In 1494 Luca Pacioli invented the concept of accounting and accelerated the trajectory of capitalism for the next 600 years. This lifted hundreds of millions of people out of poverty but helped build industries that power global productivity with carbon-based fuels that are endangering our planet. There is scientific consensus that we’re putting enough toxic material into our oceans, land, and atmosphere to increase the average global temperature by more than 2ºC, threatening the climate stability of the planet. Many of us in California (wildfires) and Texas (winter storms) have experienced the new realities of climate change that have left millions without power.
But you can’t solve climate change unless you have a way to measure the true cost of pollution you’re creating. Today, the next generation of policy leaders and entrepreneurs are creating a new type of accounting to help turn the tide on global warming and build more sustainable companies. Here are the three things you need to know about the new green accounting.
Green accounting has four components: 1) managing data and reporting the output of global greenhouse gas emissions; 2) tracking materials from inception through the delivery of a product to ensure ethical sourcing and sustainability; 3) helping companies reduce their carbon output and buy carbon offsets; and 4) helping companies automate and track environmental, social, and governance goals so they can report to their stakeholders.
The global demand for green accounting has created a new crop of software providers who automatically assess the sustainability of retail products and provide alternatives so that the consumer has a choice during their online checkout. These tools are particularly important for highly polluting industries like mining, oil, concrete, and some utilities. Equally important are the batteries and components in our phones, laptops, electric vehicles, plastics, and chemicals where there is increasing pressure to understand and disclose who is producing a product and how sustainable that process is.
Governments and corporations are both driving the adoption of Green Accounting. The European Union was the first to move, requiring commonsense standards that required companies to disclose their climate change impact. The EU also created a historic Battery Directive that sets up standards for battery sustainability in both electronics and electric vehicles.
Not wanting to fall behind, President Biden recently issued an executive order to ensure greener supply chains. The Biden Administration announced it will move to regulate carbon and pump billions of dollars into building sustainable infrastructure to decarbonize power and mobility for the 21st century. Congress could take a more formal approach by codifying a carbon tax, made easier by the Senate parliamentarian’s recent ruling on using reconciliation under a majority vote to amend spending bills for current fiscal years. Corporations have realized they need to be out front on these issues and are driving the move to green accounting to meet consumer and shareholder demands for sustainable products and to strengthen their brands. As a result, more companies are publicly committing to go carbon neutral by 2040 or 2050 every day.
It’s said that “you can’t manage, what you can’t measure”. The best way to stem the tide of climate change is to move quickly to decarbonize transportation, power, and industry. To make this change happen we need a global effort to require companies to track their greenhouse gas emissions and environmental output through green accounting. Finance and accounting have brought prosperity to much of the planet, but we need green accounting to save it.