Triple Capital Accounting for facilitating ESG reporting and decision-making process in both private and public sector

Introduction 

Accounting principles play a crucial role in acting as a universally recognized business language, enabling firms to effectively communicate financial and economic information to its stakeholders. This facilitates well-informed company decisions that have an influence on their operational strategies, expansion plans, and levels of involvement in various activities. The numerical figures depicted on a corporation's financial statement possess a universally recognized importance, hence serving as a powerful and standardized means of communication across many geographical regions. However, traditional accounting practices predominantly focus on the financial aspects of a company's activities, failing to include the social and environmental impacts connected with such operations. Similarly, balance sheets predominantly prioritize the representation of financial assets, while overlooking the significance of a company's reliance on natural and/or social assets. Fundamentally, the evaluation of a company's achievement is predominantly contingent upon its financial profitability, regardless of any potential detrimental effects it may impose on the natural environment or social relationships.

According to the Triple Capital Accounting Framework (TCA), the same principles used to account for financial capital, such as depreciation, amortization, and capital expenditure (capex), should also be used to account for human and social capital. The incorporation of additional balance sheet entries is used to account for the depreciation of both natural and social capital, thereby facilitating the accomplishment of this objective. By incorporating natural and social assets into the framework of duties, the maintenance of these assets is ensured in a manner analogous to the treatment of financial capital. Total Cost Assessment (TCA), which is derived from environmental accounting, focuses predominantly on effectively financing the costs associated with the conservation of natural and social ecosystems, as opposed to internalizing the external impacts associated with business activities. According to the TCA framework, the three categories of capital have distinct characteristics and cannot be interchanged or substituted. As an independent strategic resource, each form of capital carries equal weight. Within the scope of transaction cost analysis (TCA), an organization can assess the value of newly acquired assets and highlight aspects of its business model that may have been undervalued in the past by stakeholders. 

However, what are the true reasons for a business to employ Total TCA? There is presently a major ecological catastrophe that threatens the lives of people everywhere. The long-term survival of our species and the planet depends on our capacity to account for the nine planetary boundaries. Climate change, ocean acidification, stratospheric ozone depletion, disruption of the nitrogen and phosphorus cycles, global water use, land use change, erosion of biodiversity, atmospheric aerosol accumulation, and introduction of novel organisms into the biosphere are all examples of environmental issues that are discussed in the context of boundaries. The consequences of global warming provide a major obstacle. The United Nations Secretary-General, António Guterres, addressed the continuing rise in greenhouse gas emissions during the United Nations Climate Change Conference of the Parties (COP27), held in Egypt in November 2022.  

Similarly, there is a discernible transition in social conventions. Multiple areas of the present business environment are undergoing significant transformations. These changes comprise aspects such as workplace diversity and equal opportunity and endeavor to eliminate discrimination based on factors like gender, religion, disability, appearance, sexual orientation, and sexual identity. In order to maintain their social license to operate, organizations are incorporating human rights due diligence throughout their supply chains, emphasizing the mental health and work-life balance of their employees, adopting corporate social responsibility practices, and responding to the rising societal expectation for transparency, accountability, and responsibility. Organizations must assess the interdependence between their activities and social capital. 

Therefore, it is reasonable to anticipate the occurrence of evolutionary modifications in accounting regulations. The use of Total Cost Assessment (TCA) methods enables an organization to evaluate the actual impacts of its operations and services. Through the incorporation of social and environmental externalities inside its decision-making processes, the organization has the potential to actively seek sustainability and resilience. For example, what are the many types of pollution that can be linked to their activities and products, whether through direct or indirect methods (such as costs associated with prevention or mitigation)? What is the ecological impact of their actions and products on biodiversity, including both plant and animal species, along the full supply chain? What are the essential resources required to provide uninterrupted manufacturing and service supply over the full life cycle of items, including costs associated with extraction, production, usage, and disposal at the end of their life? What are the societal implications linked to their products and services, including occurrences of child labor, violations of human rights, involvement with local communities, and cases of workplace harassment? What approaches can be utilized to measure the environmental and social costs linked to upcoming investments? In the case that legal obligations arise, what measures should be undertaken to ensure the preservation of natural, social, and financial assets? 

Thus, it is imperative to enhance the clarity and explicitness of these conceptual frameworks and highlights their role regards their contribution toward not only the sustainability of the organizations or businesses but their role in the improvement of decision-making processes.

Submissions information

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Key deadlines 

Opening date for submissions: 1st November 2023

Submissions deadline: 1st June 2024