Going green: triple bottom line accounting

The environment, as a political and economic issue, has finally become part of mainstream politics both locally and abroad. Last March's general election certainly brought the issue of 'sustainable development' to the fore and this week's Budget will undoubtedly explain how the government intends to put its green vision into practice.

Labour MEP Louis Grech has reportedly submitted a proposal on a climate change fund. The environment clearly is an issue that needs to be promoted in our thinking, planning and behaviour as an EU member state. The problem is that good intentions are not enough in a capitalist free-market economy. We need to (radically) alter our mental eco-political frames or to recognise the future of what is possible with new vision.

The current economic system determines our way of life. We need to change it (growth vs sustainability) to be able to truly deliver on the promise or ideal of 'sustainable development'. In the Budget, the government should seriously consider setting up a task force with executive powers to investigate how to fundamentally redesign capitalism in Malta. It could export this model to the EU if it is successful.

The best starting point is to introduce a new regulation on 'triple bottom line accounting'.

The 'bottom line' is a common phrase used in the business world to describe the net total in a financial statement, such as an income statement (or a profit and loss statement).

The idea of triple bottom line accounting is to expand traditional reporting frameworks to take on board environmental and social performance in addition to financial performance; to borrow the phrase coined by Shell, an accounting system which considers 'People, Planet and Profit'.

This is, undoubtedly, a radical proposal.

But a company's accounts or financial statements, or a company audit should not only be restricted to finance. We all agree that the modern business corporation is an institution of enormous economic power and social and environmental impact. It therefore makes sense to assess the performance of companies within the context of all three dimensions (financial, environmental and social) rather than just one, as is current practice.

This paradigm shift would help solve much of our current dilemmas (over-development, pollution, renewable energy, corruption, greed, etc.) since 'the rules of the game' of the Maltese capitalist system, and hopefully in the future the EU system, would have been re-written to incorporate triple bottom line accounting.

This would result in a multitude of benefits, including an economic system which disciplines business leaders, professional management and shareholders to seek profit sustainably.

It would give MFSA-regulated companies operating in Malta a competitive advantage over non-regulated competitors through a 21st century-relevant accounting or auditing system.

It would kickstart the 'next economy' in which the emphasis would shift from 'eco-efficiency' (doing more with less) to 'eco-effectiveness' (cradle-to-cradle lifecycle).

It may sound ambitious or far-fetched but all that is needed is political will and the leadership. Triple bottom line accounting could be first introduced on a voluntary basis - on the understanding that in the medium term it would become a requirement regulated by the MFSA.

This would mean that the accounting profession would share the responsibility of audits with professionals in the environmental and social field. The result will be a far-reaching regulatory system, which appreciates not just quantity of profit but also quality of profit.

Mr Fenech is a partner consultant with Fenci Consulting Ltd.