Sustainability to change ways of accounting

By Peter Willis

Sustainability, inarguably one of our generation’s most important ideas, urgently needs to be understood and acted upon, since it is dramatically changing the fundamentals of accounting and business.

The word “sustainability” only entered the language once we started realising that we might not be able to sustain our current path of consumption-driven economic growth with its accompanying destruction of ecological and social fabric.

Dating from around the 1960s a swelling tide of social and life scientists has been pointing to the high costs (often hidden from public view) associated with our preferred lifestyles.

In the main our responses have been to look for ways to “green” our lifestyles, when in reality the eventual cost of our lifestyles may be our civilization and its ability to provide those lifestyles at all.

Instructively, all civilizations before our own have crumbled and dissolved and all of them fell from a high point where they regarded themselves as the last word in sophistication and assumed they would go on forever.

We live within the first ever global civilisation, joined together by our ability to travel and communicate over the earth’s great distances and by global trade. Our interdependency is both our great defining strength and our great vulnerability, as the recent financial crash showed.

Add to our interdependency our relentless consumption of finite resources and pollution of our life-supporting eco-systems, and there is much data to support the view that we could right now be living through the peak of our civilisational cycle.

One of our more endearing traits as a species is our belief in our own rationality. “Surely we wouldn’t be so short-sighted or irrational as to let the whole human civilisational project unravel? We’re far too smart to let that happen…aren’t we?”

Yet look at the history of previous civilisations – whether Egyptian, Roman, Aztec or Easter Island. Invariably a lengthy period of breathtaking ingenuity, will and cultural self-aggrandisement (“we are the best”) ends in a time of reckoning, usually underpinned by a depleted resource base and manifesting in leadership’s failure to grasp the significance of changes taking place in the surrounding world and so responding too late.

Our age is unlike any previous in the extraordinary amount of credible scientific knowledge that is available to us. Never before have a civilisation’s leadership cadres had access to so much credible information about the likely trajectory of the future.

What the science tells us is that, for all our recent advances, there are clear signs that the earth systems that support life are at or close to the limits of their functionality. The technologies and approaches that seemed to work so well for us when we were fewer in number and consumed far less are now undermining the integrity of the very systems we depend on – fresh water, climate, the soil, oceans, other species. The root causes of this extraordinary challenge are several and complex, but the following two are fundamental:

We’ve been counting the wrong things; and

We forgot what depends on what.

In our customary ways of accounting for value we have been strangely selective in what we have regarded as a cost. For instance, when we say it costs R10 for a litre of petrol, that figure accounts for the direct costs to the oil company in finding, extracting, processing and delivering the fuel, plus related government taxes.

What has not been accounted for are the costs associated with the air pollution caused by processing and burning the litre of petrol (in respiratory illness, for example), nor the costs associated with the atmospheric warming caused by release of the carbon dioxide into the atmosphere.

These “externalities” of using that litre of petrol in one’s car are hard to calculate precisely but there is nowadays little argument that they exist and, cumulatively, amount to a colossal figure that must somehow be paid by society as a whole, when it should correctly sit somewhere on the balance sheets of the oil companies. This principle applies not only to oil companies but to all sectors.

In business one is trained to do everything possible to keep costs off the company’s balance sheet. So, like chickens raised in the old way, free to decide where they slept, these un-priced costs inevitably come home to roost somewhere else, as someone else’s health problem or insurance cost, leaving behind an impression of affordability at the point of sale that is cumulatively inaccurate.

Meanwhile, we have also developed peculiar ways of defining and accounting for success. Our principal measure of personal success has been wealth in the form of money and material possessions, while governments everywhere have measured the success of their policies and their societies in terms of GDP and its growth.

So long as money changes hands, all economic activity is deemed equally good for us. We have no national measures for social ease and stability, or what the far-sighted government of tiny Bhutan refers to as its Gross National Happiness.

Fortunately, being human constructs of recent origin, these economic measures of cost and success are relatively simple to fix and there are some excellent ideas emerging for how to replace them.

In pre-industrial societies it must have been obvious to everyone that their life depended upon the continuing flow of rain and sunshine upon the soil, since it was from the soil that almost everything useful in their lives came.

Today things are different. Thanks to fossil fuels and industrial chemistry, we have been able to hand the production of food and fibre over to a dwindling band of highly mechanised farmers and processors. Thus freed, we have become urban-based specialists, earning the wages that buy us food and clothing from well-lit supermarkets far removed from the soil, sun and rain.

This has in many ways been magnificent, but along the way it has encouraged us to forget that, however sophisticated and electronic our personal worlds may have become, we still depend entirely upon fresh water and food from the soil.

This should not be a problem in a stable human community but we have lately jumped from three billion post-WWII to seven billion, added to which most of us still feel we are entitled to at least a little more material comfort. So demand rises relentlessly while the stock of natural resources remains frustratingly finite.

Companies play a central role in this unfolding drama. We have increasingly asked them to supply our needs and desires and they have responded brilliantly. However, as the world changes, what we will demand of businesses will inevitably change too.

As we enter upon what many now see as an Age of Constraints (some talk in terms of peak oil, peak water, peak food) businesses that understand the changes will find they have quite a new role in helping their customers to adapt to these constraints and still derive value for which they are willing to pay.

Ultimately, sustainability is perhaps the most important and urgent conversation we can have, in our organisations and with one another. It has two equal parts:

one is about the letting go of illusion – understanding which parts of our modern economy and society cannot last forever, may even be on their way out already, and why; the other is about deciding what really matters to us and working out how we will build a fresh economy and society around those values.

The first is a sobering though necessary stage, the second will undoubtedly bring out the very best in us – and, if one has the eyes to see it, is already doing so.

Peter Willis is South African Director: University of Cambridge Programme for Sustainability Leadership. This column is extracted from Green II … why corporate leaders need to embrace sustainability to ensure future profitability. The recently-released book is published by SAICA and Juta.

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