The real war? Natural capital, ecosystem services and integrated reporting V nature (and George Monbiot, Molly Scott Cato, Evo Morales, et al)

Right now changes are afoot in our accounting systems which will affect the future of life on earth. Guardian journalist and activist George Monbiot wrote about them recently. And environmental campaigner Tony Juniper replied to him. And I’ve been talking about them with insiders – accountants and others – over the past few months.

These changes are mostly about the way we value and account for nature – or don’t, YET. In the new accounting paradigm, which attempts to account for nature, nature is called ‘natural capital‘ and its work is called ‘ecosystem services‘. At the corporate level the new approach is called ‘integrated reporting‘.

So what is happening? And what does it all mean?

The move to integrated reporting is about that key 21st century catch all: ‘sustainability’. That is, the attempt to pursue both profits and economic growth with minimum impact on the environment and the earth’s resources. Which is, I suspect, a fundamentally oxymoronic proposition (endless growth v a finite planet). But it is something we must consider for as long as we live with an economic system which privileges profit-pursuing corporations, as we’ve done increasingly since the 19th century and especially since 1886, when corporations first acquired the legal status of people.

The challenge now is for accountants to find ways of measuring the environmental costs of business and incorporating them into management systems. Several bodies have been instrumental in this drive to integrated reporting. The Global Reporting Initiative (GRI) developed the world’s first environmental reporting framework, which was published in 2000 and most recently updated in 2011.

The International Integrated Reporting Committee (IIRC) – an initiative of the GRI and the Prince of Wales’ Accounting for Sustainability Project – was launched in August 2010 to create ‘a globally accepted framework for accounting for sustainability that brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format’.

Michael Izza, the Chief Executive of UK accounting body ICAEW and a member of the IIRC, says of the integrated reporting initiative: ‘Now appears to be a time for change, as the regulatory system is reformed and the future challenges of climate change, population growth and resource usage are better understood.’

Jeremy Osborn

One company actually putting some of this rhetoric into practice through integrated reporting is Impahla Clothing in Cape Town, South Africa, which supplies sports and lifestyle company Puma. According to leading UK expert on integrated reporting Dr Jeremy Osborn, Puma is at the cutting edge of integrated reporting and will be the first company to account for non-financial value quantitatively – as numbers rather than as verbal reports – integrated into its annual financial report. Puma has issued the first ever Environmental Profit and Loss Account, which puts a monetary value on the environmental impacts of sourcing, producing, marketing and distributing Puma products. Puma – and GTZ (a German organisation that promotes sustainable development) – was responsible for helping Impahla to establish its sustainability reports. Impahla’s managing director William Hughes says: ‘We are now carbon neutral and have taken out our debt to the environment.’

One Report: Integrated reporting for a sustainable strategy, by Professor Robert G. Eccles of Harvard Business School and Michael P. Krzus of Grant Thornton LLP, is a recent and comprehensive book on this new accounting paradigm. It explains why integrated reporting is necessary for ‘sustainable company strategies and a sustainable society, provides insights on how it can be done, and makes the case for it being adopted in every country in the world’.

In What’s the Economy For, Anyway? Why it’s time to stop chasing growth and start pursuing happiness John de Graaf and David K Batker question, among other things, the way we account for wealth at a national level with narrow monetary measures such as the GDP – and address the need to include natural capital in our national accounts. I met de Graaf at the 2012 Melbourne Writers’ Festival in September and discovered that moves to rethink GDP accounting – especially to account for natural capital and ecosystem services – are advancing at speed at the UN, in Europe and in Washington. I wrote about this for the Guardian this week.

These mooted – and by the look of it inevitable – changes to our accounting systems to include nature (which means calculating its monetary value in terms of natural capital and ecosystem services) are controversial. They are vehemently opposed by many, including George Monbiot and green economists such as Molly Scott Cato. As Monbiot sees it, ‘nature is being valued and commodified so that it can be exchanged for cash’. He goes on to say:

‘Commodification, economic growth, financial abstractions, corporate power: aren’t these the processes driving the world’s environmental crisis? Now we are told that to save the biosphere we need more of them.’

Tony Juniper

Tony Juniper responded to Monbiot’s opposition with the frustration of one who’s endured years of relatively fruitless campaigning for the environment and sees these moves to account for nature as having the power to make real change. He said:

‘… it seems to me there is not a choice here. I have spent the past 25 years campaigning for nature for its own sake, because it is beautiful, because it should exist for its own reasons and because we have no right to destroy it … We could carry on like this, with ideological purity preserved (on all sides), or we could open a new discourse, one that requires skeptics to meaningfully engage, and on the field where future environmental battles will be won and lost – the field of economics. After all, it is not most environmentalists who have misunderstood the realities that come with ‘growth’ on a finite Earth, but most economists.’

YES. It is (most) economists who have misunderstood the realities that come with growth on a finite Earth. Mostly by conceiving of the environment as something external to the economy, rather than understanding that the economy is embedded within the environment, as it so plainly is.

I can understand Juniper’s frustration. Especially as Monbiot can offer no alternative except more of the same, with democratic governments intervening as required – in our dreams – to curb the pursuit of profit and economic growth at the expense of the environment. (Monbiot defends his failure to offer an alternative by arguing, rightly, that he is simply a commentator). And nor can Scott Cato offer an alternative, beyond her visions for a post-capitalist – or possibly pre-capitalist medieval – economy.

But for the moment, until these post-capitalist days arrive, what forces can we invoke to stand against the encroachment of corporate capital – and its drive to commodification – into every sphere of life, including nature?

Evo Morales

I can think of only one: the initiatives in Central America to enshrine the rights of nature in law, to give nature the legal power to contest the power of corporations. For the last 200 years, corporations – entities motivated by profit maximisation alone – have increasingly ruled the world. Corporations are now the most powerful institutions on earth. But perhaps actions such as Evo Morales’ Bolivian government’s legislation passed in January 2011 to give legal rights to ‘Mother Earth’ are the beginning of some sort of real contest between the natural world and corporations, between the Earth and the endless accumulation of capital.

Speaking in New York on 20 April 2011 at a UN General Assembly, Bolivia’s UN Ambassador Pablo Solón said: ‘Humanity finds itself at a crossroads: we can commercialise nature through the green economy or recognize the rights of nature.’ Bolivia has chosen the latter path. Solón rejects green economics because it attempts to bring the laws of capitalism to bear on nature. He also rejects technological solutions, arguing that: ‘The answer for the future lies not in scientific inventions but in our capacity to listen to nature.’

We are indeed at a crossroad. And perhaps it is time to listen to nature.

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14 Responses to The real war? Natural capital, ecosystem services and integrated reporting V nature (and George Monbiot, Molly Scott Cato, Evo Morales, et al)

  1. Angela (Ms LiteraryMinded) says:

    Fascinating, Jane. I think I agree with using the language/systems of economics (though it may seem cynical to the ‘purists’) as it has to make sense in terms of a crossover/integration. Thanks for keeping us informed!

    • Thanks Ange. Yes, I think I agree with the idea of incorporating nature into our accounts too. Although I’m torn. And do wonder if this approach is in fact a failure of our collective imagination and the loss of an opportunity to make more fundamental changes to the way we live on this planet. Can accounting really be the only way to compel ourselves to stop destroying the earth beneath our feet? We are crazy.

      • Angela (Ms LiteraryMinded) says:

        It is depressing. I guess I’m only leaning that way because I am pessimistic about people (& society’s systems) being capable of a radical overhaul/radical change. You’d think combined financial chaos & environmental degradation would be impetus enough, wouldn’t you? To move that way, I mean. But it doesn’t seem to be.

  2. Yes, my thoughts exactly – ‘You’d think combined financial chaos and environmental degradation would be impetus enough’. Sigh.

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  4. Richard Mount says:

    Hi Jane, thanks for your great work in articulating the history of accounting in Double Entry. I am working on developing one of the ‘new’ ecosystem accounting systems and I think there are real openings that are emerging – for example, it is entirely possible to put non-monetary data into an accounting format and use the system to report on the state of the environment and living systems. This has the potential to generate repeated ‘counts’ of ecosystem measures such as resilience – something that has proven virtually impossible to do to date (i.e. we have VERY poor environmental monitoring systems – see every State of the Environment report to date). So far we really struggled to map the extent of our ecosystems even once let alone through time or their quality. We are developing a conceptual model called the Joint Perspectives Model that we think will help to put the economic perspective in its place and make clear that measures based on economic theory (monetary exchange value in markets) will have limited value for measuring the living world and indeed are readily encompassed by measures based on ecological theory and knowledge. Again, thanks for your superbly accessible writing, a joy to read, Richard

    • Great to hear from you, Richard – especially to hear you’re working on developing one of the ‘new’ ecosystem accounting systems! Why the quote marks around new? Are they not in fact new? Very exciting to hear there are real openings emerging here. I wonder where you are, what country?

      What you describe sounds closest to systems in practice in Europe, run by EU? Or not, perhaps?

      I’m EXTREMELY interested in what you say about the conceptual model you call the Joint Perspectives Model, especially that you think it will ‘help to put the economic perspective in its place and make clear that measures based on economic theory (monetary exchange value in markets) will have limited value for measuring the living world and indeed are readily encompassed by measures based on ecological theory and knowledge’ – music to my ears! Would love to hear more.

      Thanks again so much for your comment and your thoughts. best wishes, Jane

  5. Jean, Kitchener, Ontario says:

    Hi Jane,
    I read with fascination your book “Double Entry”. As an accountant who has been despairing about climate change for several years I am overjoyed to see that accountants may be able to play a role in solving the problem. I wonder whether by now there are already some frameworks for valuing nature’s services and the task now is to lobby governments to make following these frameworks into law? I am going to investigate and perhaps the first step would be to educate accountants and accounting students through seminars or courses about these frameworks and why we need them, and in doing so work to build a base of accountants who will lobby for this.

    The association I am a member of, CGA Ontario (Canada), requires mandatory professional development so by offering such as course at a good rate I may be able to reach a significant number of accountants who are looking to fill their PD requirements.

    If you know of any frameworks that you believe to satisfactorily address the problem, please let me know. Thank you.

    • Hi Jean – Thank you for your lovely comment. I’m so happy to hear of your interest in the possible role accountants might play in environmental questions and climate change. I am currently investigating this very thing and plan to write more about it here in the next few weeks, but for the moment, the IIRC is one of the main drivers of this change, with their new accounting framework being published in December. As it’s still early days, I suspect any new framework will be relatively crude, to be refined over time as it’s put into practice. But to hear at this early stage that you, a practising accountant, are interested in alternate frameworks, is wonderful! all best wishes, Jane

      • Jean, Kitchener, Ontario says:

        Jane, Thank you for taking the time to respond – I am honoured. I expect many other practicing CGAs here in Ontario will be inspired by your book, which was reviewed in our monthly magazine. Thank you also for the information. I will check back regularly to see what other wisdom you share on this topic.

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