulation for Economy
P
Pillet
RC
Restoration cost
T
Tax (accounting)
TPA Traditional Private
Accounting
SEEA System of Environmental and
Economic Accounting
W
Wackernagel
BM W
P
S u rfa c e s
W
Q u a n titie s … .… …
W
LC A
G RI
EM AS
NRE
6
1-The direction of the
relationship with the
environment
• Every accounting system is determined by
the point of view of a dominating actor who
imposes his own view ; this rule also
applies to E.accounting
• In line with Schaltegger and alii (1996) we
will distinguish two very different views:
– The external-internal view (or outside-in view)
– The internal -external view (or inside-out view)
7
11- The external-internal view
(outside-in view)
• According to this view the accounting system (inside) is
concerned by the environment (outside) only and if only
specific external rules to the organisation oblige it to take
account of the impacts on the Environment
• In a sense the problem is more to know the impacts of
the Environment on the firm that the reverse
• This type of E accounting is in line with traditional
financial accounting
• One could wonder if it is worth while , in the frame of this
view, to speak of an environmental accounting?
8
The external-internal view
(following)
• The response is the following one :we will speak
of an environmental accounting only if the
received « impacts » from the environment are
isolated and specifically showed inside the
accounts
• Schaltegger and alii speak of an
« environmentally differenciated accounting »
• As far as, in this type of E.accounting, only the
financial private capital is concerned we will
speak of a « private (or financial)
environmentally differenciated accounting »
9
12-The internal –external view
(inside-out)
• According to this view the organisation (inside) seeks to
know all its impacts and its consequences on the
environment (outside)
• If using the language of ecological economists the goal is
to internalize in accounting all the « externalities » so
that to know the total damage caused to the E
• Normally, according to this view, it is no more possible to
take only account of the financial capital; the
environmental capital must also be conserved which
means an extension of the Hicksian rule of conservation
of capital
• We will name this very different E.accounting
« ecological and human environmental accounting »
10
2- The dimension of the
environment
• It is traditional to oppose two conceptions of the
environment
• According to a restrictive conception the
environment is limited to the natural environment
• In that case E accounting is (only) an ecological or green
accounting
• According to an extensive view the environment
also comprises the humans contributing to the
organisation
• In that case E accounting is an « ecological and human
environmental accounting »
• In the following developments we will focus on this enlarged
conception wich is more adaptated to the three pillars view
11
3- The way of conservation of the
capital
• According to the private environmentally
differenciated E accounting the question is
simple: the only one capital to be conserved is
the financial capital
• In the context of the ecological and human
accounting the problem is much more
complicated because there are three types of
capital to be maintained
• Daly(1973) has showed that there exists two
models of the conservation of the natural capital
(reasoning which can be extended to the human
capital): the « weak » and the « strong » models
12
31- The weak model of
conservation of the E capital
• According to this model a compensation
between financial capital, ecological capital and
human capital is admitted
• So the concervation of the capital is a global one
• So the priority of financial capital could be
conserved
• NB generally when it is spoken of a « three
pillars » view of SD this conception is implicitely
(sometimes but rarely explicitely) admitted
13
32- The strong model of
conservation of the capital
• According to this view each type of capital must
be separately conserved: no compensation is
admitted
• Daly has demonstrated the necessity of a strong
approach to permit the development of humanity
on a sane basis
• Daly has also shown that the realisation of a
strong approach implies the calculation and the
respect of naturel standards (limits) not to be
tresspassed
• These limits may be exprsessed in terms of
stocks and /or flows
14
4-The spatial dimension of the
information
• It is traditional in the field of accounting to
distinguish national macro-accounting systems
from business micro-accounting systems
• It is relatively rare that a relationship between
them is made ,as well in the fields of research as
in the fields of practice and education
• There are however some exceptions especially
in countries where a tradition of governance with
the help of planification is observed (see for
example the case of the French traditional
business accounting system since 1980).
15
The spatial dimension of E
accounting (following)
• This kind of separation also exists in the field of E
accounting
• For example there are many various proposals of macro
E.accounting systems that are frequently ignored in the
field of micro E. accounting (and reciprocally)
• This kind of separation is not justified and will be rejected
here for three main reasons:
• The environmental problem is a global one where micro and macro
questions are intricated
• With the development of the social responsability of businesses the
spatial dimension of business accounting is enlarged (see for
example the development of LCA thereafter)
• Many ideas of macro-economist are very interesting for conception
of new types of business accounting (see after for example the
Hueting’s proposals)
16
5- The degree of detail of the
information
•
It is traditional in the field of private financial business accounting to
distinguish two main types of accounting
• General (or « financial ») accounting which gives information on the global
result
• Analytical (or « management » accounting) which gives information on
partial results (products,investment projects..)
•
This kind of separation is largely connected with socio-political
problems notably the problem of business secrets and the problem
of valuation
• This kind of separation is also prevalent in the field of E accounting;
hence the distinction of:
• General environmental accounting systems
• Analytical environmental accounting systems
• Schaltegger and alii also distinguish a third « tax E accounting but it seems
to us that this is a question of valuation which is to be discussed separately
17
6- The type of valuation of the
data
• Already in the field of traditional accounting there is a
fierceful social-political debate on the choice of a
valuation concept (unit) in order to determinate the
business income there are mainly:
• The partisans of market prices
• The partisans of (historical) costs
• The partisans of discounted values
• The same debate exists in the field of Environmental
accounting
• But it is even more acute because some specialiste even
refuse any recourse to market based prices , costs or
values
• We can in this respect distinguish three main types of
Environmental accounting systems:
18
The three main types of
valuation units in environmental
accounting
•
Some accountants try to determinate global results (E.impacts) with
the help of units derived from the observation of markets ; they differ
because they can use various units:
• Some propose market prices (MP)
• Other propose restoration costs (RC) connected with standards allowing for
the restoration of the E.functions
• Other propose hedonic prices (HP)
• Other propose values in use derived from actuarial values (AV)
•
Other accountants also try to determinate global results but without
any recourse to market data (wich are deemed to be dangerous or
meaningless for SD ):
• Some propose eco-points it means special units taking account of the
degree of toxicity of environmental impacts
• Other propose units of surface
• Other propose units of energy
19
The three main types of
valuation units for E accounting
(end)
• A third group of specialists renounces to
calculate a global result with the recourse
to valuation units and limit the function of
E accounting systems to the delivery of
quantitative data
ex :number of tons of emitted CO2
NB in that case there could be a debate about the
question if this type of information is constituting a
real accounting system
20
7- The concept of income
•
•
•
•
•
•
Accounting is a subjective social institution
It is « subjective » in the sense that the subject who detains the power
defines the concepts of expenses and revenues so as to determinate his
own income (bottom line of the P$L statement)
Up to now the income of most of accounting systems has been defined in
correlation with the sole interests of financial capitalists (private or
governmental ones)
But the evolution towards an Ecological and human E accounting
corresponding to a strong view could be associated with a redefinition of
the concept of residual income
It is notably symptomatic that some examples of such types of E accounting
are accompanied with a proposal to take a kind of « green added value » as
a basis of a new concept of result for the sake of stakeholders
Obviously this type of evolution would imply a very massive revolution of
thoughts detrimental to the power of traditional financial capitalists
21
Examples
• It is now possible to apply these criteria of
classification and to propose a classification of
some major contributions for building new
systems of E accounting
• See the following annex which distinguishes (in
a simplified manner)
–
–
–
–
a « Dutch » school of accounting
A « Swiss » school of accounting
An « American » school of accounting
A « statistical » (not strictly an accounting?) approach
22
1 The Dutch school
• Hueting ‘s proposal (national accounts)
• BSO’s proposal (business accounts)
• These proposal are
– Inside-out oriented
– Defending a strong approach of conservation
of natural capital (with some question about
BSO)
– Calculating a global monetary result
– On the basis of restoration costs
23
Hueting’s proposal
•
•
•
•
•
•
Hueting wants to correct the GDP to take account of the losses of
the natural capital (externalities)
He does not believe in the practical possibility to value the nature on
the basis of prices, even shadow prices or contingent prices
He focuses on restoration costs (see the influence of Limperg ?)
He proposes to establish a set of national standards to be respected
to conserve the natural capital and to calculate the restoration costs
to get these standards
These restoration costs will be passed as expenses into the national
accounts to lower the GDP
This could be interpreted as a return to a kind of historical cost
accounting which is contrary to the actual trend towards market
value accounting systems
24
Hueting’s demand curve
25
The BSO case
•
•
•
•
•
BSO was a Dutch computer software company (purchased by Atos
–Origin)
In 1990 BSO published an Environnemental report containing «
green » accounts that became very famous
The idea was to take the added value as a basis and to correct it by
deducting the externalities (« cost of residual effects »)
These costs are ,practically, obtained by « establishing the marginal
cost of environmental protection which corresponds to « optimum »
environmental health ».. « in accordance with current social
standards »; they will use reports of economic institutes
So BSO seems to be a replica of the Hueting’s proposal at the micro
level ,but there are some elements that are not so clear in
comparison with the Hueting’s model
26
Some uncertainties by BSO
•
What is the purpose of these reports (management,information,
public relations?)
• Is the sum corresponding to the externalities to be reserved (no
distribution of dividends)?
• Why deduct externalities from added value (not from profit)
• What is concretely « optimum environmentaly health »?
• They say that « the price society considers reasonable to mitigate the
ecological effects is substantially higher tha the price we are paying at
present » and that « what is considered reasonable is not enough to reduce
pollution up to the point where the planet could absorb the remainder »
• Finally they take account of the standards of the Dutch NEPP but they
double them
• So what ?Is this standard in line with the conservation of natural capital?
• With the benefit of doubt we have classified BSO as internal-external and
strong approach
27
2 The Swiss school
•
•
•
•
•
•
•
•
Muller-Wencks’ proposal
Wackernagel’s proposal
Pillet’s proposal
All these authors basically refuse the use of prices because prices
have nothing to do with the measure of the degradation of the
natural capital
NB they do not mention the Hueting’s proposal
They will use special ecological units to measure this degradation
All these proposal are inside-out (use of natural capital is taken all
but partially in consideration)
All these proposals are defending a strong view (existence of
standards related to the limit of natural capital)
28
The Müller – Wenck’s proposal
(Die ökologische Buchhaltung)
•
•
•
•
•
•
All agressions against nature ‘emissions, consumption of NRR..) are
valued on the basis of eco-points
Eco-points are measures of the degree of dangerousness (toxicity)
of pollutions and degree of rarety (NRR)
Eco-points ,as units of value,are obtained by comparing some level
of pollution (consomption of NRR) with limits of pollution (reserves
of NRR); the nearer of pollution limits the higher the value of ecopoints; when nearing the limits the value is « boosted (warning) »
global eco-points (qtxunits) are obtained for each element of
pollution (consumption) and added to get a global result;
Normally each limit is impassable
MW applies this accounting system to enterprises and associations
notably in Germany and Switzerland .
29
The Wackernagel’s conception
(ecological footprint)
•
All human material consumptions (net of exports) of a country are
expressed in global hectares of land necessary to produce them
– NB to make this calculation it is taken account of the productivity of
management in different zones and of the relative quality of soil
•
All emissions of greenhouse gases (not captured) and all production
of nuclear energy is expressed in global hectares of land covered by
forests
• These 2 consumptions of « real » global hectares are compared
with the disponible global hectares in the country
– NB disponible hectares of forest are set apart to know the forest deficit)
•
If real hectares> disponible hectares (ecological deficit) :
– Either importations of biocapacity
– Or liquidation of natural capital (overshoot)
30
The Pillet’s proposals (based on
Odum’s proposals)
• All material consumption (net of exports)
of a country is expressed in solar energy
needed for obtening it
• This quantity is compared with the
disponible solar energy disponible in the
country
• If there is a deficit:
– Imports from abroad
– No sustainability
31
3 The « American » school
(main stream)
• Like the preceeding schools this school tries to
get a global result (« true » accounting system)
• This school tries to use prices to value the
externalities and to correct the traditional
accounts on that basis (inside-out view)
• This school is not trying to relie the data with
limits (standards) expressing a sustainable use
of the natural (human) capital
• In that sense it belongs to the weak view
• Some examples: GPI,SEEA
32
The GPI (Guenuine Progress
Indicator) by Cobb,Halstead,Rowe
• Correction of the GDP
• To take account of social problems
• Cost of commutation
• Cost of lost of leisure
• Cost of crime ….
• To take account of waste of natural resources
• Then a global income is calculated (implied
emphasis on compensation due to the absence
of Environmental standards)
• Various units of valuation
-prices paid for damages
-restoration costs
33
The SEEA
(UN,Worldbank,EU,OECD)
• Correction of GDP
• Only for waste of natural capital
• Priority of valuation given to market prices
then values in use,then (at default) costs
• An exemple: NRR are valued on the basis
of the discounted economic rent
(difference between the market prices and
normal expenses)
34
4 The « statistical » trend ( cf
balance and score-cards)
•
•
•
•
Inside –out view but
No use of common units
Hence no global results
Mainly weak approach but sometimes
strong approach if use of Env limits
35
Some examples of a « statistical »
approach with a weak view
•
•
•
•
•
GRI
EMAS
Law NRE
Most carbon balances
Most LCA
36
An example of a statistical
approach with a strong view
• Lamberton case (Australian farm)
• Two sets of physical environmental
standards
• One set : internal management targets
• One other set :environmental targets
(measured by E experts)
37
Conclusion
• A high diversity of experiences of environmental
accounting for business
• A big choice of possibilities for the accounting system of
to-morrow
• Concrete experiences exist for « true »E accounts
• But these experiences are ignored
• Generally what is considered as E accounting is under
the umbrella of a statistical approach (see GRI-EMAS)
• No desire to correct the financial accounting system and
to find new figures of income ( strict separation of
financial and green accounts reduced to quantities)
• So the distribution of dividends is a blind one : risk of
distribution of fictitious dividends
38
Conclusion (end)
• What could explain the reluctance of today’s firms to
engage in a reconstruction od accounting to take
account of natural and human capital
• Clearly ,under the pressure of short sighted shareholders
and managers there is no desire to see accounts
impacted by the necessary losses and depreciations to
take account of the degradation of the human and
natural capitals (see the GPI figures)
• We need a big change of business governance to
change this situation
• Sarkozy’s three tier proposal applied to power?
39
Exit (and hope)
• The flexibility of accounting is extraordinary
• There has already been a lot of revolutions in
the field of accounting
• But the main revolution is for to morrow:
introduce the human and the natural capital on
the liabilities’side of the balance sheets
• After that the financial capital will be reduced to
a second role
40