Accounting for a greener world

Wednesday, Sep 23, 2015, 01:33 AM | Source: Pursuit

Brad Potter

I’ve always been drawn to questions that are right at the edge of the discipline. We are figuring out how to measure and report carbon accumulation and how that information plays into investment and other decision-making.

Associate Professor Brad Potter advocates more reliable reporting of companies’ environmental and social credentials.

The Royal Botanic Gardens in Melbourne is the perfect lab because they have got data from 1990, giving us a really good estimate of the growth rates of trees. That means we can plot the relationship between carbon accumulation and growth rate and develop a very clear indication about which species of tree accumulate carbon – or not – at different levels. The results will indicate the variable carbon benefits and costs of planting different trees over time.

Research shows that where organisations demonstrate good environmental credentials, backed up by good behaviour, then capital generally respond. In addition, customers are more likely to stick around, and partners are less likely to jump off if things go bad. You hear a lot of executives say things like “doing good is good for business”.

When accountants analyse stock market returns, the variables we use only account for around 10 per cent of the explanation. So what about the other stuff? Other types of information, like environmental credentials, tap into populist opinion and help explain a company’s success or otherwise.

Reliably measuring the social and environmental dimensions of a company’s performance is important. Decisions made about converting carbon accumulation to a dollar amount have been quite arbitrary in the past. Whereas we’re developing a more reliable measure for carbon emissions - the scientists can control for everything conceivable that they know will affect the carbon profile of a particular species of tree.

The relative lack of reliability of environmental disclosures has been a hurdle for their usefulness in the past. So part of what we’re going to do is to test, primarily by way of experiment, whether or not giving people more information about how environmental impact is measured and its reliability will change the decisions they’re likely to make.

I won’t say I’m a hardcore environmentalist but I’m that side of the centre. But I’ve become more so – little things, but I’m more likely to buy carbon credits when I fly, even through we may debate over whether that actually results in trees being planted.

It’s good fun hanging out with the scientists. I just sit there and listen – and hanging out with smart people is good fun. No one would ever think that accountants and botanists would be working together. But you’d be surprised at how similarly we think. For example, the way in which botanists measure the growth rate of a tree is almost exactly the same way that economists measure the growth rate of an economy.

- As told to Catriona May

Banner image: Balancing the Account by Ken Teegardin, published under Creative Commons

University of Melbourne Researchers