Can accountants save the world?

According to Earth Justice, scientists predict that on our current trajectory of habitat loss and global warming, between 33% and 50% of all species will face extinction by the end of this century. Their disappearance will disrupt, completely, our ecosystems and destabilize human civilization. This sounds very apocalyptic, but the threat is real unless we find better ways of accounting for our impact, find new protections, and enforce existing protections better. It is evident that needed intervention lies not in the accounting, but the strategic integration influencing responsible business behaviours.

The biodiversity crisis can be understood in this way;

• Other species make the earth habitable for humans. For example, insects that serve as pest control for our crops. In destroying half of those individual species, we will find ourselves struggling to put healthy food on the plate. We are urged to appreciate the correlation between human behaviour, nature, communities and economic drivers.

The biodiversity crisis manifests in two ways;

1. We’re losing species altogether, and
2. Species that are not at an immediate risk are eroding, threatening those that depend on them as the species dependant on them are dying out.

At the centre of the biodiversity crisis is human activity. The key drivers are; habitat destruction from extractive industry practices and real-estate development.  Overutilization of natural resources for mass consumption, e.g. industrial agriculture and over-fishing, and chemical pollution that destroys populations that are critical to the ecosystem services we depend on.

Business plays a key role in deepening the effects of these drivers, and where we have fallen short in decoupling economic development from natural resource use. We should, at a bare minimum, account for our environmental impact and be able to quantify its extent and the investment needed to mend the dent. Enter, stage left, extinction accounting.

With human and business activity being the root cause of species loss and habitat destruction, extinction accounting can drive positive corporate change. It is unlikely that a scientific solution will be found that can make this all go away, rather, the accounting and business community need to take a stand on unsustainable business practices. The business and societal case for reversing the declining trends in animal and plant populations is clear and from it business and reporting frameworks have emerged, designed to mitigate the risk of extinction where company activities affect specific species (Maroun and Atkins, 2018). A special issue of the Accounting, Auditing and Accountability Journal (2018) explores the emancipatory potential of existing technologies around accounting and accountability in corporate reporting, to both report on and react to the loss of species among other issues.

Sustainability reporting and the application of the Global Reporting Initiative’s guidelines have grown significantly. More and more companies are reporting on biodiversity-related issues aligned with the GRI’s own position on biodiversity (GRI 304);

“Protecting biological diversity is important for ensuring the survival of plant and animal species, genetic diversity, and natural ecosystems. In addition, natural ecosystems provide clean water and air, and contribute to food security and human health. Biodiversity also contributes directly to local livelihoods, making it essential for achieving poverty reduction, and thus sustainable development.”

However, companies have not developed the systems necessary to track details on species and habitats affected by their operations and taken steps to prevent or reverse biodiversity loss. “You can’t manage what you don’t measure” – Peter Drucker. Extinction accounting seeks to leverage existing features of accounting infrastructure to provide details on biodiversity affected by an organisation’s business activities to improve transparency, accountability and operationalise sustainable development. Extinction accounting is intended as a way of reporting on biodiversity-related risks which creates awareness of managing biodiversity loss. This means, accountants can play a role in designing systems that ensure that;

(a)   Sufficient information on affected species is collected and provided by business activities,

(b)   The reasons for being concerned with extinction are established and understood, and

(c)   The policies, plans, budgets, and actions to respond to the possible extinction of species are consistently reviewed and reported on (Jones, 1996; Jones & Solomon, 2013; Tregidga, 2013).

The aim is to adequately describe and manage the risks posed by biodiversity loss (including extinction) and explain the reasons why it is important to preserve biodiversity. The framework is necessary in the short-term to make sure that companies and stakeholders understand the relevance of extinction to their businesses and leverage existing corporate governance systems to mitigate those associated risks.

It is worth nothing that, a few studies have raised an interesting tension in the management of biodiversity from a governance perspective. Different approaches to biodiversity governance are seen as a question of which values and whose values are brought to bear on the use and management of the environment and will therefore also have important implications in relation to environmental justice (Byg, Novo, Herrett and Roberts, 2021).

Therefore, any governance system that operationalises the extinction accounting framework for any organisation, will be informed by a particular set of values that determine what to conserve and where, what to regard as acceptable ways of using and managing land and biodiversity, and how to frame and negotiate trade-offs.

The profession may play a role in helping us understand the various governance approaches and help us reconcile different values, uses and needs through innovation, experiments in decision-making, on-the-ground measures as well as governance even though outcomes may not be entirely certain. They have the technical tools and the industry experience to do so. As accountants, we can’t save the world, but we can help design the systems we all need to play our part in doing so.

The pending question still stands, are our board of directors equipped to ask pertinent questions in exercising their oversight responsibilities?