You may never have thought about the origins of accounting, but it is worth knowing. Today, accounting is used for two purposes: for organizations to monitor and analyze the movement of their finances, and for regulators to ensure all of this activity is legal.
We have evidence of double-entry accounting (the format most commonly used today) as far back as the 13th century in Florence, Italy. There were no government requirements or regulations – it was just good sense to keep track of financial inflows and outflows as more complex transactions, credit, investments, and risk began to play a more prominent role in trade. Financial accounting at first developed as a way of responsibly managing a business – creating a competitive advantage for those who adopted it early – and only much later was regulated for a different reason.
Today, we face a similar circumstance in the environmental sphere. The ‘transactions’ – resource extraction, energy & fossil fuel use, and disposal of waste – are complex, frequent, and affect nearly every business in operation. Those companies who are taking proactive steps to account for and manage their environmental impacts are discovering competitive advantages in the form of reduced operating costs, access to new consumer markets, increased recruitment and retention success, and more.
It is nearly undoubtable that the future will bring mandatory environmental reporting for businesses above a certain threshold of employees or revenue. France has already adopted a requirement for companies over 500 employees to publish information on their environmental and social performance and has had measurable success in reducing the negative impacts as a result. As tends to happen with policies like this, other countries (like Canada) will see France’s success and emulate it.
But why does it work? There are many reasons, and I will only lay out a few key ones here. First, and most importantly, you can’t manage what you don’t measure. By creating a framework with which to collect and analyze data, companies can discover inefficiencies, risks, and opportunities that were invisible before. Second, by using a standard communication platform – the corporate social responsibility, or sustainability, report – companies can have complete control over how their environmental and social story is told, leaving little room for speculation. Finally, it gives the business leaders and employees goalposts. Environmental impact and performance are difficult concepts to understand at the operational level, let alone implement strategies to address. By clarifying the current picture, setting organizational objectives, and setting deadlines, leaders within your organization are given a structure within which to operate and thrive.
So will environmental accounting be as important and commonplace in the future as financial accounting is now? I believe so. By ignoring their interactions with the natural world, companies are exposing themselves to massive risks, and likely missing significant opportunities. There has never been a better time to begin environmental reporting than right now. If you wait until it is required, you will have missed out on the gold rush.