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Accouting for sustainability: The C.A.R.E. project

I. Introduction

The Comprehensive Accounting in Respect of Ecology (C.A.R.E.) project aims at bringing sustainability at the heart of corporate information systems. The project is based on a broader socio-economic theory, advocating for the integration, at the corporate level, of human and ecological concerns on top of the traditional financial considerations.

The wider objectives of C.A.R.E. are to allow for the proper accounting of "all things that matter" at the corporate level. Where standard accounting addresses only the financial dimension of an enterprise's operations, CARE is a tool that brings at the same level:

  • the traditional concerns related to the preservation of the enterprise's financial capital already addressed by standard accounting procedures.
  • And new concerns regarding the enterprise's sustainability, through the understanding and measurement of its impact on humans and the environment: in a way somewhat similar to that of financial capital, human and natural entities impacted by the enterprise's operations are regarded in this model as entities toward which the enterprise owes a debt, with the associated obligation to compensate or reimburse it.

Levels of understanding.

The overall C.A.R.E. project refers to three levels of understanding:

  • The C.A.R.E. project supports a socio-economic and organisational theory that highlights the necessity to preserve our human and natural environments as a way to ensure the long-term resilience of human societies and their well-being.
  • With this objective in mind, C.A.R.E. proposes to report on the environmental and human impacts of corporations by bringing non-financial entities into the traditional double-entry accounting model for enterprises.
  • CA.R.E. also encompasses a methodology that describes the step-by-step implementation of this accounting model, allowing for the integration of human and environmental concerns into an organisation's accounting plan, income statements, balance sheets, and management dashboards.

History

The ‘Triple Bottom Line’ (TBL) is a major and increasingly used socio-environmental accounting framework. However, critical academic examinations of this model have remained scarce, and most importantly, no real alternatives have been developed.

Lineage

The ‘Triple Bottom Line’ (TBL) is a major and increasingly used socio-environmental accounting framework. However, critical academic examinations of this model have remained scarce, and most importantly, no real alternatives have been developed.

Influences

The ‘Triple Bottom Line’ (TBL) is a major and increasingly used socio-environmental accounting framework. However, critical academic examinations of this model have remained scarce, and most importantly, no real alternatives have been developed.

II. Theory

Sustainability, as a subject of interest (and concern) in politics.

When did sustainability become a subject of interest in politics?

III. Accounting model

Where does accounting come from, and what is it made for?

For the vast majority of people, accounting is nothing but a calculative management technique focused on the financials of an organisation. However, for historians and anthropologists, "accounting records are abstract physical representations of past exchange and cooperative endeavour, and they act as backup and/or primary memory for economic agents engaged in large-scale complex exchange. By expanding memory capacity far beyond the biological constraints of the human brain, accounting records vastly increased the scale and scope of human cooperation. Combined with language, law, and other coordination-supporting institutions, hard transactional records helped human civilisations to emerge"[1].

Indeed, historical studies show a much more generic and wider use of accounting. Following the adoption of agriculture by settled humans, record-keeping techniques flourished with the development of large-scale human organisations and the corresponding necessity to track resources and their trades. The earliest known accounting records are clay tokens, dating back to around 7500 BCE in Mesopotamia[2], thus preceding abstract numbers and the use of money. Some anthropologists do even consider that the first writing techniques derive from such archaic counting devices[3].

In the most generic way, accounting systems can be described by the functions they fulfil[4], namely:

  • Taking into account: the primary function of accounting is not to count but to take into account: "Accounting is largely a method of classifying entries into proper pigeonholes, which are called accounts."[5].
  • Being accountable (for one's actions): accounting systems then arrange the regimes of responsibilities and accountabilities of organisations, that is, who is responsible, to whom, and why. In this regard, account is traditionally strongly connected to laws and regulations.
  • Counting: Accounting systems also provide specific metrics, quantitative and qualitative, monetary or not, capable of making certain pieces of information considered important commensurable.
  • Reporting: Accounting finally organises the communication and discussion around this information, based on the actors identified as the primary recipients of it. In this sense, accounting is central to the governance of organisations.

Redefined through this much broader understanding, accounting can be seen as what it is effectively: by deciding what to count, how to count for it, and who is responsible for that accounting, accounting is deeply influenced by the surrounding social and political norms and theories. In this sense, much more than a neutral technique, accounting is indeed a political tool[6].

Based on the traditional cost accounting approach

That can be integrated in existing accounting systems

IV. Methodology

Core principles

The C.A.R.E. methodology is built on a few overarching principles

  • C.A.R.E. is built on a multi-capital approach:

Multi-capital approaches to accounting expand beyond traditional financial capital to recognise and measure multiple forms of capital that contribute to an organisation's value creation. C.A.R.E. addresses three categories of capital: financial, environmental, and human. This approach acknowledges that businesses rely on various forms of capital in their operations and on the necessity to measure and report on the organisation's impact on these capitals.

  • C.A.R.E. relies on double materiality:

Double materiality is a concept that considers both how sustainability issues affect a company's financial value (financial materiality) and how the company's activities impact the environment and society (impact materiality). This dual perspective requires organisations to assess and report not only on environmental, social, and governance (ESG) factors that could affect their business performance but also on how their operations affect their natural and socio-economic environments, making it a comprehensive framework for sustainability reporting.

  • C.A.R.E. is aligned with the principles of strong sustainability:

Strong sustainability holds that the different capitals (financial, environmental, and human) cannot be substituted with each other, and each one of them has to be considered independently when it comes to their sustainability. This perspective argues that there are absolute ecological limits that must be respected and that economic activity must operate within these planetary boundaries, rejecting the idea that technological innovation or human-made capital can fully compensate for environmental degradation.

  • For each capital, impacts are measured and benchmarked versus an ideal good state.

In this context, a sustainable organisation will be defined as one that has the capacity to maintain in a good state (or bring to a good state) all capitals affected by its activities. Both the state of the capital and the impact of the organisation on this capital can be defined scientifically through quantitative metrics, grounding the concept of sustainability into scientific evidence.

Phase 1: identification of capitals

The objectives of this phase are to identify the environmental and human capital entities impacted by the functioning of the organisation under study, on top of the traditional financial capital. In the context of C.A.R.E., a capital will be defined as:

A material or immaterial entity that is,

  1. utilised and consumed by the organisation within its operational framework
  2. existing independently of the company's activities
  3. and acknowledged as requiring preservation.

With the exception of financial capital, used by all organisations, other capital entities will be specific to the organisation. Only capitals impacted by the organisation will be retained. The materiality of such an impact will be assessed accordingly.

Examples

Financial capital
  • Financial resource: financial resource is a capital common to all organisations, needed for every company's operations (procurement, wages, taxes, etc.), and whose preservation is needed to ensure the long-term survival of the company.
Environmental capitals
  • Soil: for a farm, soil needs to be kept in a state that allows for the production of crops and the feeding of the watertable through the filtration of rainwater.
  • Water: for an industry, water pumped clean from the river, used in an industrial process, and ultimately flushed back to the river with added chemical components, particles, etc.
Human capitals
  • Physical health: for a physically demanding activity, work can result in musculoskeletal disorders among staff. Such issues should be addressed through proper training, appropriate equipment, ect.
  • Knowledge: for intellectually engaging activities, knowledge needs to be maintained and updated in order to cope with the latest technologies and updates in the corresponding domains.
What is not a capital?
  • Entities that are not utilised and consumed by the organisation

During this identification phase, the first step will be, in all cases, to assess the materiality of the organisation's impact on the potential capitals. If there is no impact, or if the impact is minimal (non-materiality), the entity will not be considered as a capital. A river that borders a commercial or industrial zone will or will not be considered as a capital depending on the activities happening in the commercial zone. If there is no pumping of water from the river, no discharge of liquids or solids into the river, no chemical contamination from leakages, etc., the river need not be regarded as a capital.

  • Entities that do not exist independently of the activities of the company.

An artificial forest, specifically planted for the production of wood (thus not existing independently of the company's activities), will not be considered a capital entity. Nevertheless, the soil on which this artificial forest is grown does exist independently of the company's activities and is indeed utilised and consumed by the organisation to grow the trees; it acts as a physical support for the trees and as a source of fertility. It needs to be preserved once trees are cut, either to allow for a new plantation or to return to a natural state.

  • Entities that are not acknowledged as requiring preservation.

Extracted ores or mineral oils do not require preservation (otherwise they would not be mined), thus cannot be considered as capitals. However, the mined zone and its ecosystem do qualify as a capital, as they are impacted by the mining activities and need to be preserved on environmental and human grounds: biodiversity, carbon capture, filtration of rainwater, food and economic activities for local populations, etc.

Phase 2: Insertion of capitals in the business model

The entities identified as capitals are brought into the business model of the organisation. This phase allows for the proper understanding and measurement of:

  • The way capitals are mobilised and impacted by the different activities of the organisation. The use of the capital and its potential degradation (capitals can sometimes be used without degradation) is expressed through a quantified measure of its degradation. The accounting of this degradation is expressed in a unit of account that is specific to the capital.
  • and which corresponding value is then created for the organisation: The value created will appear either as a cost or as an asset, either current or fixed.

Examples

Financial capital
  • Financial resources: the organisation mobilises its financial resources to buy equipment. Through this process, its financial capital is degraded, and the value of its fixed assets increases accordingly. A similar reasoning can be applied to the purchase of products and services or any other activity mobilising the finances of the company. In line with the principles of historical cost accounting, the degradation of the financial capital is measured in monetary units (i.e., the cost) and is equal to the value created through the process.
Environmental capitals
  • Water: a factory uses fresh water pumped from a lake to further use in its production process, and flushes the dirtied water back in the lake. The degradation level of the water can be expressed in cubic metesr of dirty wate, or in volumes/masses of chemicals and/or physical particles contained in the flushed water. The value created is that of the products that are now clean from chemical substances and dust.
  • Climate: a transport company uses the atmosphere for the storage of gases emitted by its vehicles. These gases participate to global warming, thus negatively impacting the climate. The corresponding degradation of the atmosphere linked to the use of these vehicles can be expressed in tonnes of CO2 equivalent generated by the burning of fuel. The value created is that of products made available at their destinations.
  • Soil: a crop field is negatively impacted by the frequent movements of heavy equipment for the ploughing, seeding and other cultural practices required for the cultivation of the crop. The negative impact can be measured through the number of rotations on the field, the compaction level or the water holding capacity of the soil. The value created is that of a crop correctly managed.

Human capitals

  • Physical health: a farmer spends time carrying bags of fertilizer on his back from the truck to the storage room. This task impacts negatively his health and can lead to musculoskeletal disorders. The impact of this activity on his health (the degradation) can be expressed in hours of work, or in tons of fertilizers brought to the storage room. The value created is that of fertilizers stored and protected from bad weather and theft.

Phase 3: Identification of sustainability actions

Phase 4: Taking into account the value chain and investments

Phase 5: organizing sustainability expenses

Phase 6: incorporation of sustainability accounts in the general ledger

Phase 7: accounting statements

Phase 8: integrated financial and sustainability analysis

V. Actors

VI. Connections with other accounting models

Ecosystem-centered accounting

National accounting

EU Taxonomy, CSRD, and SFDR

[[Catégorie:Socioeconomics]]




References

  1. ^ Basu, Sudipta; Waymire, Gregory B. (2005). "Recordkeeping and Human Evolution". SSRN Electronic Journal. doi:10.2139/ssrn.762004. ISSN 1556-5068. SSRN 762004.
  2. ^ The Origins of writing. University of Nebraska Press. 1991. ISBN 978-0-8032-4202-9. {{cite book}}: Unknown parameter |isbn2= ignored (help)
  3. ^ Schmandt-Besserat, Denise (2006). How writing came about. Univ. of Texas Pr. ISBN 978-0-292-77704-0.
  4. ^ "Qu'est-ce que la comptabilité?". CERCES (in French). Retrieved 2025-01-30.
  5. ^ de Roover, Raymond (1938). "Characteristics of Bookkeeping before Paciolo". The Accounting Review. 13 (2): 144–149. ISSN 0001-4826. JSTOR 238652.
  6. ^ "La comptabilité, c'est politique !". Alternatives Economiques (in French). 2018-06-26. Retrieved 2025-01-30.
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