multi-capital accounting case study a care-based …

MULTI-CAPITAL ACCOUNTING CASE STUDYA CARE-BASED MODEL / EXAMPLE WITH A FARMD.GIBASSIER, J.BEBBINGTON, C.EZVAN AND O.PAPIN, JUNE 2019, REPORTING 3.0 CONFERENCE

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ACCOUNTING NEEDS TO CHANGE

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PRESENTATION OF THE FARM MULTI CAPITAL ACCOUNTINGPROJECT¡ « CARE » model – changing financial accounting to include « multi-capitals », with the « maintenance » principle:

¡ Taking into account capital to maintain (example: a company has an environmental "debt" during its operation)

¡ Depending on the type and level of maintenance, we reduce its impact, see we are sustainable in the planetary limits

¡ Strong sustainability:

¡ Planetary boundaries, recognition of the systemic nature of capital, non-capital substitution, the result can not be reduced 1 / to a single value 2 / to a single monetary value

¡ Complete a monetary accounting by a physical accounting that allows to take into account a more global intangible reality (Showing results in different ways for stakeholders)


PRESENTATION OF THE CARE METHODOLOGYPRINCIPLES

NATURAL AND SOCIAL CAPITAL AS A LIABILITY

¡ "Firm’s use of human and natural capital implies an obligation for this one [the firm] to maintain them" (Richard et Rambaud, 2015)

¡ "Treat accounting human beings and environmental entities not as as an expense (as is the case now), but as a liability, to fit the concept of the existence of a "social and ecological debt". It is also possible, conversely, to consider these elements as a heritage to preserve, and therefore to include them in the assets of the company. » (Sénad and Notat Report 2018)

MAINTENANCE PRINCIPLE

¡ “Moving to a logic of liability, allows to conceive the “use” made of human beings and environmental entities as a "loan", a kind of "social and ecological debt” à therefore it is necessary to be able to "repay": the maintenance of human beings (employees) and environmental entities used becomes a basis for the company's activity” (Rambaud and Richard)

PRESENTATION OF PRINCIPLES OF OUR METHOD

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ENHANCEMENT PRINCIPLE: PLANET BOUNDARIES

¡ To determine the level of improvement of the capitals necessary, you need to take into account: :¡ “Boundaries”/ “limits”

¡ Allocation principles

¡ Most well known initiative to date « Science Based Targets initiative’s (SBTi) »

¡ Today, only 31 companies apply the principle of context+allocation+limits(Bjorn et al. 2017)

Source: Reporting 3.0

HOW DOES IT COMPARE TO OTHER EXISTINGMODELS?

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Visual copyright D.GIBASSIER 2019

THE PROPOSED MODEL IN COMPARISON WITH EXISTING MODELS

Strong Sustainability Multi-Capital Accountings

Risk-based approachesNet profit on economic, social and environmental values

Light Green Sustainability Multi-Capital Accounting

(True Value, Crown Estate)

CARE Accounting Model

Strong SustainabilityContext basedPlanetary BoundariesSystemic value

CARE BASED MULTI-CAPITAL ACCOUNTINGStrong sustainability, context based, accessible to all stakeholders (including farmers for ex), multiple profit (no netting)

Is trying to change financial accounting at its coreMulti-capitalUse maintenance principalGlobalises profit on the 3 capitals (not a strong sustainability concept)

THE FARM EXAMPLE

ETAPE 1: CHOISIR LES CAPITAUX ET INDICATEURS


IMPACTS OF AGRICULTURE (ENVIRONMENTAL / SOCIAL)

¡ More than two-thirds of human water consumption goes to agriculture

¡ Agriculture is the cause of 80% of global deforestation

¡ Cultivation and farming have a profound effect on water pollution: they are the main causes of water pollution by nitrates, phosphates and pesticides.

¡ Crop and livestock are also the main anthropogenic sources of greenhouse gases - methane and nitrous oxide. In France, agriculture is the sector that contributes the most to climate change (24% of emissions)

Source: FAO, WWF

¡ In the world:

¡ Health costs: Every year, 355,000 people die from pesticide poisoning

¡ Modern slavery of children in agriculture

¡ Land grabing

¡ In France:

¡ Low wages

¡ High suicide rate

¡ Non-renewal of the profession

MAINTENANCE ACTIVITIES (AGROECOLOGY / ECOLOGICALTRANSITION)

¡ Organize the farm into “zones”

¡ Reuse the activity of nature to form a sustainable ecosystem (mushrooms, microbial flora)

¡ Feed the soil to preserve soil life

¡ Save water (understand how to manage water supplies without depleting resources and when / where to use available water)

¡ Eliminate, reduce waste and recycle (circular economy)

¡ Think about the natural structure of space (hedges, trees) to create a diverse space that will host biodiversity

¡ Create shelter for biodiversity

Source: le guide Marabout de la Permaculture

¡ Group activities

¡ Holistic view

¡ Tools: public participation, creative education

¡ Resilience and relocation

¡ Proactivity

¡ Anyone can be an actor of change

¡ Targeted interventions

¡ Engagement at different levels

¡ To be a catalyst

¡ Calculate your carbon footprint and have resilience indicators

¡ Building a resilient local economy

Source: The Transition Handbook

THE FARM RESULTS

MULTICAPITAL ACCOUNTING (THEORETICAL DATA)

State A Destruction (of natural capital)

Maintenance State B

-2150 tCO2e+2 400 tCO2e (avoided)+750 tCO2e

Ideal state: 0 emissions

640 tCO2e avoided above the emissions emitted by the farm

The CARE model would only show this

is monetary term (7787,40 Euros)

State C

Next is to link the accounting with planetary

boundaries

This “ideal state” is still to be defined (such as in offsetting or “avoided” emissions calculations

Calculating (negative) impact

is known

SCORECARD OF MAINTENANCE ACTIVITIES(THEORETICAL DATA)

Maintenance activities Physical data Monetary data

The agroforestry project will lead to the planting of 800 trees.

-2 400 tCO2e (carbon offset) 7787,40 Euros (2021, data from Compta Durable)

Solar panels installation (production about 22 GWh)

750 tCO2e, with the emissions of the making of the solar panels deducted

No cost obtained

Water basin and rain water recovery system

Water consumption from the farm are estimated to be 53 000 m3. yearlyRain water recovery and collection through the basin are estimated to be at 185 000m3 maximum.

70 000 Euros (depreciation on 10 years, data from Compta Durable)

Training 20 days per year for 8 people 38400 Euros

Territorial anchorage 48 days per year 11529 Euros

Food quality work 24 days per year 5760 Euros

In accounting 11 lines are necessary to obtain this amount

MULTIPLE QUESTIONS TO RESOLVE

MAINTENANCE & ENHANCEMENT PRINCIPLES

¡ It must be clearly defined what is a maintenance activity. Today, a carbon offset type activity can be described as “maintenance” in the same way as others (reduction of emissions). There is a need for a coherent definition of “maintenance”

¡ We also need to think of how to account for maintenance activities that are:

¡ Yearly “costs” (mulching)

¡ Investments (solar panels)

¡ Renewed investments (tree planting)

¡ The ideal state “A” that is needed to know how much maintenance (and what type) is required, needs to be defined to avoid “greenwashing”

¡ Enhancement calculations will only be possible in regards to planetary boundaries

SYSTEMIC CONTEXT OF SUSTAINABLE DEVELOPMENT

¡ How to "allocate" a maintenance action (example: agroforestry allows the maintenance of biodiversity and climate change)

¡ How to take into account the systemic nature of the models proposed (the impact of the economic on the social, then on the environmental)

Source: TEEB FOR AGRICULTURE & FOOD SCIENTIFIC AND ECONOMIC FOUNDATIONS REPORT (2018)

DIFFICULTY IN REPRESENTING THE CAPITALS

¡ Economic capital the representation of indicators such as diversity of economic sources and sensitivity to aides are difficult to represent in the CARE model

¡ What about governance principles?

¡ However they were crucial in the farm business models

• Social capital cannot always be monetarized or is not always present in financial accounting (leading to discrepancies between CARE and the physical accounts)

• Natural capital requires physical measurements that are not always easy to obtain (water/soil)

Boundaries of financial accounting (in the CARE model): a lot of maintenance activities happen (and destruction) happen in the supply chain or in the life cycle of products How to best connect the financial accounting model to a physical one?

multi-capital accounting case study a care-based …

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