Published on 25 March 2019


The future of corporate accounting could include ecological debt

In the future, business accounting will have to integrate the degradation of human and natural capital caused by company activities. In any case, this is what many experts are trying to push with a new method of accounting soon to be tested in France.

A new model of corporate accounting is testing in France. It is intended to "restore the balance between economic, social and human capital"

While company extra-financial analysis has become standard, it remains difficult or impossible to assess sustainable financial practices within companies. This is a heresy according to Hervé Gbego, vice-president of the Order of Accountants in Paris and founder of Compta Durable.

For several years, the French cabinet has developed a new model called CARE, in conjunction with Jacques Richard, member of the College of the Accounting Standards Authority, and the Institute of Circular Economy.  This new model is intended to "restore the balance between economic, social and human capital". Currently, a company accounting department only takes into account economic capital, "which is immoral, unfair and uneconomic because any economist knows that it takes at all three to establish a company," said Richard during a symposium on accounting for the environmental and social transition on 7 February.

Reintegrating a company's ecological debt

The CARE model will now be tested by ten companies, both large and small, in the south of France. The goal is to be able to judge the sustainability of the company through accounting. How? "In the same way that we list liabilities on a balance sheet  to the amount corresponding with the maintenance of financial capital, we also record a budget corresponding to maintaining natural and human capital," said Richard. It is therefore a question of adapting traditional accounting standards by integrating the environmental and social challenges (loss of biodiversity, various types of pollution, accidents at work, etc.) that a company faces, and above all, the actions that it must put in place to respond to them. Ultimately, the goal is to include this information as part of the overall performance of the company.

"It is basically a method of identifying ecological debt - human and natural - by integrating it as liabilities to company accounts, and to make it visible and redirect the economic model if necessary," said Hervé Gbego . This is not easily done, admits the accountant, who readily emphasizes the importance of lifting psychological barriers within companies.

A much-needed challenge to transform the business

"In the long term, companies will have to integrate this cost and the requested measures will be radical. This type of accounting acts as a stress test to see if companies will be resilient," predicts Gbego.

This new concept of cost, price and profit, which can lead to a parallel system of accounting to that of the IFRS (International Financial Reporting Standards), is a major challenge but necessary according to its proponents. And they find this echoed more and more in the political sphere. "We must give social and environmental issues their rightful place in the calculation of the overall company performance, and this will necessarily pass through the evolution of accounting standards," said Christophe Itier of the European Economic and Social Committee, during the launch of the experiment on 1 March.

Two French MPs have announced their work on a bill between now and summer. For Gbego, however, the bill must serve as an incentive and not a punitive measure, via a tax incentive that can be modelled off the one aimed at emphasizing the digital debt of companies.

Béatrice Héraud, @beatriceheraud

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