If you are an executive at a multi-billion dollar company, zero waste and sustainability may have already found a place in the corporate conversation. You have discussed the cost of creating a sustainable business environment and have tasked your capital accounting groups to find a way to continue to maintain the necessary profits and value shareholders and stakeholders demand. You have created the mandate and perhaps even a targeted date sometime in the future in which your company will achieve sustainable goals. And no doubt you are telling the world about your efforts.
However, if you are in charge of delivering sustainable accounting results and do so in a zero waste environment and you are NOT a billion dollar company, or eligible to make lists such as the type Corporate Knights, a magazine for clean capitalism, publishes yearly, you may not know how to get to the goal.
What is Sustainable Accounting?
Capital accounting comes in many different forms. On the surface, this type of accounting reflects a tangible method of determining assets and liabilities. However, this type of methodology, while critical to a business does not capture the intellectual capital (sometimes reflected in salaries but not always in an equitable fashion), social capital (accounted for as a company’s impact on its surroundings) and/or natural capital (which accounts the surrounding ecosystem as an asset on par with location, location, location). Sustainable accounting includes all of these diverse attributes.
How Can a Company Capture Sustainable Accounting?
Full cost accounting (FCA) attempts to assign a value by including each of these components into the review process.
Intellectual Capital: Numerous companies attempt to assign a monetary value to intellectual capital and often fail in the process. This is due to some corporate structures that may have been a good idea in the past. It is also due to the simple fact that it is invisible. What your key associates know and how they interact with customers and partners cannot easily be quantified. In other words, what you may suggest publicly as a sustainable goal with a potential timeline to reach it is often thwarted by the inability of the business to understand the importance of those key contributors. In other words, you may suggest your employees ‘think outside the box’, however standing in the way of this thinking negates any intellectual capital your company may have used to reach that goal.
Natural Capital: This type of accounting in just emerging and in some ways may be the largest contributor to the process of sustainability. Calculating ecosystems is not an easy task and as of this writing, there is no clear definition of what it is or even how to achieve it. What may be easier is determining how to use those systems in a sustainable way. This means that every system your business impacts (resources, water, landfill usage) has a monetary impact on overall capital. Traditional capital accounting rules do not capture this event.
Social Capital: The type of accounting can often be considered impact measures. Your company may have instituted a variety of sustainable practices over time and some of those efforts have netted no measurable results in traditional capital accounting methodology. However, they may have achieved goals that were not clearly defined at the onset. Non-financial assets are difficult to quantify – but not impossible to do so. This may be best manifested as governmental awards and certifications for sustainable practices.
How to do a Full Cost Accounting?
FCA is not a new concept. It is however, a difficult concept to communicate to 1) stakeholders who control the financial aspects of the company and 2) the employees tasked with the sustainable and sometimes arbitrary goals set forth by senior leadership. At Zero Waste Consultants, we create a digestible report outlining how to bring all of your company’s sustainable goals into an achievable format.
Are you prepared to begin the conversation that will give you a clear idea of where your business is now, where it it is headed and where it could be in ten years? We can help your company to turn the headwinds of sustainability into tailwinds of sustainable success.