Review: Six Capitals by Jane Gleeson-White on accounting for the environment

Looking at the way politics is moving in Australia, America and many other countries, it's not hard to conclude the economy is being run for the benefit of big business. It's discouraging enough to evoke a horse laugh to the question in the subtitle of Jane Gleeson-White's book, Six Capitals: Can accountants save the planet?

Gleeson-White, author of the best-selling Double Entry, is the great populariser of accounting. If she can't get you interested in accountants, no one can. But how could the world's most mild-mannered profession bring about "the revolution capitalism has to have"?

It's hardly a dead cert, but the idea has more going for it than you might imagine.

As Gleeson-White explains, there is growing recognition of the failure of our existing measures to account adequately for all the factors affecting our wellbeing. This is true of accounting at the levels of both the nation and the individual company.

We treat gross domestic product as a single quarterly measurement of changes in our wellbeing, which it isn't and was never intended to be. Economists know this in theory, but ignore it in practice.

GDP measures the change in our combined incomes, but in the process ignores all the human cost involved in the generation and spending of that income – the overwork, traffic congestion, stress and so forth – and also the costs to the natural environment.

The deficiencies in the way companies account for their activities, which Gleeson-White outlines, are less well-known. They measure the business' profit for the period simply by taking the value of its sales and deducting the market price of any expenses it incurred in producing that product.

The focus is exclusively on reporting to the company's shareholders (and the taxman) its financial profit or loss and thus the change in its financial capital. As Gleeson-White's title implies, this ignores five other sources of value that can be thought of as capitals: manufactured (or manmade) capital; intellectual capital (including intellectual property such as patents); human capital (skills and experience); social and relationship capital; and natural capital (environmental resources and processes).

Gleeson-White's good news is that accountants have recognised these measurement deficiencies and started work on correcting them. In 2012 the United Nations endorsed a new international standard for countries' national accounts requiring environmental measures to be integrated with the conventional economic measures.

But although our own Bureau of Statistics is at the forefront of the extensive conceptual and measurement efforts needed to bring such integrated accounts into being, it will be a long time, if ever, before we see such a thing as "green GDP".

Her news on company accounts is more hopeful. Efforts to make business reporting more comprehensive are progressing on many fronts. Their unifying feature is a desire to extend corporate accountability beyond shareholders to a wider range of stakeholders by adding to the present concentration on financial value much reporting of "non-financial value".

Progress ranges from groups promoting the "triple bottom line" – profit, people and planet – and the "balanced scorecard" to the efforts of the International Integrated Reporting Council to create "a globally accepted framework for accounting for sustainability".

Then there's America's Sustainability Accounting Standards Board, informally linked to the US government's Securities and Exchange Commission, which is developing non-financial reporting standards for 89 industries.

As Gleeson-White acknowledges, these developments aren't without difficulties or detractors. Just how do companies put monetary values on environmental and social "assets"? Many activists object to the natural environment being subsumed by business as some form of "capital" and worry (as I do) about the risk of a $10 million new building being regarded as a fair substitute for $10 million-worth of species destruction.

A common objection is that broadening a corporation's concerns beyond the pursuit of profit and shareholder value is simply contrary to company law. But by mid-2014, 26 US states had passed legislation permitting companies to register as "B corporations" with explicit social and environmental objectives, with a further 14 states working on it.

This is impressive evidence of real change afoot. And people underestimate the influence of the world's bean-counters because they don't realise the almost mystical power of measurement over our lives.

Humans are a measuring animal. We use measurement to motivate, direct and correct our activities, from the watches that control our daily movements, to speedometers, odometers and exam marks. Even wine advertisements now quote a wine's rating along with its price.

We live in the age of "metrics", with business people convinced that "what gets measured, gets managed".

So broaden financial reports to include measures of social and environmental issues and just watch how it changes the behaviour of business people. Gleeson-White makes a good case for the success of her unlikely revolutionaries.