Download Accounting for Sustainability

Accounting for
Sustainability
Guidance for
Higher Education
Institutions
Prepared by:
Sara Parkin OBE
Dr Andy Johnston
Heloise Buckland
Fiona Brookes
Elizabeth White
Higher Education Partnership for Sustainability
Forum for the Future
Rupert Howes
Julie Richardson
David Bent
The Sustainable Economy Programme
Forum for the Future
November 2003
Forum for the Future
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London
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T 020 7477 7706
F 020 7251 6268
E [email protected]
www.heps.org.uk
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This guide was printed by Severnprint on Evolution Satin which is manufactured from
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is powered entirely by Ecotricity, electricity from renewable sources.
Many people have given their valuable time and support to inform the content of
this guidance. In particular, we would like to thank the UK Higher Education
Funding Councils for their financial support, and the British Universities Finance
Directors Group whose members have played an active role in exploring with us the
implications of sustainable development for their profession.
We would also like to thank those who participated in the seminars and the
discussions facilitated by BUFDG, and those who contributed to the consultation draft
of this report. Copies of the seminar reports are available from Forum for the Future.
Contents
Foreword
Who is this publication for?
Summary
The Higher Education Partnership for Sustainability
2
3
4
5
Section 1 The context for sustainability accounting
1.1 The accounting and finance professions
1.2 The higher education sector
1.3 The Government
7
8
10
12
Section 2 Overview of sustainability accounting
2.1 Tools for understanding sustainable development
2.2 Concepts and principles of sustainability accounting
15
15
22
Section 3 Practical guidelines for sustainability accounting users
3.1 Internal sustainability accounting: restatement of
traditional financial accounts
3.2 External sustainability accounting: extension to
traditional financial accounts
3.3 Assets and liabilities: the role of the balance sheet
37
38
47
54
Section 4 Where next?
57
Appendix
Appendix
Appendix
Appendix
Appendix
59
61
63
65
69
1
2
3
4
5
References
Initiatives of interest
Environmental valuation methods
Sources of information for valuing environmental impacts
Acknowledgements
Foreword
Higher education in the UK is entering
a period of demanding challenges,
both globally and nationally. Sector
bodies and individual institutions are
already developing leadership,
governance and management systems
that actively build on existing
experience but which also drive and
support new investment, productivity,
service delivery and quality of
performance right across the sector. They are developing systems that both
reflect past achievements and strengthen the sector through the diversity of
institutional missions.
Potentially, one important contribution to developing those systems is to be found
in what has become known as sustainability accounting. This is a new accounting
discipline, emerging from a respected longer term body of work on environmental
accounting, which strives to introduce methods for accounting for social and
environmental impacts (positive and negative) that are normally not included in
traditional financial accounting processes.
The objective is to give a clear and complete picture of the real costs and benefits
arrising from decisions about allocating resources – financial, human or physical.
Since the publication of the DfES Sustainable Development Action Plan, and in
light of Universities UK’s draft statement of recommended practice on accounting
in further and higher education, higher education will need to be seen to be
responding to a wide range of stakeholders on its sustainability performance.
Not everything can be quantified, of course, but using financial systems to help
us integrate some non-financial information into reports is an important tool for
management and for communication.
These guidelines are welcome, therefore, and I hope they will prove attractive to
anyone in the higher education sector with responsibility for financial direction
and institutional reporting. I am happy to make up to £50,000 available to take
this work forward in the higher education sector.
Sir Howard Newby
Chief Executive, Higher Education Funding Council of England
2
HEPS Accounting for Sustainability Guidance
Who is this
publication for?
The purpose of this publication is to provide an introduction to techniques that
enable non-financial (ie environmental and social) considerations to be
integrated into traditional financial accounts. Trials of techniques for integrating
environmental considerations into traditional accounts have been under way for
some years. Methods for broadening these techniques to include social and other
non-financial considerations is at an early stage. Sustainability accounting
embraces social, economic and environmental dimensions, and strives to address
all three dimensions at the same time. Achieving sustainable development means
progressing all the dimensions together.
Recognising the pioneering nature of this work, and in accordance with
the statement of recommended practice (SORP) for higher education, this guide
explores the latest thinking about sustainability resource flows, assets and
liabilities and offers guidance on implementing sustainability accounting in higher
education.
It will be of interest to:
• Anyone with a responsibility for governance, leadership and management of
the sector, one of its agencies or bodies or an individual institution (university
or college): for example, higher education finance directors, pro-vice chancellors
with a finance remit, governors and members of university councils with a
finance remit, finance directors of funding councils and auditors.
Environmental and social information is already being incorporated into some
aspects of decision-making in higher education and this guide offers techniques
to consolidate this and develop it further. Accounting for the contribution
a student population makes to the local economy is just one example.
• Managers responsible for implementing sustainability policies within
an institution.
Sustainability accounting techniques further the business case for changing or
introducing an activity: for example, a new training course for staff, new waste
management practice, or a diversity or transport policy.
• Academics teaching and researching in the area of sustainability accounting.
Over the last ten years, environmental accounting has developed an academic
community with associated teaching and research outputs. Sustainability
accounting is an extension of this work and offers enormous learning and
research opportunities. Accounting professional bodies such as the Association
of Chartered Certified Accountants (ACCA) have outlined the need for further
research into sustainability accounting practices for local government.1
Sustainability accounting has, to date, been pioneered by the business sector. The
higher education sector now has the opportunity to build on existing experience
and develop new practice in this emerging field. The Government’s vision is: “to
see private and public sector organisations in the UK take account of their
economic, social and environmental impact, and take complementary action to
address key challenges based on their core competencies“.2
1
2
Ball A. Sustainability Accounting in UK Local Government: An Agenda for Research. ACCA Research Report
No. 78 2002 (www.acca.co.uk)
Society and Business, Corporate social responsibility report, 2002 (www.societyandbusiness.gov.uk)
HEPS Accounting for Sustainability Guidance
3
Summary
In response to the drivers for more accountability and transparency in accounting
practice and the pressures on the higher education sector to include non-financial
data in risk management and reporting, this guidance offers an accounting
framework that can report on financial, social and environmental performance at
the same time.
For those with a responsibility for governance, leadership and management in
higher education, this guidance introduces sustainability accounting as a
legitimate and practical response to the government’s sustainable development
agenda, which has resonance for both the accounting profession and the higher
education sector.
For managers responsible for implementing sustainability policies within an
institution, this guidance offers explanatory tools to assess how an organisation is
contributing to sustainable development and to assist in prioritising future actions.
For individuals teaching or researching the evolution of accounting practice, this
guidance gives a clear overview of the concepts and principles of sustainability
accounting. Readers will have a clear idea of the difference between internal and
external sustainability accounting, shadow accounts and balance sheets,
environmental valuation methods, restoration and avoidance values, and the
role of stakeholders in sustainability accounting. Those with the capacity to
do so will recognise the research opportunities offered by the emerging field of
sustainability accounting.
This guidance acknowledges and builds on the experience of business in
accounting for the environmental and social impacts of their operations and offers
the sector clear steps to implement sustainability accounting. Readers will be
equipped with frameworks to include the environmental, social and economic
dimensions of an activity or institution in their traditional accounts to help inform
decisions. Readers will also be able to express the impacts (both positive and
negative) of their activity to the outside world in financial terms.
We recommend that individual institutions take up the techniques suggested in
this guidance at whatever level is appropriate to them; for an individual project;
within a department or across the whole institution. We also recommend that the
funding councils adopt sustainability accounting techniques to inform their
own internal management and encourage institutions to do likewise. Finally, given
the pioneering nature of sustainability accounting, we would strongly urge those
in a position to do so to commission further research in this area.
4
HEPS Accounting for Sustainability Guidance
The Higher
Education
Partnership for
Sustainability
This publication is one of the outputs of the Higher Education Partnership for
Sustainability (HEPS). HEPS is a three year initiative established by Forum for the
Future in the summer of 2000 and involves 18 universities and colleges from
across the UK. HEPS is funded by the Higher Education Funding Councils of
England, Scotland, Wales and Northern Ireland.
The aim of HEPS is to establish a pioneering partnership group of Higher Education
Institutions (HEIs) that are seen to be achieving their strategic objectives through
positive engagement with the sustainable development agenda, and to generate
the transferable tools, guidance and inspiration that will encourage the rest of
the sector to do likewise.
Participating universities and colleges
•
•
•
•
•
•
•
•
•
University of Aberdeen
Heriot-Watt University
University of Birmingham
University of Brighton
University of Cambridge
City University
Liverpool John Moores University
Loughborough University
Queen’s University, Belfast
•
•
•
•
•
•
•
•
•
University of St Andrews
University of Stirling
Middlesex University
University of Newcastle
University of Salford
Sheffield Hallam University
College of St Mark and St John
The Surrey Institute of Art and Design
Cardiff University
In HEPS’ view, universities and colleges play three roles in society, as:
• institutions that form and inform leaders and decision-makers of today and
tomorrow through teaching and research agendas
• managers of major businesses where prudent use of resources not only saves
money but safeguards reputations
• important bodies in the local communities and regional development –
as employer, purchaser, service user and provider.
Commitment to active engagement in the partnership was agreed at vicechancellor/principal level. All staff, students and the wider community of the
university or college are encouraged to participate in HEPS. The work of HEPS is
delivered through three types of activities:
• individual work programmes tailored to the institution’s priorities
• partnership wide capacity building activities covering areas of interest to all
partners (eg, purchasing, travel planning, finance, resource management and
communicating for sustainability)
• sustainability reporting: developing a framework and process for tracking
progress and communicating an institution’s contribution towards sustainable
development.
More information about HEPS may be found at www.heps.org.uk
HEPS Accounting for Sustainability Guidance
5
Summary of contents
Section
The aim of this
section is:
Read this if:
Contains details of:
1.
The context
for
sustainability
accounting
To outline the reasons
why the higher
education sector should
take up the challenge of
sustainability
accounting.
You want to find out about the
government’s sustainable
development agenda and the
implications for the higher
education sector and for the
accounting and finance professions.
Queen’s University
Belfast whole Life
Costing
2.
Overview of
sustainability
accounting
To provide clear
frameworks for
understanding
sustainable
development.
You want to be able to assess
how your organisation is currently
contributing to sustainable
development and prioritise future
actions.
The Sustainability
Appraisal Grid
To outline the concepts
and principles behind
sustainability
accounting.
You want to understand the
difference between internal and
external sustainability accounting,
shadow accounts and balance
sheets, environmental valuation
methods, restoration and
avoidance values and the role of
stakeholders in sustainability
accounting.
Anglian Water External
Environmental Accounts
To show how to present
traditional accounts
in a way that provides
environmental and social
information.
You want to include the
environmental, social and
economic dimensions of an activity
or institution in your traditional
accounts to help inform decisions.
University of Aberdeen
internal sustainability
accounting sheet
To show how to extend
traditional accounts to
provide environmental
and social information
that is not yet being
accounted for by the
organisation.
You want express the impacts
(both positive and negative) of
your activity or institution on the
outside world in financial terms.
To suggest how the
sustainability accounting
agenda could be taken
forward.
You are interested in trying out
some of the techniques in this
guide.
3.
Practical
guidelines for
sustainability
accounting
4.
Where next?
6
HEPS Accounting for Sustainability Guidance
University Carbon Club
Sustainability
Accounting Cube
Sustainability Accounting
Framework
Wessex Water
investment towards
sustainability
Wessex Water external
environmental account
Contact details of
people and
organisations who can
help you implement
sustainability accounting
Section
The context for sustainability accounting
1
Existing accounting frameworks are under scrutiny and review as requirements for
more transparency and accountability affect private and public clients and their
regulatory bodies. At the same time, organisations are beginning to be expected
to include non-financial aspects in their reports; their impact (positive or negative)
on the environment or the community. In the higher education sector, pressure to
integrate sustainable development into policy and practice is increasing, through a
Department for Education and Skills (DfES), and via the drive to increase the
knowledge and skills base in the UK. Everything is underpinned by government
policy on sustainable development, which is backed by undeniable evidence of the
consequences of unsustainable development. The drive for a more effective and
efficient public sector, led by the Prime Minister himself, further increases the push
towards an accounting framework that can report on financial, social and
environmental performance together.
Box 1.
The concept of sustainable development is not difficult. This is the
Government’s definition:
“The UK Government defines sustainable development as meeting four
objectives at the same time, in the UK and the world as a whole:
•
•
•
•
social progress which recognises the needs of everyone
effective protection of the environment
prudent use of natural resources
maintenance of high and stable levels of economic growth and employment.“3
Unfortunately, even the Government itself tends to quote this definition using
only the bulleted objectives. The opening sentence is omitted. Consequently,
most people miss the main point, which is that those objectives should be met
at the same time. It is the simultaneous progression of our economic, social
and environmental goals that is essential if development is to be sustainable.
Only this way can the damaging trade-offs between them (which have resulted
in unsustainable development) be identified and avoided.
Implementing sustainable development, therefore, means designing
intellectual and practical tools that make it possible to think about all the
elements of sustainable development together. The more individual decisions
are made in that context, rather than in isolation, the more they are likely to
contribute positively to sustainable development.
See page 15 for an explanation of tools for implementing sustainable
development.
3
See www.sustainable-development.gov.uk
HEPS Accounting for Sustainability Guidance – Section 1
7
In order to shift onto a sustainable development path it will be necessary to
develop intellectual and practical tools that enable us to think about, and then
progress, our economic, social and environmental goals, simultaneously.
Sustainability accounting techniques are an essential part of this process.
1.1
The accounting and
finance professions
Sustainability accounting is based on existing financial accounting frameworks.
In the UK this is based on a combination of company law, accounting standards
from regulatory bodies such as the Accounting Standards Board and the customs
used by accounting professionals. These are drawn together in the UK General
Accepted Accounting Practice (UK GAAP) and made specific to individual
sectors in a Statement of Recommended Practice (SORP). This guidance has been
developed in the context of the SORP for Further and Higher Education4 (see
pages 26 and 30).
At the moment, conventional financial accounting and conventional economic
measurements do not capture all the consequences of economic actions. One
aspect of this is the absence of an organisation’s hidden costs and savings in the
traditional accounts. For example, savings made on waste disposal costs are
unlikely to figure in the accounts in the context of the cost of the recycling
programmes implemented to achieve those savings. Internal sustainability
accounting is a method to address this and is explained in section two. A second
aspect relates to the costs and benefits that are not accrued at all in the
organisation’s accounts and instead are picked up by the rest of society. For a
university these could include the jobs created and amenities provided in the local
community (benefits) and inflated house prices, traffic congestion, noise and litter
(costs). These are known as ‘externalities’ and external sustainability accounting
is a method to internalise them. This is also explored in section two.
Currently, traditional financial accounting does not provide the information that
is needed in order to ascertain whether deployment of financial resources is being
carried out in the best possible way. For an organisation with a mission greater
than maximising its own profit, such as the higher education sector, this is key.
In this sense, to focus purely on the financial bottom line is like staring at the oil
gauge in your car: oil is necessary to keep the engine running, but the gauge tells
you nothing about where your journey is heading.5
Drivers to incorporate sustainable development into the practice of accounting
and finance profession include:
• Saving money
Resource efficiency and cost-saving opportunities can be identified by routinely
collecting information on environmental and socially related expenditures and
linking them to financial benefits and environmental and social performance.
For example, monitoring the use and cost of energy across a campus might be
the first step towards reducing bills and improving efficiency. Sustainability
management accounts can also provide a useful internal reporting tool to track
progress and show how environmental and social external costs decline over
time with commitment to sustainability. Leading companies are now recognising
that their long term future is inescapably linked to their overall environmental
and social performance. (See, for example, external environmental accounts for
Anglian Water Services on pages 28 and 29 and for Wessex Water on page 46)
4 Universities UK, Statement of Recommended Practice: Accounting for Further and Higher Education, October 2003.
5 Thank you to Andrew Whitley, founder of the organic business Village Bakery, for this metaphor.
8
HEPS Accounting for Sustainability Guidance – Section 1
• Governance
The world of corporate governance is changing. The company law review6, the
new Combined Code on Corporate Governance, the Turnbull Report on
internal controls7, the Pensions Act disclosure measures8 and the Association of
British Insurers (ABI) Guidelines on Socially Responsible Investment (SRI)9 and the
Myners Review on Institutional Investment (2201)10, all point to the need for
more comprehensive reporting of social, environmental and ethical (SEE) risks.
These initiatives promote active institutional investor engagement with the
companies in which they are investing, in relation to wider external impacts and
their associated risks. Some of the recommendations of these initiatives have
already been adopted by the higher education sector. For example, the new
accounts direction for the sector (HEFCE Circular Letter 24/00) requires internal
control and risk management assurances to be contained within published
financial statements from 2002-2003, as recommended by the Combined Code
on Corporate Governance. The company law review recommendations that
material impacts on environment and community be reported alongside
financial information in the operating and financial review are also likely to
affect the higher education sector.
• Reputation
Financial analysts and investors are showing more interest in using data that is
outside traditional accounting when valuing a company or organisation. Many
of these are non-financial, such as customer churn (retention and recruitment)
rates, brand value and access to new markets. In response to this demand a
number of financial products based on an assessment of sustainability
performance have been launched, such as the FTSE4Good indices11 and the
Dow Jones Sustainability Group Index12. Just one example of this trend entering
higher education sector practice is the proposal by the Roberts review of the
research assessment exercise (RAE)13 that before receiving research funds
through this process, HEIs must have a ‘Research Competency Assessment’ that
includes training of researchers, equal opportunity policy and a staff
development policy.
Similar quality control processes relating to the effect of the management of
human and financial resources will be of interest to other ‘customers’ of the
higher education sector – including students, research funders, potential
business partners and funding councils.
• Risk management
There is increasing pressure to manage and report on non-financial risks.
Strategies to manage and reduce risk can benefit from the identification of
social and environmental risks associated with current financial performance
and with particular stakeholder groups (using external costs as indicators of
risk). Without adequate and appropriate systems to identify and account for
6
7
8
9
10
11
12
13
Department of Trade and Industry, Modernising Company Law, Cm 5553, July 2002. (www.dti.gov.uk)
The Institute of Chartered Accountants, Internal Control, Guidance for Directors on the Combined Code,
September 1999, otherwise known as The Turnbull Report (www.icaew.co.uk)
Since the amendment to the Pensions Act in 2000, pension funds are now required to disclose in their Statement of
Investment Principles: the extent to which social, environmental or ethical considerations are taken into account in the
selection (if at all) retention and realisation of investments and their policy (if any) in relation to the exercise of the
rights (including voting rights) attaching to investments (see www.hsmo.gov.uk).
See www.abi.org.uk
See www.hm-treasury.gov.uk
See www.ftse4good.com
See www.sustainability-index.com
Roberts, G Review of the research assessment exercise, presented to the UK Funding bodies, May 2003.
(see www.rareview.ac.uk)
HEPS Accounting for Sustainability Guidance – Section 1
9
such costs it is unlikely that organisations will be able to meet the future
expectations of their stakeholders.
In response to the drivers outlined above there has been a move to better
understand the intended, and unintended, consequences of deploying financial
resources. Full cost accounting, environmental accounting and whole life
costing are examples. Full cost accounting is the general name given to
attempts to ‘get the prices right’ and to allow improved, market-based decision
making14. See Bebbington et al, 2001 for an introduction to and discussion of
Full Cost Accounting, and R Howes, Environmental accounting: an introduction
and practical guide, London, the Chartered Institute of Management
Accountants Publishing, 2002 for an introduction to environmental accounting.
Whole life costing is a method to identify the costs and benefits of an activity
over its lifetime that, for example, is promoted by the Office of Government
Commerce to all departments as part of their Successful Delivery Toolkit15.
Whole life costing is also promoted through Proc-HE, (formerly JPPSG), the
Purchasing and Procurement Strategy Group for HE.16
Box 2
Queen’s University whole life costing
Queen’s University use a whole life costing model for all purchases over
£25,000. This is a cradle to grave assessment, which incorporates the
maintenance costs, refurbishment costs, running costs, electricity costs and
disposal costs associated with the purchase. The model can calculate these
costs for up to 25 years and the discount factor can be adjusted over time.
It is considered part of the quality assessment that informs the decision
to make the purchase. Coopers and Lybrand were commissioned by the Joint
Purchasing and Procurement Strategy Group for higher education to develop
this model and it is now being used by several other universities.
For more details about the whole life costing model, contact Proc-HE.
1.2
The higher education
sector
Until recently, there has been little pressure to integrate sustainable development
into the curriculum and estate management of publicly funded HEIs. However,
on 23 September 2003, the DfES published a Sustainable Development Action
Plan,17 which will have a significant impact on the sector.
As a result, the next grant settlement letter to Higher Education Funding
Council for England will, for example, raise the issue of a sustainability strategy
for the higher education sector and “signal to the university sector that
education for sustainable development requires development“. A similar
obligation to integrate sustainable development into their operations has rested
with the Scottish Higher Education Funding Council for some time, and was
boosted recently by the publication of the Scottish Executive’s Lifelong learning
strategy.18 Since its establishment, the National Assembly of Wales had a
14 ACCA, Full cost accounting: an agenda for action, ACCA Research Report No 73, Certified Accountants
Educational Trust, 2001
15 See www.ogc.gov.uk and the Treasury’s guidelines on Construction Procurement at www.jppsg.ac.uk
16 Proc-HE 0141 330 3151 or [email protected].
17 See www.dfes.gov.uk/sd
18 Scottish Executive, Life Through Learning through Life: The Lifelong Learning Strategy for Scotland, February 2003
10
HEPS Accounting for Sustainability Guidance – Section 1
statutory duty to promote sustainable development in everything it does19, and the
Welsh Education and Training Council is required to use sustainable development
principles in its procurement processes, and sustainability appraisal tools for all
programmes and projects.20
Learning and Skills Councils, Sector Skills Councils and Regional Development
Agencies all have responsibility to help deliver sustainable development.
Relationships with all of these agencies will be important for higher education
institutions, especially in the context of the regionalisation of government policy
– so being in step, if not providing leadership, will be important.
Moreover, there is evidence that potential and current higher education students
do care about sustainable development. For example, People and Planet, a leading
student organisation for global and sustainable development issues is now active
in 70% of UK universities.21 Studying in an institution that not only integrates
sustainable development into its teaching, but puts it into practice on campus, will
matter increasingly for student recruitment and retention. Schools, of course, have
had a statutory obligation to include sustainable development in the national
curriculum since September 2002.22
Learning and skills for the 21st century
So far there is no explicit policy link between sustainable development and the
debate over the learning and skills (and the research base) needed for the UK to
thrive in a competitive 21st century global economy, but there soon will be.
The importance this Government places on boosting knowledge and skills is evident
not only in the higher education White Paper, 21st Century Skills – Realising our
Potential 23 but also the recent avalanche of related publications and reviews:
• Our Competitive Future: Building the Knowledge Driven Economy, (DTI and
HM Treasury,1998)
• Report of the Council for Excellence in Management and Leadership,
Managers and Leaders: Raising our Game (DTI and DfES May 2002)
• Excellence & Opportunity: Science & Innovation Policy for 21st Century,
(DTI June 2001)
• Opportunity for All in a world of change, (DTI/DfEE, February 2001)
• Investing in Innovation: Science Engineering and Technology, (HM Treasury
July 2002)
• Sir Gareth Roberts’ Review of the Research Assessment Exercise (May 2003)
• Lord Sainsbury, Science and Technology Review (DTI July 2003)24
• HM Treasury-commissioned Lambert Review of Business-University Collaboration
(July 2003)25
• DTI and Office of Science and Technology review of Research Councils26
When considering the purpose of generating knowledge and skills and research
outputs, the link to sustainable development becomes obvious. For example,
the businesses that thrive into the 21st century will be those that can deliver
19
20
21
22
23
24
25
26
The Government of Wales Act 1998
Reaching Higher Education and the Learning Country: A strategy for the HE sector in Wales, March 2002
See People and Planet Annual Report 2001/2 (www.peopleandplanet.org)
See www.standards.dfes.gov.uk
See DfES July 2003 (www.dfes.gov.uk)
See www.britainusa.com
See www.hm-treasury.gov.uk
See www.cst.gov.uk
HEPS Accounting for Sustainability Guidance – Section 1
11
goods and services with radically lower inputs of energy and raw material – as
envisioned in the recent White Papers on energy27 and production and
consumption.28 The higher education teaching, research and knowledge transfer
responsibilities will all be affected. Graduates of any discipline who are
sustainability ‘literate’ will be at a premium, and the research councils are working
hard on cross-disciplinary programmes that look for explicit sustainability
outcomes. (See, for example, National Environmental Research Council (NERC)
activities on Sustainable Energy.)29
“Being literate in sustainability is a basic skills everyone, especially engineers,
should have,“
Lord Sainsbury, Minister for Science and Innovation, Department for Trade and Industry, 21 February 2003.
1.3
Government
30
Rhetorically at least, sustainable development is at the heart of government policy.
However, putting this relatively straightforward concept into practice is proving
difficult. (See Box 1)
The Government and the Treasury are backing sustainable development because
of the incontrovertible evidence. The consequences of accelerating environmental
degradation and persistent poverty, injustice and inequality are evident in so many
policy areas, as well as in the daily lives of people in both rich and poor countries.
This is happening in a world that is supposed to be richer than ever before. For
further details visit the websites of the World Watch Institute, the World Resources
Institute, the UN Human Development Programme and the Intergovernmental
Panel on Climate Change.31
The cascade of policies and strategies related to sustainable development over the
last few years proves that governments are convinced by the evidence of its
importance. A few examples are given here:
• Millennium Goals agreed at World Summit on Sustainable Development in 2002
• EU legislation on landfill, waste, water, carbon emissions and trading,
renewable energy obligations
• UK policy on energy and production and consumption
• UK Strategy on Sustainable Development (just starting its first five-year review)
and those of devolved administrations32
• Other UK Mechanisms to drive change in UK practice:
- The Environmental Audit Committee
- Cross Department Committee of Sustainable Development Ministers
- Treasury sustainability appraisal of departmental spending plans
- Government procurement policy
- Cabinet Office and public sector reform
- Amendments to the Pensions Act (making explicit ethical investment policy)
27 Our Energy Future – Creating a Low Carbon Economy, DTI February 2003
28 Changing Patterns; UK Government Framework for Consumption and Production, Defra and DTI, September 2003
(www.defra.gov.uk)
29 See www.nerc.ac.uk
30 During his speech made at Forum for the Future’s Engineers for the 21st Century event (See www.forumforthefuture.org.uk)
31 www.wri.org, www.worldwatch.org, www.undp.org, www.ippc.ch
32 See www.sustainable-development.gov.uk
12
HEPS Accounting for Sustainability Guidance – Section 1
• Sectoral sustainability trategies (eg construction, manufacturing, DTI’s
pioneer group33)
• Business sector initiatives including:
- environmental and social reporting (DTI has a minister for corporate social
Responsibility (CSR))
- Turnbull Report recommendations on internal governance
- Company Law Review
“Corporate social responsibility [is] broadening all the time into a belief that
economic, social, and environmental objectives can be pursued together and
in harmony.“
Gordon Brown, Chancellor of the Exchequer, speaking at the Future Wealth of Nations conference, 4 March 2003
Public Sector Reform
The Government is keen to see policies implemented quickly. It is concerned not
only that policy should be better designed to make implementation easier, but
also that, in the public sector especially, implementation should be seen to be
both effective and efficient. Public sector reform is being led by the Treasury and
the Cabinet Office, with the Prime Minister playing an active leadership role.
“Public services are the power of community in action. They are social justice
made real. [They] often work in systems and structures that are hopelessly old
fashioned, or even worse, work against the very goals they aim for.“
Tony Blair, Labour Party Conference speech, 2 October 2001
A number of Cabinet Office units are charged with making public service delivery
more efficient (financially) and effective (in delivering the outcomes intended by
the initial policy) under what is called The second phase of public sector reform:
the move to delivery. For example, the Regulatory Reform Unit has recently
published a report on the higher education sector looking at whether bureaucracy
hinders HEIs from carrying out their core activities of teaching and research.34
The emphasis on gearing the higher education sector up to meet demanding
challenges, both globally and nationally, will mean developing institutional
systems, for example: modernising human resource strategies and procedures;
revitalising business processes and structures; investing in development and
support for leaders, managers and governors. At the heart of these will be high
performing systems for accounting and reporting on progress.
In this section, policy and practice in the accounting and finance profession, in
higher education, and in Government have been reviewed, showing a logic
towards developing sustainability accounting techniques tailored to the needs of
the higher education sector.
Some of the arguments as to why this is a good thing in its own right have
been examined:
33 See www.dti.gov.uk
34 Regulatory Reform Unit, Higher Education Easing the Burden, Task Force Report, July 2002.
(see www.cabinet-office.gov.uk)
HEPS Accounting for Sustainability Guidance – Section 1
13
•
•
•
•
saving money
good governance
reputation
risk management.
A top driver, though, is the evidence-driven sustainable development policy of
government. This is still aspirational, but is becoming real through initiatives such
as HM Treasury’s revised aims and its sustainability appraisals of all departmental
spending plans. Further pressure on the higher education sector to consider more
integrated approaches to its accounting and performance management
procedures comes from the Government’s ambitions for public sector reform.
The next section gives an overview of sustainability accounting tools, concepts and
principles, to act as a reference to readers working through the more practical
guidelines in section three.
14
HEPS Accounting for Sustainability Guidance – Section 1
Section
Overview of sustainability accounting
2
Changing policy and practice in the accounting and finance profession, in higher
education and in Government makes the case for developing sustainability
accounting techniques tailored to the needs of the higher education sector. This
section of the guide brings together and clarifies:
• some tools for understanding sustainable development to assist in the
development of sustainability accounting techniques
• the concepts and principles that inform sustainability accounting
2.1
Tools for
understanding
sustainable
development
Sustainable =
capacity to continue
development =
path of human progress
Sustainable development =
a path for human progress that has the capacity to continue
There are many definitions of sustainable development. The one used by the
Government is given in Box 1 on page 7. But however expressed, development
will not be sustainable if economic, social and environmental goals are not
progressed simultaneously. A conscious effort has to be made to identify, and
avoid, the damaging trade-offs where, for example, a decision that is good
economically is not beneficial environmentally or socially. This means that the full
cost is not paid over the counter, but elsewhere, by a damaged environment, or
by the exploitation of people, either now (as with CO2 emissions and health
affecting pollutants) or in future generations.
The ‘at the same time’ (AST) test is important in helping to decide whether a
decision contributes positively to sustainable development. If the decision was
taken by considering the economic, social and environmental consequences (now
and in the future) at the same time, then it may well contribute to sustainable
development. There can be no certainty, of course, but the challenge is to increase
the probability that it does.
Tools – both intellectual and practical – will be required to enable the AST test to
be met. In this section, we give a brief explanation of some of the tools used by
Forum for the Future to help any person or organisation think through any decision,
large or small, in a sustainable development context. The tools are complementary
to existing quality and risk management processes and can provide a useful
framework to bring disparate elements of these together: for example,
environmental management systems, Investors in People and Balanced Score Card.
For a long time sustainable development has been presented as the triple bottom
line (by business), or for even longer as a set of overlapping circles (by engineers)
(see Figure 1).
HEPS Accounting for Sustainability Guidance – Section 2
15
Figure 1
Environment
Environment
Society
Economy
Society
Economy
Sustainable Development
The triple bottom line
Although these are useful ways of illustrating the concept of sustainable
development, here are two problems:
• neither figure suggests a way that sustainable development might be
operationalised
• both imply that there is equality between the three dimensions of sustainable
development
Let us deal with the second point first. As the nested circles in Figure 2 illustrate,
the real bottom line is in fact the environment. The ecological systems upon
which all life depends are governed by universal scientific laws and if we work
against them (which we are currently doing) we risk making part, or all, of the
environment uninhabitable. We can, however, as a society, decide to set objectives
for the way we develop, and the ethical and value system in which we wish to
operate. Finally, we can structure the economic system to help us meet those
objectives, within the ethical framework we have set. Although economics tries to
portray itself as being governed by laws that are as immutable as those that
govern the biological world, this is not true. Economic systems are a construct of
society and subject, therefore, to its direction.
Figure 2
Environment
Society
Economy
Even if the expression shown in Figure 2 of the concept of sustainable
development is accepted, it still only inches us towards understanding how it
may be implemented.
This is why Forum for the Future has developed an approach that draws on the
language of economists to expand the triple bottom line, and think of the major
classes of resources that are available to anyone to do anything. We have settled
16
HEPS Accounting for Sustainability Guidance – Section 2
on five classes of resources and, like any economist, would expect the stock of
these resources, if in good shape, to provide a flow of benefits. An economist
would call the stocks of resources ‘capitals’. What we call the five capital model of
the economy is illustrated, with some stocks and flows, in Table 1. It shows some
examples of the sort of benefits we would expect to enjoy if the stocks of each of
these capitals was maintained. A sustainable society can be thought of as living
off the income generated by capitals (flows) rather than degrading the capitals
themselves (stocks)35.
Table 1 Forum for the Future Five Capital Model of the Economy
Capital/Resource
Stock
Flow36
Natural
Land, sea, air, vegetation,
ecological systems
Food, water, energy, waste
disposal, climate
Human
Knowledge, skills, health,
motivation, spiritual ease
Happiness, creativity,
innovation, work, energy,
participation
Social
Families, communities,
organisations, governance
systems, schools
Security, shared goods
(eg, culture, education)
inclusion, justice
Manufactured
Infrastructure, roads,
buildings, tools, fixed
assets
Living/working space,
access, distribution,
recyclates
Financial
Money, stocks, bonds,
banknotes
Means of valuing, owning
or exchanging other four
capitals
The economy (or more accurately, society) has chosen not to invest in natural,
human or social capital in the same way as it does in manufactured capital, but
this is changing. It is all too obvious now what happens if there is poor investment
in manufactured capital – the railways, for example. Similarly, neglecting (the
right kind of) investment in education, communities or maintaining the quality of
the environment, leads to interruptions in the respective flow of benefits, for
example, a skilled workforce, safe neighbourhoods and a stable climate. The use
of this model is spreading. For example, the World Bank, the Department for
International Development, Interface (the worlds largest manufacturer of carpet
tiles) and Wessex Water use this model to help them think through their strategies
for, respectively, world development, poverty relief and business excellence.
Approaching the model from the perspective of economics or accounting, the
question may be asked whether different types of capital can be substituted.
There are those who would argue that sustainable development implies there
should be no diminution in total capital stocks, so that a reduction in stock in one
area – such as social progress – can be counterbalanced by a gain in the stock in a
different area – such as economic growth. Others consider, however, that the
stocks are not substitutable. Manufactured goods such as affordable air
35 An idea articulated well by E F Schumacher in Small is beautiful: a study of economics as if people mattered, 1972
36 The flow can be positive or negative, depending on the quality of the stock.
HEPS Accounting for Sustainability Guidance – Section 2
17
conditioning systems are no substitute for environmental services that deliver the
benefits of a reasonably stable climate.
In either case, the five capital model of the economy offers a framework
within which to examine the impacts of any activity or institution, enabling
decision makers to see the positive and negative effects of their decision on the
environment and on people, as well as financially. It can help demonstrate
(to auditors, various stakeholders, potential funders, etc.) that the decision has
undergone an AST test. If used thoughtfully, the framework may also help to
clarify investment priorities in order to optimise positive and minimise negative
outcomes.
Using the five capitals on one axis, and the three manifestations of a university or
college on another (overleaf), it is possible to map what the institution is doing to
maintain, ideally enhance, but certainly not erode each of the five capitals:
• as a business in its own right (procuring services, managing people and buildings)
• as a leader in provision of learning and research (what an HEI is in business to do)
• as a major influence on the community (where the HEI carries out its business).
The Sustainability Appraisal Grid (Figure 3 on page 19) has been used in the HEPS
to map contributions to sustainable development at university level, or for a
specific initiative such as building a new swimming pool or evaluating a transport
plan. The word contribution is important here, as each university or college has
a different mission, and so have different contributions to make. For example the
number of jobs created in the local economy will vary according to the size and
location of the institution, and the mass of resources an institution uses will
depend on the areas of teaching and research.
Completing and regularly revising a Sustainability Appraisal Grid is a useful
starting point for a university or college that is considering using sustainability
accounting techniques. It is also a useful management tool in itself, as it highlights
gaps and connections that can aid more efficient allocation of resources across the
institution. An illustration of some of the things that might go into a grid is shown
in Figure 4 on page 20.
18
HEPS Accounting for Sustainability Guidance – Section 2
Figure 3 Sustainability Appraisal Grid
What can the
university (or activity)
do to enhance the
‘stock’ of the following
resources, or ‘capitals’?
Three ways in which a university manifests itself
As a business
As a place of learning
and research
As a key member of
the community
NATURAL
The resources and
services provided by the
natural world
1
2
3
HUMAN
The energy, motivation,
capacity for relationships
and intelligence of
individuals
4
5
6
SOCIAL
The social groupings
that add value to
individuals (eg, families,
communities,
parliaments, universities)
7
8
9
MANUFACTURED
The ‘stuff’ that exists
already – buildings,
railways etc. Can it be
used in a way that
requires fewer resources
and more human
creativity?
10
11
12
FINANCIAL
The money, stocks etc.,
that enable us to put
a value on, and buy and
sell the above resources.
Are there ways that
financial value can more
accurately represent
the real ‘cost’ of using
these resources?
13
14
15
The boxes have been numbered for ease of reference when using the grid.
HEPS Accounting for Sustainability Guidance – Section 2
19
Figure 4 Sustainability Appraisal Grid illustrating what a university might do to contribute
to sustainable development
20
What can be done to
maintain or enhance
the ‘stock’ of the
following resources, or
‘capitals’?
Three ways in which a university ‘manifests’ itself
As a business
As a place of learning
and research
As a key member of
the community
NATURAL
The resources and
services provided by the
natural world
1. Use resources
efficiently
• Reduce energy and
raw material use
• Drive waste out of
the system
2. Develop the new
economy
• Exploit teaching,
research, business
development
opportunities in lowcarbon, high human
creativity economy
3. Conserve, enhance
the environment
• Subscribe to low
impact travel schemes
• Increase biological
mass and diversity (on
campus and locally)
HUMAN
The energy, motivation,
capacity for relationships
and intelligence of
individuals
4. Attract and keep
good staff
• Create community
of purpose for
staff, students, other
stakeholders
• Be a values-led
organisation
• Ensure healthy
working culture and
physical environment
• Be active on diversity
5. Provide good
student experience
• Be a values led
organisation
• Ensure healthy
working culture and
environment (a new
‘conviviality’ quotient)
Enhance employability
of graduates
• Ensure sustainability
literacy for all
6. Promote Life Long
learning
• Mix on/off campus
learning experiences
for both students and
community (workbased learning)
• Clear learner paths in
and out of HE – from
school, FE, work,
non working
SOCIAL
The social groupings
that add value to
individuals (eg families,
communities,
parliaments, universities)
7. Provide
good governance,
management
• Ensure clarity and
coherence in strategic
planning and well
trained managers
• Modernise charters,
decision-making
systems to ensure
transparency and
democracy
8. Anticipate future
markets for graduates
• Articulate and meet
21st century challenges
through teaching,
research, knowledge
transfer
• Promote a vision of the
future that engages
new generations
• Prepare graduates for
multi-disciplinary
approaches to problem
solving
9. Respond to other
policy agendas
• Ensure equal
opportunities/access,
and other human
rights
• Understand employer
demand in context
of future needs
Renew purpose of HEI
• Provide leadership
for society in complex,
rapidly changing times
• HE to set as well as
respond to agendas
HEPS Accounting for Sustainability Guidance – Section 2
Figure 4
What can be done to
maintain or enhance
the ‘stock’ of the
following resources, or
‘capitals’?
Three ways in which a university manifests itself
As a business
As a place of learning
and research
As a key member of
the community
MANUFACTURED
The ‘stuff’ that exists
already – buildings,
railways etc. Can it be
used in a way that
requires less resources
and more human
creativity?
10. Demonstrate best
value in use of estates
• Ensure building
design, refurbishment,
all estate management
is best practice
for purpose and for
environment
• Forge local
partnerships (eg
renewable energy
generation)
11. Excellence in
research & teaching
• Integrate student
learning with campus
improvement, and
community experience
• sustainability research/
consultancy
• Encourage innovation
for sustainable design
solutions
12. Promote
community relations,
outreach
• Share sports, library
other facilities
• Build portfolio of joint
ventures for student,
staff and local
residents
• Sustainable transport
partnerships
FINANCIAL
The money, stocks etc
that enable us to put
a value on, and buy and
sell the above resources.
13. Save money/
be efficient
• Use whole life costing
• Invest ethically
(eg pensions)
• Provide incentives for
adding value to
physical resources
14. Compete
internationally/
regionally
• Structure internally
and make relationships
to facilitate
ideas-innovationimplementation
process
• Export models and
programmes
15. Modernise risk
management
• Report on
environment and
social impacts as well
as financial
• Use procurement
strategies to support
local markets and
ethical trade
HEPS Accounting for Sustainability Guidance – Section 2
21
2.2.
Concepts and
principles
of sustainability
accounting
The sustainability appraisal grid is a good way to start thinking about the many
aspects of sustainability at the same time and consider how they work together in
an HEI. This section explains the various concepts and principles behind
sustainability accounting and concludes by drawing these two parts together into
a sustainability accounting framework. Practical guidance on using this framework
follows in section three.
The main concepts and principles that inform sustainability accounting are:
•
•
•
•
•
•
the three dimensions of sustainability accounting
internal sustainability accounting
external sustainability accounting
shadow accounts and balance sheets
restoration and avoidance values
stakeholder identification.
The three dimensions of sustainability accounting
Financial accounting traditionally records the financially related stocks and flows of
an organisation in the form of the profit and loss account and the balance sheet,
respectively. Sustainability accounting tries to provide extra information that can
be thought of in three different dimensions:
1. Timing - in this dimension the information can provide a snapshot in time of
the state of the stock of goods and services, or, over a period of time, the flow
of goods and services arising from the stock.
2. Location of impact - this dimension considers where the impact is located in the
accounts. Is it already within the HEI’s financial reporting boundaries - internal –
or is it outside the traditional reporting boundaries – external?
3. Type of impact - this dimension identifies the impact as either environmental,
social or economic. The types of impact can be disaggregated into the five
capitals (see Table 1).
The Sustainable Economy Programme at Forum for the Future has developed the
Sustainability Accounting Cube to illustrate these three distinct dimensions of
sustainability accounting (see Figure 5). The cube is used to help explain the
difference between traditional accounting and sustainability accounting, internal
and external sustainability accounting and the role of the balance sheet.
22
HEPS Accounting for Sustainability Guidance – Section 2
Figure 5 The Sustainability Accounting Cube
Timing of impact
Flow
Internal
Social
(Social & human)
External
Economic
(Manufactured & financial)
Location of impact
Stock
Environmental
(Natural)
Type of impact
For simplicity, we have clustered the type of impact as economic, social and
environmental for the remainder of this guidance.
Traditional financial accounting only includes the internal stocks and flows of
financial value on the balance sheet and profit and loss account respectively.
Sustainability accounting desegregates the internal accounts to show costs and
benefits relating to economic, social and environmental performance. It also extends
the accounting boundary to consider the monetary value of external impacts.
Figure 6 From traditional to sustainability accounting
Traditional accounting
Sustainability accounting
Timing of impact
Timing of impact
Flow
Social
Environmental
Environmental
Type of impact
Type of impact
External
Economic
Internal
External
Social
Internal
Economic
Stock
Location of impact
Flow
Location of impact
Stock
Moving from traditional accounting to sustainability accounting requires
adjustment and extension to the primary statements in the following ways:
• Restatement of the profit and loss account to show costs and benefits
relating to economic, social and environmental performance (internal
sustainability accounting, see page 24).
• Extension of the profit and loss account to encompass the external costs
and benefits to the environment, society and the economy, which are not
traditionally taken into account (external sustainability accounting, see page 25).
HEPS Accounting for Sustainability Guidance – Section 2
23
• Extension of the balance sheet to take account of the full range of assets
(including intangible assets such as brands, human capital or reputation as they
relate to sustainability); and ‘shadow’ liabilities (including liabilities relating to
sustainability risks) of the organisation (see page 26).
Internal Sustainability Accounting
These accounts summarise the internal financial flows associated with
performance in the economic, social and environmental dimensions. Costs and
benefits that are already included in the financial accounts are reorganised to
show previously hidden links, for instance, between prominent environmental
expenditure and previously hidden savings. The information is extracted from
existing accounting systems and re-presented to show the sustainability related
elements of current expenditure, which are linked with associated financial
benefits (in terms of extra revenue or avoided costs) or costs incurred.
There is obviously no single definition of what constitutes environmentally or
socially related expenditure and this will vary according to the nature of the
institution and its activity. Examples could include the cost of special insurance
fees to cover the use of hazardous chemicals, or the cost incurred by making a
website or lecture room accessible for students of all abilities to conform with the
Disability Discrimination Act 1995. Hidden savings could include the reduction in
waste disposal costs as a result of undertaking a recycling programme, savings on
energy bills due to an energy efficiency programme (see University Carbon Club in
Box 3) or the increase in student fees as a result of a new marketing campaign.
Internal sustainability accounting helps make the link between these hidden costs
and benefits and financial performance more visible, thereby providing decision
makers with a more complete picture of the institution’s operations.
Section three provides detailed examples of the different ways of restating internal
flows (costs and benefits) and internal sustainability accounting is shown in columns
two, three and four in the Sustainability Accounting Framework (Table 4, page 34).
Box 3
EU Carbon Emissions Trading Scheme
The European Carbon Emissions Trading Scheme comes into force on 1
January 2005. All organisations with a combustion installation on site that has
a thermal input greater than 20MW will be required to enter the scheme.
Organisations participating in this scheme will have to reduce their carbon
emissions according to set targets or face steep penalties. Some HEIs have
already been identified as applicable for the scheme.
The University Carbon Club has been set up to help HEIs reduce their carbon
emissions. The universities of Brighton, Brunel, Edinburgh, King’s College
London, Loughborough, Middlesex and Plymouth have already taken steps to
reduce their emissions through energy efficiency measures and the purchase
of renewable energy. The participating universities set themselves annual
targets to reduce their aggregated CO2 emissions. These universities have
made a collective saving of £500,000 to their energy bills over 2002/2003,
and are a step ahead of other HEIs who may not yet have considered the
implications of the scheme.
24
HEPS Accounting for Sustainability Guidance – Section 2
A university’s traditional accounts can be reorganised to show that the costs
of reducing carbon emissions are associated with the savings made on energy
bills. When the connections between costs and benefits are made explicit in
this way it is easier to make decisions about the deployment of financial
resources. Internal sustainability accounting is a technique to achieve this.
The Carbon Club is managed by Battle McCarthy37, and more information
about the trading scheme can be found on the Defra website.38
External sustainability accounting
While internal sustainability accounting deals with financial flows that are already
recorded somewhere in the institution’s financial accounts, external sustainability
accounting deals with the costs and benefits (externalities) that are not currently
accounted for by the institution.
Through their activities and operations, HEIs add and subtract value from society,
the environment and the economy. Universities UK has attempted to establish
some of the value the sector adds to the economy and society (see page 27).
There have also been some attempts to express in financial terms a university’s
contribution to the local economy and society.
Box 4
The impact of Loughborough University on the local economy
Loughborough University has estimated that the total annual impact of the
university on the output of the local economy is estimated to be £18.8
million. This calculation will include data that does not currently appear within
the university accounts, for example earnings through jobs created and money
spent on local services such as cinemas and taxis. The university is using this
calculation to help convince local residents of the value of more students,
“who are better known for anti-social behaviour than for economic and
voluntary contributions“.
Source: Times Higher Education Supplement, 1 August 2003
Social and environmental costs and benefits may either be recorded on someone
else’s balance sheet or not captured at all. For example, the costs to a community
of a large student population may include increased traffic congestion and rising
property prices near student accommodation. External benefits may include the
community’s enjoyment of university facilities such as swimming pools, libraries,
theatres, and the environmental gains of maintained green space on university
land (in terms of pollution absorption and biological diversity).
Often an impact will have both internal and external components. For instance,
stress has impacts both inside an organisation through lost productivity and
outside an organisation through the way it affects the quality of life of the
employee and family. The impact to the organisation is internalised as lost
37 See www.battlemccarthy.com
38 See www.defra.gov.uk
HEPS Accounting for Sustainability Guidance – Section 2
25
productivity and could be drawn out in one of the internal sustainability accounts.
The wider impacts on the individual and society (such as the associated cost to the
NHS for treatment) are not internalised and so would appear in an account of
external social costs.
Sustainability balance sheet accounting
The two sections above deal with the flows of costs and benefits – the internal
and external profit and loss accounts. These flows can be translated into changes
in stocks. However, the way the value of stocks, (rather than the changes in
them), should be represented is a less developed aspect of accounting.
Theoretically, a sustainability accounting balance sheet could report a snapshot of
the environmental, social and economic stocks, inside and outside the
organisation. A sustainability profit and loss account would then recognise the inand out- flows of these stocks over time. This has not yet been attempted in a
systematic fashion anywhere.
Present practice on the balance sheet already considers the internal generation of
stocks. For example, the institution’s brand, the quality of its people and its
reputation are all valuable stocks. These intangible assets are internal stocks on
which the organisation may want to put a monetary value and incorporate into
the traditional accounts to assist its decision making.
Box 5
Intangible assets
In October 2001, the European Commission began funding a two-year
programme of economic research, bringing together leading experts from
the business, academic and policy communities to focus on intangibles
and how they relate to policy-making, reporting and measurement,
skills development and management. The outputs of this programme were
presented at a conference in the Cass Business School in July 2003 and
include policy recommendations, case studies and research papers
(totalling more than 60). The website www.euintangibles.com provides a
comprehensive source of information and publications relating to intangibles.
The SORP for further and higher education defines goodwill and negative
goodwill as intangible assets and does provide scope for these to be
monetised, under certain conditions.
“A purchased intangible asset should be capitalised at cost. An intangible
asset acquired as part of a business combination should be capitalised
separately if its value can be measured reliably. An internally developed
intangible asset may only be capitalised if it has a readily ascertainable
market value.“39
An organisation also has an impact on the external environment, society and
economy, outside its own boundaries. These may include the human capital of its
employees at home or after they leave the organisation, the social capital of
the communities in which the organisation operates and the natural capital on
39 Universities UK, October 2003
26
HEPS Accounting for Sustainability Guidance – Section 2
which it relies. Do the organisation’s activities increase the stock of human
happiness? Do they contribute to increasing stocks of natural capital?
Box 6
The costs and benefits of universities to the economy and society
The Times Higher Education Supplement “Town and Gown“ series made
attempts to describe the value universities add, or take away, from society and
the economy, although these have rarely been put into monetary terms.
• For every 100 jobs within institutions themselves, 89 other jobs
were created.40
• “About a quarter of my [taxi] business is taking students and other people
to and from the university“(Loughborough)
• The University’s £14.5 million Sportspark – including an Olympic size
swimming pool – is open to anyone for a 50p fee (Norwich)
• Average house prices increased by 18 per cent in East Anglia in the year to
30 June (Cambridge)
• “While Headingley is quite busy and noisy from September to June, and
there does tend to be litter and debris in the streets and late-night high
spirits, it can feel a bit like a ghost town in the summer when they have
left“ (Leeds).
Source: The Times Higher Education Supplement. 8, 15, 22, 29 August 2003
The external social and economic impacts of an institution are, however, far more
commonly expressed in non–financial terms, as shown below. The external social
and economic costs and benefits of an HEI have been expressed in places, albeit in
non-financial terms. However, little has been done so far to account for and
report on the external environmental impacts of a university’s operations. By
contrast, environmental accounting (and reporting) is becoming more common in
the corporate world. Anglian Water Services, Wessex Water, Bulmers (a cider
maker), construction firm Carillion, retailer Marks & Spencer, and Interface are
using Forum for the Future’s environmental accounting methodologies to
account for and better manage their impact on the environment. For two years
running, Wessex Water has published its full external cost accounts alongside its
conventional financial statements in its annual report.41 While the externalities
for an HEI would be very different to those for a water company, the principles of
measuring current performance, setting a target and estimating how much it
would cost to meet that target would be the same for a university or a company.
40 Universities UK, The impact of higher education institutions on the UK economy, May 2002
41 Wessex Water Services Ltd, Annual Review and Accounts (2002): Clear Commitment, 2002
HEPS Accounting for Sustainability Guidance – Section 2
27
Table 2 Anglian Water Services External Environmental Cost Accounts for 2002
Anglian Water Services External Environmental Cost Accounts
Emissions/Impacts
Emissions
(tonnes)
Reduction Target
(tonnes)
(sustainability gap)
312,052
847
1,765
187,231
508
1,059
IMPACTS TO AIR
Direct Energy
Electricity consumption
706 million kWh
CO2
NOx
SO2
Total (avoidance)
Natural gas consumption
10 million kWhs
(CO2 only)
Fuel oil – 370,000 litres
(CO2 only)
9,672
1,833
1,100
6
7
992
595
6
4
87,000
6
522
4848
28
6
2,800 - 14,000
29
355
4,683
50
6
2,800-14,000
28
719
2,241
47
6
2,800-14,000
13
485
12,199
147
6
2,800-14,000
73
1889
780
2<
6
14,000
5
24
13,825
Process related emissions
Methane (CH4) emissions
from waste water treatment 145,000
(expressed as CO2
equivalent)
Road Transport
Company cars, car
derived vans and panel vans
44 million km
8079
CO2
NOx, HCS and particulates
34
Commercial vehicles (LGVs)
9.75 million km
7,805
CO2
NOx, HCS and particulates
61
Commuting
30.36 million km
CO2
3,735
NOx, HCS and PM
58
Contractors
41.2 million km
20,332
CO2
NOx, HCS and PM
182
Air travel
CO2
NOx
Total costs carried forward
28
£’000S
To deliver the relevant sustainability
targets
Unit Avoidance and
restoration costs
where applicable
780
2<
HEPS Accounting for Sustainability Guidance – Section 2
Table 2
Emissions/Impacts
Emissions
(tonnes)
Reduction Target
(tonnes)
(sustainability gap)
£’000S
To deliver the relevant sustainability
targets
Total costs brought forward
13,825
IMPACTS TO LAND
Contaminated land
(restoration of 600 acres
of sacrificial and
dedicated land)
1,000
600
IMPACTS TO WATER
Abstraction at
vulnerable sites
- provision of alternative
supplies at priority sites
2,000
Rounding
25
Total sustainability cost
16,450
Profit after tax per
the financial accounts
Outstanding
Environmentally
sustainable/adjusted profit
To be calculated
HEPS Accounting for Sustainability Guidance – Section 2
29
Restoration and avoidance values
Sustainability accounting techniques can be criticised for trying to put a monetary
value on things that are, sometimes, literally “beyond value”. For example, how
do you put a monetary value on a white rhino, a patent ozone layer, a human
life? The moral debate over this is likely to continue. For organisations that
do decide to put a monetary value on something that has traditionally not been
valued in this way, there are a number of valuation techniques available.
The valuation techniques recommended in this guidance are based on the work of
Forum for the Future and others, and concentrate on restoration or avoidance
values. Notes on other techniques are given in Appendix 3. The use of avoidance
or restoration costs is in line with the United Nations recommendations for
environmental adjustments to the national accounts. What would it cost to restore
contaminated land? What would it cost to avoid the emissions of CO2? For many
of these costs market values are available; for example, the cost of sequestering
carbon or purchasing energy from renewable sources in the first place. These last
costs will be particularly relevant for those universities who will come under the
EU carbon emissions trading scheme when it starts in 2005 (see Box 3).
Environmental accounting has been under development for much longer so it can
refer to a scientific validated baseline against which restoration and avoidance
costs may be measured. (see Appendix 3 for some of these figures). However, a
similar scientifically rigorous approach to social impacts (positive or negative) is in
its infancy. For instance, there will be different views about how best to define
acceptable (ie baseline) blight from close proximity to student accommodation.
Nevertheless, work on metrics for accounting for social costs and benefits is
underway, and universities, as institutions with major social as well as
environmental and economic impacts, have an opportunity to contribute greatly
through developing and trailing them (academically, as well as practically).
Again, examples of using restoration values for environmental costs can be found
in the corporate sector. For example, Anglian Water Services has published the
impact of the company’s sustainability costs on its reported profits within the final
accounts and review.42 The sustainability cost estimate represents the cost to the
company of restoring the damage resulting from its most significant external
environmental impacts over a particular accounting period.43
In Appendix 3, we give an overview of various environmental evaluation methods
and in Appendix 4 we list specific methods and sources of further information for
different environmental impacts.
Stakeholder Identification for Sustainability Accounting
Box 7
Users of a higher education institutions reports and
financial statements
The SORP for higher education has identified the following groups as the
potential users, to varying degrees, of an institution’s reports and financial
42 Anglian Water Services plc, The right structure for sustainable growth, Sustainable development report 2002
43 Howes, R, Coming of Age, Environmental Finance November 2002
30
HEPS Accounting for Sustainability Guidance – Section 2
statements. Many of these users will also be interested in the non-financial
reports of institutions. These user groups may have differing needs in detail,
but certain key elements, including the need for clarity, comparability and
accountability, are common to all:
•
•
•
•
•
•
•
•
•
the governing body of the institution
the funding councils
Government departments and Parliament
the institution’s employees (past, present and future)
the institution’s students (past, present and future)
lenders and creditors
other institutions, schools and industry
grant-awarding bodies, donors and benefactors
the general public.
There are several ways of designing the reporting framework for sustainability
accounting. Anglian Water Services and Wessex Water, for example, use
environmental media for their (external) environmental accounts (see pages 28
and 29). Less developed are financial statements of social impacts. To date,
organisations reporting on their (external) social impacts have focused on one
element; for example, the Co-operative Bank on its customers and the London
Benchmarking Group on their involvement with the community.44
For the purposes of this guide we propose to use a framework based on
stakeholders, those who are affected by or can affect an activity or organisation.
Not only is this a useful way of thinking about the interests of the very large
number of bodies involved with a university or college, it is also the recommended
approach of the SORP for further and higher education. If the objectives of
financial statements and reports are governed by the needs of users and potential
users, why not organise and present them in this way?
Of course, it is up to individual institutions to consider which categories of
stakeholders will work best for them; however, the recommendation is that the
scope be as wide-reaching as possible. The Sustainability Appraisal Grid on page
19 can help with this scoping exercise. Even if ‘graduating’ elements from the
scoping exercise to formal accounting process takes place over a period of time,
holding and occasionally reviewing the whole picture makes sense in risk and
other management terms. The benefits of using stakeholders in the sustainability
accounting framework for a HEI are:
• it is consistent with the SORP for higher education (see Box 7)
• it captures areas relevant to sustainability accounts that may not be immediately
obvious to finance directors of higher education institutions
• it enables better relationships to be established, and collaboration secured for
future data gathering
• it may satisfy the formal reports required by stakeholders (financial and nonfinancial) on performance (eg, public and private investors, grant awarding
bodies, funding councils)
44 See www.lbg-online.net
HEPS Accounting for Sustainability Guidance – Section 2
31
• it helps achieve clarity of reporting and accountability expectations on both
sides, particularly if the stakeholders are involved in the process.
For the purposes of this guide we have identified six significant stakeholder
groups. These are listed in Table 3. Different institutions may wish to add, subtract
or unpack any of these, depending on their mission and priorities.
Identifying the costs and benefits associated with the stakeholders and
categorising these as internal or external, environmental, social or economic is the
essence of the sustainability accounting framework. This is illustrated in Table 4.
Practical guidance on how this information can be integrated into the accounting
systems is outlined in the next section.
The Sustainability Accounting Framework shows the internal and external costs
and benefits associated with particular groups of stakeholders. It is up to the
individual HEI to select the appropriate stakeholder groups. In the example in Table
four we have used six groups of stakeholders. For each stakeholder group the
costs and benefits (or flows) have been categorised as environmental, social or
economic as well as internal or external. The net value added is the sum of all of
the benefits (row 1) minus the sum of all of the costs (rows 2 + row 3 + row 4,
etc.), as illustrated in Table 4.
32
HEPS Accounting for Sustainability Guidance – Section 2
Table 3 Examples of stakeholder groups for an HEI
Stakeholder group
Examples of members
1
Customers and
users (of higher
education services
and products)
Students (past, present and future)
Graduate employers
Research and consultancy clients
Research councils
Professional bodies
Funding councils and other public grant makers
2
Suppliers
Of goods (materials, food, buildings, energy)
Of services (maintenance, waste removal, training)
3
Employees
Academic staff
Non-academic staff
Trade and professional associations (AUT,
Universities UK, BUFDG, AUDE etc.)
4
Community
Community groups (resident, special interest)
Transport operators
Local businesses
Housing associations
Local amenity providers (recreation)
Local schools
NGOs
5
Public sector
Government departments
Regulatory bodies (eg Quality Assurance Agency)
Regional government offices
Regional Development Agencies
Learning and Skills Council
Sector Skills Councils
6
Investors and
Governance
University governing council
Pension fund trustees
Grant awarding bodies
Donors, benefactors
Higher education and sustainability policy makers
HEPS Accounting for Sustainability Guidance – Section 2
33
Table 4 Sustainability Accounting Framework, illustrated with examples of internal and
external costs and benefits to an HEI
STAKEHOLDERS
INTERNAL
2 Social
1 Environmental
3 Economic
Costs and benefits
34
1
Customers
and users
Research and
consultancy income.
Savings on reduced
waste disposal costs.
Savings on insurance
for hazardous waste.
Income from visitors and
other users.
Income from grants,
research funds, student
fees, endowments.
2
Suppliers
Energy costs associated
with use of products.
Disposal costs.
Supply chain
management costs
and savings.
Payments for materials
and services purchased.
Maintenance, running,
refurbishment costs.
3
Employees
Workplace savings
(eg energy, paper
efficiency). Income from
car parks, investment
in bike racks/showers.
Cost of training and staff
development. Savings from
improved productivity.
Cost of compliance with
DDA, Equal opportunities
– savings on recruitment
costs.
Total remuneration
to employees (including
wages, training and
benefits).
4
Community
Contribution to local
conservation projects.
Contribution to local
schools activities,
volunteering, Local
Strategic Partnerships.
Payments from visitors
to university amenities.
Savings from shared
facilities.
5
Public sector
Environmental taxes,
landfill tax, disposal costs,
licences, fees, penalties,
grants tax savings.
Cost of staff training
for compliance with
health and safety,
QAA inspections.
Regulatory charges,
taxes.
6
Investors and
Governance
Interest payments
on environmental
investments.
Interest payments on
social investments.
Interest payments on
loans, dividend
payments.
7
Net value added
HEPS Accounting for Sustainability Guidance – Section 2
= (row 1) – (row 3 + row 4 + row 5 + row 6)
Table 4 continued Sustainability Accounting Framework, illustrated with
examples of internal and external costs and benefits to an HEI
EXTERNAL
5 Social
4 Environmental
6 Economic
Costs and benefits
Student transport, litter.
Impacts of learning/
research on graduate
ability.
Student impact on
local community,
(noise, culture, tourism,
volunteering).
Impact on house prices.
Money spent in
locality. Contribution of
knowledge and skills
to economy.
Environmental impacts
associated with
production of purchased
goods.
Health and social costs
associated with
production of purchased
goods.
Impact on local economy
in place of production.
Costs, benefits of staff
travelling to/from work.
Impacts of resource use
in workplace (energy,
water, food, equipment).
Benefits to families of
employees, amenities
used.
Jobs created in locality,
money spent on local
goods and services.
Pollution from traffic, and
other emissions to land,
water and air. Contribution
to Biodiversity Action Plan.
Student volunteering,
community benefit of
sports facilities, libraries,
noise, etc.
Impact on local economy
from tourism generated
by university.
Contribution to local and
regional government
environmental
targets/strategies.
Contribution to regional
and local government
skills agendas for region.
Knowledge and skills
created for UK economy.
Environmental impacts of
companies pension
funds, etc.
Social impacts of
companies pension
funds, etc.
Investment in companies
operations.
= (row 1) – (row 3 + row 4 + row 5 + row 6)
HEPS Accounting for Sustainability Guidance – Section 2
35
36
HEPS Accounting for Sustainability Guidance – Section 2
Section
Practical guidelines for users
3
The previous section of this guidance gave an overview of sustainability accounting,
with an explanation of some of the key concepts and principles involved,
together with a short introduction to ways of understanding what sustainable
development is and how a university can make a contribution. The section ended
with a presentation of the Sustainability Accounting Framework on page 34;
this framework illustrates some of the costs and benefits pertinent to a
University’s stakeholders, which are possible elements to be included in the
sustainability accounts.
This section focuses on the practical steps to be taken by an organisation that
wants to introduce sustainability accounting. Some of the concepts introduced in
the previous section are revisited in this one though the reader is encouraged to
refer back to section two while working through section three.
This section is divided into three parts:
3.1 Internal sustainability accounting: restatement of traditional financial accounts
3.2 External sustainability accounting: extension to traditional financial accounts
3.3 Sustainability balance sheet: extension of the balance sheet to take into
account the full range of assets including intangible assets and
‘shadow’ liabilities
These guidelines give emphasis to internal sustainability accounting because this is
what some HEIs are already doing. Moreover, the requirements on reporting by
the funding councils and others means that some of the non-financial data and
information is already available. For example, HEIs are already reporting on student
retention rates, widening participation progress and, in some cases, energy use.
External sustainability accounting is a challenge for any sector. Our experience,
however, is that the most compelling stories, and the most important issues, are
highlighted by considering the external costs and benefits of an organisation. The
corporate sector has made significant progress in environmental accounting.
However, considering the sustainability balance sheet, with a view of the value of
stocks of an organisations’ assets and liabilities, both internally and externally, is
still in the realms of early experimentation. Sustainability accounting presents an
opportunity for the higher education sector, for research as well as in practice.
Forum for the Future recommends that an organisation start with internal
sustainability accounting and then move to external sustainability accounting, and
in both cases use the sustainability balance sheet.
HEPS Accounting for Sustainability Guidance – Section 3
37
3.1
Internal sustainability
accounting:
restatement of
traditional financial
accounts
Internal sustainability accounting involves a restatement of existing financial flows
(costs and benefits) of sustainability performance. The accounts are, in effect, represented to show the sustainability related elements of current expenditure. They
cover the front right hand quadrant of the cube (Figure 7).
The internal flows (costs and benefits) are illustrated as the front right hand
quadrant of Figure 7.
Figure 7
Timing of impact
Flow
External
Social
Internal
Economic
Location of impact
Stock
Environmental
Type of impact
The process to achieve internal sustainability accounting has been outlined below
as six steps which are explained in the following paragraphs.
1. Identify the stakeholders
2. Determine the scope
3. Prioritise areas to be incorporated into the account
4. Restate the consolidated income and expenditure account
5. Add the costs and benefits related to environmental and social performance
to the restated accounts
6. Report the internal sustainability accounts alongside the traditional accounts.
1. Identify the stakeholders
Identify the individuals and groups of people who are likely to affect or be
affected by the institution or activity being accounted for and involve these people
in the process from the start. Use the stakeholder table as a prompt (Table 3).
2. Determine the scope
Identify the economic, social and environmental areas where the organisation or
activity could have an impact using the Sustainability Appraisal Grid (Figure 3).
Use the completed grid on page 20 as a prompt if you need it.
38
HEPS Accounting for Sustainability Guidance – Section 3
Figure 3 (as page 19) Sustainability Appraisal Grid
What can the
university (or activity)
do to enhance the
‘stock’ of the following
resources, or ‘capitals’?
Three ways in which a university manifests itself
As a business
As a place of learning
and research
As a key member of
the community
NATURAL
The resources and
services provided by the
natural world
1
2
3
HUMAN
The energy, motivation,
capacity for relationships
and intelligence of
individuals
4
5
6
SOCIAL
The social groupings
that add value to
individuals (eg, families,
communities,
parliaments, universities)
7
8
9
MANUFACTURED
The ‘stuff’ that exists
already – buildings,
railways etc. Can it be
used in a way that
requires fewer resources
and more human
creativity?
10
11
12
FINANCIAL
The money, stocks etc.,
that enable us to put
a value on, and buy and
sell the above resources.
Are there ways that
financial value can more
accurately represent
the real ‘cost’ of using
these resources?
13
14
15
HEPS Accounting for Sustainability Guidance – Section 3
39
At this stage it is important to be as comprehensive as possible, and to keep a
record of this scoping exercise to avoid the disaggregation of environmental,
economic and social outcomes of financial investment that lies at the root of
unsustainability. Sustainability is all about thinking of each concept in the context
of the other in order to minimise negative outcomes and maximise positive ones.
In addition, it is important to determine whether the accounts will include all
downstream cost and benefit flows (affecting the main users of the HEI services,
such as students or research bodies), as well as upstream costs and benefits
(relating to environmental or social specifications on goods and services supplied).
We recommend, and have assumed for the purposes of this guide, that the
accounting will encompass upstream and downstream cost and benefit flows for a
whole HEI.
3. Prioritise areas to be incorporated into the accounts
Select some areas to incorporate into the accounts in accordance with the mission,
or other objectives of the institution, and if possible the stakeholder’s views. Justify
this prioritisation and do not worry if you start with very few areas. That is how
companies and other organisations are doing it. As a rule of thumb it is best to:
• start with the areas where financial data may be readily available, and then add
as capacity to collect and process data and confidence develops
• try to get a balance between nationally important areas (eg, CO2 emissions),
sectorally important data (eg, relating to widening participation) and data
important to your institution (eg, staff recruitment and retention)
• develop the quality of your written reporting at the same time as you increase
the number of monetised values you use.
4. Restate the consolidated income and expenditure account
Restate the income and expenditure according to the framework you are using
for sustainability accounting. Table 5 and 6 show the accounts for the University
of Aberdeen before and after restatement using a stakeholder approach.
Accounts presented in this way shows how economic value added is distributed
across different stakeholder groups. It allows comparisons over time, across the
HE sector, and between sectors. For example, Table 5 shows that users and staff
are the most significant stakeholders in terms of economic value added. This
may not be surprising but it shows well the effect of policy and priorities to key
stakeholder relations.
5. Add the costs and benefits related to environmental and social
performance to the restated accounts.
The priorities identified, with stakeholders and ideally using the Sustainability
Appraisal Grid (see step 3), will highlight the areas to include for the environmental
value added and social value added both of which are explained below.
Internal environmental value added
The aim of incorporating environmental value added into the accounts is to draw
out environmentally related financial information that is otherwise hidden
in the traditional income and expenditure account. An internal environmental
account makes explicit current levels of expenditure on environmental activities
and captures any associated financial benefits (such as revenues generated,
40
HEPS Accounting for Sustainability Guidance – Section 3
Table 5 University of Aberdeen consolidated income and expenditure account for the year
ended 31 July 2001
Income/expenditure
£000
INCOME
Funding council grants
Tuition fees and education contracts
Research grants and contracts
Other income
Endowment and investment Income
Total income
45,922
17,563
31,229
17,352
2,469
114,535
EXPENDITURE
Staff costs
Other operating expenses
Depreciation
Interest payable
Total expenditure
71,688
35,162
8,892
1,639
117,381
Deficit on continuing operations after depreciation of fixed assets at valuation
but before tax
Share of operating profit/loss of associates
Taxation
Deficit on continuing operations after depreciation of fixed assets
at valuation and tax
(2,846)
(1)
(5)
(2,852)
costs saved and taxes avoided). It is basically an aggregated cost-benefit statement
at the organisational level.
Expenditures include both a depreciation allowance for capital expenditures (eg,
equipment for the treatment of waste) and environmentally related operating
expenditures (eg, staff costs, running costs, materials and services, environmental
taxes and licences). Associated financial benefits may include additional revenue
generated (eg, revenues from recycled waste), cost savings (eg, reduced waste
disposal costs), regulatory costs avoided (eg, savings in landfill tax) and grants and
subsidies received (eg, grants under the Energy Saving Trust’s Clean Up
Programme.45
The process may be equally useful when applied to the day-to-day operations of
an HEI or to large capital projects – such as the construction or restoration of
university buildings. Forum for the Future has been involved in developing the use
of internal environmental accounting in the private and public sectors (see Box 8).
Table 7 illustrates the application of internal accounting to track environmentally
related costs and savings related to a hypothetical ABC University. The
environmental value added is then added or subtracted from the restated
economic accounts. This table represents a more detailed version (ie, with costs
and benefits made explicit) of column one of the Sustainability Accounting
Framework on page 34.
45 See www.cleanup.org.uk
HEPS Accounting for Sustainability Guidance – Section 3
41
Table 6 University of Aberdeen internal economic account for the year ended 31 July 2001
Economic value added (£000)
Stakeholder
1. Customers and
users
Cash received for supply
of products and services
Funding council grant
Fees
Research grants
Other income
45,922
17,563
31,229
17,352
112,066
Cash payments for
materials and services
purchased
Other operating
expenditure
35,162
3. Employees
Total remuneration to
employees
Staff costs
71,688
4. Community
Support for community
activities
Not known
5. Public Sector
Regulatory charges and
taxes paid
Taxation
6. Investors and
governance
Depreciation and interest
Depreciation
Interest payable
(investment income)
Associate share of
operating loss
2. Suppliers
7. Net economic
value added
= (row 1) – (rows
2+3+4+5+6+7)
5
8,892
1,639
(2,469)
1
Deficit on operations
8,063
(2,852)
Box 8
Internal Sustainability Accounting in the construction sector
Internal environmental accounting is being used to help the construction of
the new state-of the-art campus at the University of Hertfordshire. The
financial implications of energy, water, waste, materials, transport, wildlife
habitats and community relations were all considered in the planning
stages. The £120 million project incorporates a number of sustainable
design features.46
For general information about the application of the methodology to the
construction sector see Sustainability Accounting in the Construction Industry,
a report prepared for the DTI by Forum for the Future and Casella Stanger.47
46 See www.herts.ac.uk
47 See www.ciria.org.uk
42
HEPS Accounting for Sustainability Guidance – Section 3
Table 7 ABC University: internal environmental accounts
Stakeholder
Environmental Feature
or Activity
Customers and users
Suppliers
Employees
Costs
£
Benefits
£
Environmental
Value Added £
Fees for courses with
sustainability ‘literacy’
component
X
X
Environmental research
grants
X
X
Environmental spin offs/
consultancy income
X
X
Income from recycled
materials
X
X
X
X
Additional costs (or
savings) from specification
management (eg, ethical,
fair trade, local)
X
Environmental materials
and services
X
X
Resource efficiency
savings
X
X
Cost of work-place related
activities (and savings)
X
X
Staff insurance (working
with hazardous materials)
X
X
Community
Contributions to
environmental initiatives
X
X
Public sector
Environmental taxes
X
Paid or avoided (eg,
landfill)
Investors
Total
Environment
value added
Environmental grants
X
Annual depreciation
on environmental
investments
X
X
X
X
X
X
X
X
X
(XXX)
HEPS Accounting for Sustainability Guidance – Section 3
43
Internal Social Value Added
The hidden socially-related information and associated financial benefits (such as
revenues etc) can be drawn out of the traditional income and expenditure account
using exactly the same process as for environmental value added.
There are no common definitions of what constitutes socially related initiatives in
the higher education sector. A good place to start is to identify costs and benefits
related to health and safety, staff training, social and ethical specifications in
supply chain management. Again the Sustainability Appraisal Grid can be used to
draw out stakeholder views and help identify priorities and any associated costs
and benefits.
In some instances, such as deciding on which consultancy or research grant
income to include, definitions may be difficult. Therefore it is up to the individual
HEI to decide which social features or activities should be included, as long as
the reasons for this choice are transparent. In time, and given a good mechanism
for sharing experience and learning, a more standard approach to deriving
social added value will develop, as has been the case for internal environmental
accounting, albeit mostly in the business sector to date.
The higher education sector could make a significant contribution to the development
of techniques for calculating social value added – through the experience of the
institutions themselves, as well as through research – for individual institutions,
and for the sector as a whole.
Table 8 illustrates the application of the methodology to track socially related costs
and savings related to the hypothetical ABC University. The outcome of calculating
the socially-related value added may then be added or subtracted from the
restated accounts. This table represents a more detailed version (ie with costs and
benefits made explicit) of column three of the Sustainability Accounting
Framework on page 34.
Table 8 ABC University: internal social accounts
Stakeholder
Social Feature or
Activity
Customers and Users
Suppliers and
Contractors
Costs
£
Benefits
£
Social Value
Added £
Student fees for courses
with sustainability/social
‘literacy’ component
X
X
Socially related research
grants
X
X
Other income from
socially related services
X
X
Student Sabbaticals
X
X
X
Additional costs
(or savings) from supply
specification (social;
ethical; fair trade)48
X
X
X
48 See HEPS, Purchasing for sustainability: guidance for higher education institutions, Forum for the Future, 2003
44
HEPS Accounting for Sustainability Guidance – Section 3
Employees
Costs of training suppliers
X
X
Proportion of staff costs
attributed to social
activities (eg Health and
safety; security)
X
X
Staff training and
development
X
X
Recreational facilities
X
Staff cost savings
(eg low staff turnover
and sickness)
Employees
X
X
Proportion of staff costs
attributed to social
activities (eg Health and
safety; security)
X
X
Staff training and
development
X
X
Recreational facilities
X
Staff cost savings (eg low
staff turnover and sickness)
X
X
Community
Contributions to local
community groups
X
X
Public Sector
Socially related taxes
(eg NI contributions)
Investors and
Governance
X
Taxes and fines avoided
(eg Health and safety
fines)
X
X
Socially related grants
(eg HEFCE funds for
disability access; widening
participation; human
resources strategy)
X
X
X
X
X
X
Annual depreciation on
social investments
X
Savings from favourable
investment terms
Total
Social Value Added
X
X
(XXX)
HEPS Accounting for Sustainability Guidance – Section 3
45
6. Report the internal sustainability accounts alongside the
traditional accounts
The institution may prefer at first to keep its sustainability accounts for internal
use only to help decision making, until it has gained both competence and
confidence in sustainability accounting, the institution may prefer to keep its
sustainability accounts for internal use only to help inform decision making.
We recommend however that the information generated is reported early on to
the relevant stakeholders who may be involved in improving its quality and utility.
The communication of this information depends on management objectives,
for example attracting students to the university or college; attracting or retaining
staff, building community relations and partnerships around common objectives
(eg, travel planning); reporting to boards of governors, strategic decision making;
bidding for research funds.
An example of both environmental and socially related financial information
published alongside the traditional financial accounts is Wessex Water’s
‘Investment to Sustainability Account’ which is published in the Annual Review
and Accounts alongside the External Environmental Accounts (see Table 9).
The Investment to Sustainability Account reports on costs associated with
environmental and social issues and includes mandatory and discretionary
expenditure. Wessex Water used the five capitals to help them identify all areas of
expenditure. The areas of expenditure have subsequently been organised
according to the key stakeholder groups, which makes it clear for the stakeholders
to understand where resources have been allocated. If the associated benefits
(ie savings) were included in this account it would be an excellent example of a
full internal sustainability account.
Table 9 Wessex Water – Investment to Sustainability Account
£000
Customers and Communities
• Mandatory expenditure
- Example – water supply quality enhancement work, such as mains relining
• Discretionary expenditure
- Example – replacement of customers’ supply pipes; education service
- Example – charitable donations to community projects
Environment
• Mandatory expenditure
- Example – capital investment to meet the Bathing Water Directive
• Discretionary expenditure
- Example – trials on options for more sustainable water resources
- Example – conservation grants to Wildlife Trusts
Employees
• Mandatory expenditure
- Example – basic pay and conditions
• Discretionary expenditure
- Example – enhanced overtime expenditure
- Example – staff training
- Example – company contributions to pension scheme; enhanced maternity leave
46
HEPS Accounting for Sustainability Guidance – Section 3
30,099
2,146
130
48,062
417
155
26,570
1,911
962
29,510
Investment – Infrastructure
• Mandatory expenditure
- Example – replacement/refurbishment of sewers
59,381
Totals
• Customers and communities
• Environment
• Employees
• Infrastructure
• Total
32,375
48,634
58,953
59,381
199,343
Box 9
Purchasing, Reporting and Communicating for Sustainability;
Guidance for HEIs
The HEPS has produced guidance on purchasing for sustainability, reporting
for sustainability and communicating for sustainability in the HE sector. These
documents are available from Forum for the Future, or may be downloaded
from www.heps.org.uk. For those universities wishing to report their
institution’s contribution to sustainability systematically there is a new on-line
reporting for sustainability system (HEPS RT) to help an institution set
targets and improve sustainability performance as well as communicate the
progress made. To obtain your username and password to use HEPS RT
email Forum for the Future on [email protected].
3.2
External Sustainability
Accounting: extension
to traditional
financial accounts
External sustainability accounting explores the value an HEI adds to or subtracts
from society, the environment, and the economy that is not covered by the
existing accounts. (see page 22 for a fuller explanation). It extends the traditional
accounting boundaries to take into account environment, social and economic
costs and benefits that accrue to an enlarged group of stakeholders. A distinction
is made between private costs and benefits which accrue directly to the
organisation (explored in the restated internal accounts) and external social and
environmental costs and benefits which accrue to other stakeholders.
For example, the impact of CO2 emissions or loss of biodiversity or drainage
capacity due to a change in land use (eg, a new car park) causes damage to the
environment with biological, human health and financial consequences that are
not accurately represented by the price paid for the energy or materials used to
construct the car park. By contrast, an HEI will have a major positive impact to log
for the value graduates and research add to society and the economy that is not
represented in the total grant or fee received by the university or college. It is
these wider impacts that external sustainability accounting seeks to internalise.
HEPS Accounting for Sustainability Guidance – Section 3
47
The external flows (costs and benefits) are illustrated as the back right hand
quadrant (shaded) of the sustainability accounting cube below.
Figure 8
Timing of impact
Flow
External
Social
Internal
Economic
Location of impact
Stock
Environmental
Type of impact
The same process for identifying internal social and environmental impacts is used
to identify external ones. But in this case, the organisation must collect new
information that relates to the organisation’s activities. The impacts are evaluated
in financial terms wherever possible (ideally using avoidance and restoration costs)
and reported in the same way as for internal sustainability accounts.
Ultimately, the external accounts can be integrated into (or presented alongside)
the traditional financial accounts to give a more accurate picture of the full costs
and benefits associated with the contribution of the HEI (or the sector) to
society. They can be categorised using a stakeholder framework (see page 33),
and informed by a Sustainability Appraisal Grid (see page 34) to maintain an
overview of all of the potential impacts and connections between the social,
environmental and economic dimensions. At this scoping stage it is important to
identify both positive and negative impacts, which will ultimately be translated
into costs and benefits or simply reported qualitatively. Table 10 shows some
examples of the types of the external impacts that may be relevant to the higher
education sector.49
49 This was developed from a variety of sources and background materials (including inputs during a finance
directors and purchasing officers workshop, Public Sector Reform: Reducing Costs and Risks in Higher Education,
24th October 2002)
48
HEPS Accounting for Sustainability Guidance – Section 3
Table 10 Identifying external environmental and social impacts
Stakeholder
External Impacts (positive and negative)
Environmental
Social
Users (customers)
Environmental impacts relating to
student transport; accommodation
(energy; waste; noise)
Impacts of environmental training
and research on government policy;
business; consumer behaviour
Environmental benefits of more
environmentally active and aware
citizens
Development of social networks.
Impacts of training and research on
social policy; business practices;
consumer behaviour
Contribution of knowledge and skills
to economy and society
Benefits to society of more socially
active and aware citizens
Social impacts of widening access and
job opportunities
Increased earning potential of university
students
Suppliers
Environmental impacts associated with
the production and distribution of
purchased goods and services (eg
transport; resource extraction; pollution
in manufacturing)
Social impacts associated with the
production and distribution of
purchased goods and services
Employees
Environmental hazards associated with
the workplace (eg science laboratories;
estate management)
Working terms and conditions
(eg health and safety; training and
development; unpaid overtime;
long and inflexible hours; redundancy;
accidents and health risks at work;
job dis/satisfaction)
Community
Emissions, effluents and waste to land;
air and water; habitat change and
biodiversity
Public access to HE grounds.
Volunteering of staff and students eg
tree planting schemes; inputs in kind to
HEPS
Contribution to social capital (eg public
lectures, recreational facilities, libraries);
community health impacts;
volunteering of staff and students;
nuisance and disturbance
Public Sector
Impact on environmental legislation
and how this has led to wider benefits
Impacts on social and labour legislation
and how this has led to wider benefits
or dis-benefits
Investors
Impacts on sector from reporting on
environmental performance
Impacts on sector as a result of
reporting on social performance
HEPS Accounting for Sustainability Guidance – Section 3
49
The following paragraphs explore the potential external environmental, social
and economic impacts (both positive and negative) of an organisation and give
examples of attempts to monetise the related costs and benefits to inform
decision making. In places, (eg Anglian Water Services and Wessex Water) the
resulting external sustainability accounts have been published alongside the
traditional accounts. However, the information relating to these impacts (whether
monetised or not) can also be reported to the relevant stakeholders in other ways,
such as through the Annual Report, in the University prospectus or through
internal processes.
External Environmental Impacts
External environmental accounting is perhaps the most established methodology
of any aspect of sustainability accounting. Largely because it has been developed
in the corporate sector by companies keen to avoid risks, and to proactively
establish a reputation for responsibility in this area.
Wessex Water and Anglian Water Services have led the way with a methodology
developed by Forum for the Future, and have published their external
environmental accounts for the last two years (see page 28 for Anglian Water
Service’s published accounts). Wessex Water publishes an External Environmental
Account in the Annual review and accounts (alongside the Investment to
Sustainability Account – see page 46). The environmental classifications developed
by the Global Reporting Initiative (see Appendix 2) are used to organise their
external environmental accounts. The classifications are Impacts to Air, Water,
Land, Habitat and Diversity. Physical quantities are converted to a unit avoidance
cost using what is now a fairly standard approach to calculating the avoidance
or restoration of the environmental impact. Appendix 3 gives further details of
typical valuation methods.
Table 11 External environmental account: Wessex Water
Stakeholder
Consumption
Emissions
Target
Unit avoidance cost
2001/2002
£000
Emissions to air
204.5m kWh
Grid electricity
CO2 – 87,916
CO2 – 36,074
Various – mixed approach
NOx – 245
NOx 147
employed, taking in CO2, NOx
SO2 – 511
SO2 – 307
and SO2
(1,560)
Natural Gas
19.2m kWh
CO2 – 3,646
CO2 – 1,577
CO2 – 2,069 tonnes at £6
(10)
Diesel Oil
0.868m litres
CO2 – 2,991
CO2 – 616
CO2 – 2,375 tonnes at £6
(10)
Vehicles
2.046m litres
CO2 – 5,028
CO2 – 2,176
CO2 – 2,852 tonnes at £6
20)
Other 17
Other – £2,800 - £14,000 per
(320)
tonne
Methane
CO2 – 42,819
CO2 – 26,846
CO2 – 15,973 tonnes at £6
(100)
tonne
Impacts on water
Meet DEFRA
Priority 1 sites
(440)
Abstraction
guidance on
Priority 2 sites
(1,850)
low flows
50
HEPS Accounting for Sustainability Guidance – Section 3
Impacts on land
Contaminated land
See notes
(120)
(4,430)
Environmental
sustainability cost
Profit after taxation as per
72,000
the financial accounts
Environmentally
sustainable profits
67,570
Source: Adapted from Wessex Water Services Ltd, Annual review and accounts, 2002.50
Wessex Water published its external environmental costs of £8,341,000, which,
when deducted from reported profits showed an ‘environmentally sustainable
profit’ figure of £63,500,000. The companies’ understanding of its negative
environmental impact enables it to more easily reduce this impact in the future
and to demonstrate to investors, customers and regulators that it is seriously
engaged in ‘protecting’ profits through a responsible approach to minimising
environmental damage.
Box 10
From paper to car insurance policies - examples of external
environmental accounting from Forum for the Future’s business
partners
• UPM Kymmene (Shotton Paper Mill) are measuring the change in
environmental impact when moving from 35% virgin timber inputs and
65% recycled paper to 100% recycled paper with environmental
accounting51
• The Co-operative Insurance Society are measuring the impact of car insurance
policies by examining environmental impacts of preferred garages52
External social impacts
This aspect of the sustainability accounting framework is still very much in its
infancy so there are few examples of organisations accounting for external social
impacts in financial terms.
Perhaps the most comprehensive (but somewhat dated) example of corporate
accounting for the social costs and benefits associated with its activities is the
preparation of a Social Income Statement by the Cement Corporation of India.53
More recently, BP in collaboration with the University of Aberdeen have developed
the Sustainability Assessment Model (SAM)54 which is an accounting tool that
tracks significant external impacts (including social) on a project basis. HP Bulmers
50
51
52
53
54
See www.wessexwater.co.uk
See http://w3.upm-kymmene.com/
See www.cis.co.uk
Featured in Gray et al, Accounting and accountability, London: Prentice Hall, 1996
See www.abdn.ac.uk/oilgas/research/man3.shtml
HEPS Accounting for Sustainability Guidance – Section 3
51
(the cider makers) have been working with Forum for the Future to undertake an
innovative stakeholder consultation on ‘The social cost of alcohol’. This produced
a working model for sharing responsibilities between producers, consumers,
marketeers and retailers. Other examples can be drawn from liability settlements
for social damages or valuation of specific aspects relating to the health and safety
of products (see www.baxter.com).
Some examples of relevant external social impacts that might be incorporated into
a university or college’s external sustainability accounts are given in Table 10 on
page 49.
External economic impacts
As well as environmental and social impacts that go beyond the boundaries of
traditional financial accounts of an organisation, there are wider economic impacts
that might affect a range of stakeholders in both beneficial and adverse ways. For
example, there are positive impacts on local suppliers and service providers from a
larger business like a university or college via the economic multiplier (a measure
of how long a payment stays in the local economy). Surprisingly, the measurement
and valuation of the external economic ‘footprint’ is the least developed aspect of
sustainability accounting, however the work started by Universities UK55 may well
put the higher education sector in the vanguard.
In the UUK report external economic impacts are described as ‘Knock-on’ or
multiplier effects or even ‘rippling-out effects’ which are categorised into the
following two types:
• “Indirect effects: HEIs purchase goods and services from other sectors in order
to support their own activity, thereby stimulating activity in those industries. The
supplying industries also make purchases from other suppliers in order to fulfill
the orders from HEIs, and those suppliers in turn make purchases, so there is a
rippling-out effect.
• Induced Effects: HEIs pay wages and salaries to their employees, who spend this
income on consumer goods and services. This creates wage income for
employees in other sectors, who also spend their income, and so on, rippling
throughout the economy.“
In the same report UUK incorporated the financial value of these external
economic impacts (such as the off-campus expenditure of overseas students) into
their final calculations for the overall impact of the UK higher education sector on
the UK economy. The results are shown in Table 12.
55 Universities Uk, The impact of higher education institutions on the UK economy, UUK, May 2002.
52
HEPS Accounting for Sustainability Guidance – Section 3
Table 12 Overall impact of the UK higher education sector on the UK economy
HEIs
Overseas students
Overseas visitors
The HE sector
Total Output
(Direct plus ‘knock-on’)
£32,507 million
£2,072 million
£235 million
£34.8 billion
Total household Income
(Direct plus ‘knock-on’)
£12,683 million
£499 million
£68 million
£13.3 billion
Total employment
(Direct plus ‘knock-on’)
537,248 ftes
(full time equivalents)
22,157 ftes
3,197ftes
562,602 ftes
Export Earnings
£1,278 million
£1,261 million
£125 million
£2.7 billion
Source: Universities UK, May 2002, page 30.
Most significantly for the future governance and financial management of HE the
UUK report concludes with a recommendation for government policy to account
for the externalities of any HEIs activity.
“Government policy intended to affect ‘social’ aspects of higher education, or
indeed to encourage one type of higher education activity over another, may need
to take into account any wider ramifications, perhaps unexpected, on HEI activity
and the implications for the UK economy overall.“ (UUK May 2002)
In the light of the recently published DfES Sustainable Development Action Plan
(see page 9), the existing need to report on internal non-financial risks (see
HEFCE’s new accounts direction for the sector, page 10), and the likelihood that
forthcoming requirements on businesses to report on material impacts on
environment and community will cascade into the public sector, UUK’s work on
economic impacts seems to give the higher education sector a good start when it
comes to external sustainability accounting.
HEPS Accounting for Sustainability Guidance – Section 3
53
3.3
Assets and liabilities:
the role of the
balance sheet
To complete the picture of sustainability accounting, this section looks at the
whole of the right hand side of the Sustainability Accounting Cube, as shaded in
the diagram below. It addresses the (intangible) assets and (shadow) liabilities,
which might be included in a sustainability balance sheet.
Figure 9
Timing of impact
Flow
External
Social
Internal
Economic
Location of impact
Stock
Environmental
Type of impact
Sustainable development may be understood in terms of the stocks of the
resources or capitals available to us, or as the flows of benefits that can be
expected from those stocks of capital if they are in good shape (see Table 1 page
17). The profit and loss account reports the flows through an organisation over
time, and so far we have tried to illustrate how that may be adjusted to
incorporate internal sustainability value added, and/or external sustainability costs
and benefits. Over and above that, there is no reason why a sustainability
accounting balance sheet should not report a ‘snapshot’ of the stock of each of
the five capitals. Together, the stocks and flows would show the total resources
available for the value creation process.
Strictly speaking, the Balance Sheet should capture, in the form of a shadow
liability, the credits of the shadow costs debited from the profit and loss accounts
of avoiding environmental and social impacts incurred through the year. This
would build up a value that represented what would have had to be spent to
avoid the historic impact of the organisation’s activities – how much it has drawn
down on human, social and environmental capitals to be able to perform its value
creation. Shadow provisions, which would represent the cost of the restoration
and avoidance costs of continuing with present activities into the future could also
be calculated. For example, the costs of reducing carbon emissions for those
universities who will come under the EU emissions trading scheme may need to be
calculated (see box 3 page 24).
The ‘stock take’ can consider both internal and external capitals, in the same way
as the aspect of sustainability accounting concerned with flows.
• Internal capital stock taking: Internal measurements of an organisatio’s
success in generating assets for its own use. For example, the intellectual capital
of its staff or reputation of its ‘brand’.
54
HEPS Accounting for Sustainability Guidance – Section 3
Organisations that are concerned with building capital stocks are working internally
and this is what we focus on in the following paragraphs.
• External stock taking: measurements of external capital generation, outside
the boundaries of the balance sheet. For example, an enhancement of the
social capital of the community in which it operates through the provision of
cultural and recreational facilities, or the natural capital by increasing biodiversity.
There are a number of techniques being developed for exploring assets and
liabilities from a sustainability perspective. However, there is a rather bewildering
amount of confusing terms and jargon because it is an area of active innovation.
Also, as with other aspects of sustainability accounting, there is a danger of using
monetised measurement as the only way to represent intangible assets. Professor
Edvinsson, a pioneering practitioner of intellectual capital when director at
Skandia, likens describing intangible capitals to describing the weather: “to be
precise and comparative you need numbers, but you also need narrative to give
context and a frame.“56
Nevertheless, universities and colleges should have a specific interest in intangible
assets. In the business world it is estimated that ‘assets, like intellectual capital,
capacity to innovate, can represent a significant percentage of the company’s
stock market value. For example BT has estimated that “CSR performance
accounts for over 25% of the image and reputation driver of customer satisfaction“,
making it a significant factor for business strategy.57 The proportion must be even
greater for a university or college that is in the business of ‘selling’ its capacity
to build intellectual capital through its teaching and research. The SORP for higher
education acknowledges that an accurate valuation of ‘intangibles’ can be
legitimately included in the accounts (see page 30). An HEI can avoid the risk of
losing the stock of human and environmental capital by understanding it better
and also more successfully maintain or build it, as well as to promote it to
key audiences.
Some examples of capital ‘stocks’ for a university or college might include:
• Staff teaching quality; research competencies; management and leadership
excellence
• Capacity to move ideas along the innovation to implementation trajectory
• Staff with ‘sustainability literacy’ – able to incorporate sustainability issues
into any discipline and thereby help grow a sustainability literate workforce
• Capacity to solve multi-disciplinary sustainability problems. (through
consultancy, research)
• Quality of teaching and research environment
• Addition to stock of environmental capital through estate management or
contribution to local Biodiversity Action Plans.
In Measuring the Wellspring of Knowledge,58 Karl-Erik Svieby maintains that an
organisation must grow and renew its ‘intangibles’, manage them effectively and
keep them stable. He categorises these as illustrated in table 13 which has been
adapted for the case of an HEI.
56 www.skandia.com
57 Stephen Timms MP, speech at Business in the Community Awards, July 2003
58 Sveiby, K E, 1998
HEPS Accounting for Sustainability Guidance – Section 3
55
If decision makers understand the financial implications of a university’s intangible
assets they can better tackle strategic issues such as balancing teaching,
research, knowledge transfer priorities and forge more successful collaborations
with other institutions.
Table 13 Examples of intangible assets for a university
Intangible assets
External structure
56
Knowledge capital
Internal structure
Competence
Growth/Renewal
Satisfied Customer Index
(includes community)
Overall student demand
New course, new
research streams, new
local partnerships
IT investments
Learning and research
environment investment
Number of years’
education for staff
Incoming competence
from partners/
customers
Efficiency
Professional standards
Student retention
Support staff %
Values
Value added/employee
Stability
% of courses maintaining
high intakes
Repeat research/
consultancy contracts
Turnover
Ratio
Professional turnover
Relative pay
HEPS Accounting for Sustainability Guidance – Section 3
Section
Where next?
4
This guidance attempts to build on the progress made so far in the way we
account for and report on an organisation’s impacts on society, the environment
and the economy. It aims to provide a framework and process for the higher
education sector to incorporate non-financial (ie environmental and social)
considerations into traditional financial accounts.
Some organisations’ traditional accounts are already informed by financial
information relating to environmental and socially related internal impacts, others
are accounting for their external environmental impacts, and a few strategic
organisations are looking at the knock-on effects of an organisations’ operations
to the economy but very few are doing it all at once. The sustainability accounting
framework offered in this guide is a proposed framework to help HEIs address
this challenge.
Some suggestions for taking this agenda forward are:
1. Individual HEIs trial sustainability accounting
2. The funding councils adopt some of the techniques to inform their own internal
management and encourage institutions to do likewise
3. Further research on sustainability accounting is commissioned
Institutions willing to trial the techniques presented in this guidance may wish to
contact the Sustainable Economy Programme at Forum for the Future which
has been helping organisations implement environmental accounting for some
years, and has developed the sustainability accounting methodologies in this
guidance. For further details please contact the Sustainable Economy Programme
on 0207 7324 3610 or email [email protected]
HEPS Accounting for Sustainability Guidance – Section 4
57
58
HEPS Accounting for Sustainability Guidance
Appendix
References
1
Anglian Water Services plc, The right structure for sustainable growth, Sustainable
Development Report, 2002.
Bell A, Sustainability accounting in UK local government: an agenda for research,
ACCA Research Report No 78.
Casella Stanger, Forum for the Future and Carillion, Sustainability accounting in
the construction industry, CIRIA Publication X105, 2003.
Gray et al, Accounting and accountability: changes and challenges in corporate,
social and environmental reporting, London: Prentice Hall, 1996.
HEPS, Purchasing for Sustainability: Guidance for Higher Education Institutions,
Forum for the Future, 2003.
Institute of Chartered Accountants, Internal control: guidance for directors on the
combined code (“the Turnbull Report”),1999.
People and Planet, People and Planet annual report 2001/2, 2002.
Regulatory Reform Unit, Higher education easing the burden, Task Force report,
HMSO, 2002.
Richardson and Nurick, Environmental valuation: theory, techniques and
applications, Wye College, University of London, 1999.
Schumacher, E F, Small is beautiful: a study of economics as if people mattered,
Vintage: London, 1972.
Scottish Executive, Life through learning; learning through life: the lifelong
learning strategy for Scotland, 2003.
Society and Business, Business and society: corporate social responsibility report,
www.societyandbusiness.gov.uk, 2002.
Sveiby, KE, “Measuring the wellspring of knowledge.” CPA Journal Australia,
June 1998, see www.sveiby.com
Universities UK, Statement of recommended practice: accounting for further and
higher education, 2003.
Welsh Assembly Government, Reaching Higher: higher education and the
learning country: a strategy for the HE sector in Wales, 2002.
Wessex Water Services Ltd, Annual review and accounts 2002:
Clear commitment, 2002.
HEPS Accounting for Sustainability Guidance
59
General sources
ACCA, Full cost accounting: an agenda for action, ACCA Research Report No. 73.
Certified Accountants Educational Trust, 2001.
This provides sources for a range of environmental values used in different
environmental accounting frameworks.
Bebbington, J et al, “An account of sustainability: failure, success and a
reconceptualization.” Critical Perspectives on Accounting, 12 (2001): 557-587.
CIMA, Environmental cost accounting: an introduction and practical guide,
CIMA Publishing, London, 2002.
This guide was prepared for CIMA by Forum for the Future, providing a range of
environmental values based on costs of avoidance or restoration.
Concerted Action on Transport Pricing Research Integration, Valuation of transport
externalities, 2001 (see www.europa.eu.int).
Costanza, R et al.”The value of the world’s ecosystem services and natural
capital.” Nature 387 (1999): 253-260.
Department for Environment, Food and Rural Affairs, Achieving a better quality of
life: review of progress towards sustainable development: Government Annual
Report 2003, DEFRA Publications, February 2003.
Edvinson, L, Intellectual capital: realizing your company’s true value by finding its
hidden brainpower, www.home.att.net, 1997.
Envalue database, www.epa.nsw.gov.au
This is the New South Wales Environment Protection Authority’s database, which
has a searchable environmental valuation database.
Envirowise, Using environmental management accounting to increase profits, 2002.
This publication was funded by CIMA, ACCA, the Environment Agency, Defra
and the Institute of Chartered Accountants in England and Wales.
EVRI database, www.evri.ec.gc.ca
This is the best-known database of environmental valuations, Canada’s
Environmental Valuation Resource Inventory web-based database for
environmental valuation studies – each study includes details of the estimated
monetary values, the specific units of measure, and technical information on
the methods that were used to arrive at the results.
ExternE Project, www.externe.jrc.es
This is an EU project with multiple objectives, including research into the
internalisation of externalities and the possible application of the accounting
framework in policy-making. External cost data is compiled in a readily accessible
database. The ExternE studies for transport and power plants are the most quoted
damage estimates.
Howes, R, Coming of age, Environmental Finance, November 2002.
New Economics Foundation, Prove it: measuring the effect of neighbourhood
renewal on local people, New Economics Foundation, 2000.
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HEPS Accounting for Sustainability Guidance
Navrud, S (ed), Pricing the European environment. Scandinavian University
Press/Oxford University Press, 1992.
This is the most complete review of European valuation studies done until 1992.
Putnam, R D, Bowling alone: the collapse and revival of American Community,
Simon & Schuster, New York, 2000.
References to about 450 European Valuation studies are included at:
www.europa.eu.int/comm/environment/enveco/others/evripart2.pdf
HEPS Accounting for Sustainability Guidance
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Appendix
Initiatives of interest
2
Global Reporting Initiative
“The Global Reporting Initiative (GRI) is a multi-stakeholder process and
independent institution whose mission is to develop and disseminate globally
applicable sustainability reporting guidelines. These Guidelines are for voluntary
use by organisations for reporting on the economic, environmental, and social
dimensions of their activities, products, and services. The GRI incorporates
the active participation of representatives from business, accountancy, investment,
environmental, human rights, research and labour organisations from around
the world. Started in 1997 by the Coalition for Environmentally Responsible
Economies (CERES), the GRI became independent in 2002, and is an official
collaborating centre of the United Nations Environment Programme (UNEP) and
works in cooperation with UN Secretary-General Kofi Annan’s Global Compact.“
www.globalreporting.org/about/brief.asp
SIGMA Project – stakeholder engagement tool
“The stakeholder engagement tool provides organisations with two ways of
improving their stakeholder engagement practices. The first approach is based on
the AA1000 process that incorporates stakeholder engagement as a core element
of the process of managing, measuring and communicating performance.
This process helps an organisation capture different stakeholder aspirations and
needs, and balance and manage the inter-linked elements of social, environmental
and economic performance. The second approach is a set of tools that help
organisations explain and evaluate their stakeholder engagement. The first tool
looks at the drivers of engagement and the second, provides a set of key
questions on the who, what, where, when and how of engagement and the best
techniques to use. This tool is aimed at managers within an organisation,
especially those with responsibilities for stakeholders.“
www.projectsigma.com/Toolkit/StakeholderEngagement.asp
HEPS Accounting for Sustainability Guidance
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HEPS Accounting for Sustainability Guidance
Appendix
Environmental valuation methods
3
Most environmental valuation methods seek to measure the monetary value of
environmental benefits or losses directly from the preferences of the stakeholders
affected. This information may be obtained directly from actual or surrogate
market information or by direct surveys or experiments. The environmental value is
based on willingness to pay (WTP) to obtain environmental benefits (eg
improvement in local air quality) or willingness to accept (WTA) compensation to
suffer an environmental loss (eg degradation in local air quality). Environmental
valuation methods based on WTP or WTA are demand-side methods – they are
based on estimating the demand for environmental resources based on
stakeholder preferences. They are distinguished from supply side methods which
are based on the costs of supplying environmental resources or services.
Examples of supply side methods
Supply side methods are based on the costs of preventing environmental damage
or the costs of restoration or replacement once damage has been incurred. Supply
side methods also includes the impacts on productivity due to changes in
environmental quality. These methods capture the costs to the organisation of
improving environmental quality – they do not capture to the benefits to society
of such improvement.
Productivity approach: In this technique, environmental quality is viewed as a
factor of production. Changes in environmental quality lead to changes in
productivity and production costs, which in turn lead to changes in prices and
output, which can be measured and observed. For example, improvements in soil
conservation will feed through into changes in agricultural yields and prices.
Hence, the costs of soil erosion can be evaluated using information obtained from
agricultural markets.
Preventive expenditure method: This approach has much intuitive appeal in
that it is based on actual expenditure incurred to prevent, eradicate or reduce
adverse environmental effects.
Replacement cost method: This is an ex-post environmental valuation approach.
In other words, it estimates replacement or restoration costs once environmental
damage has taken place. Expenditures to neutralise soil and water acidity
from agricultural run-off are examples of the costs incurred to restore damaged
environmental assets to their original state.
Examples of demand side methods:
Hedonic pricing: This method uses information from a surrogate market to
estimate the implicit value of an environmental good or service. For example,
differential housing prices can be used to estimate how much extra people
are willing to pay for residential property in areas free from traffic or industrial
air pollution.
HEPS Accounting for Sustainability Guidance
65
Travel cost method: This method uses a combination of surveys and surrogate
markets to estimate the demand curve for an environmental resource. As its
name implies, the travel cost method infers willingness to pay for environmental
goods and services from the time and expense involved in travelling to them.
The method is usually used to derive values for recreational sites.
Contingent valuation method (CVM): This method elicits information on
environmental preferences directly from the individual using surveys, questionnaires
or experimental techniques. CVM is based on hypothetical behaviour inferred from
surveys or experiments rather than on actual observed behaviour. It has wide
applications but is the most unreliable of the methods as it is subject to a number
of inherent biases.
66
HEPS Accounting for Sustainability Guidance
Appendix
4
Sources of information for valuing
environmental impacts
This section provides some examples of per unit monetary values for different
types of environmental impacts. Environmental values are not static but change in
response to changing market prices (eg market price of abatement technology)
and environmental preferences. They will also vary according to the different
environmental valuation method used (ranging from abatement costs; damage
costs and restoration values). For this reason, this section provides a resource of
publications and web-sites which can be used to find and update environmental
values. General sources for information on environmental values are provided
together with illustrative values for a range of specific environmental impacts.
Carbon dioxide
Unit value
Valuation method
Source
£6.50 - £21/tonne
(depending on location, baseline,
sustainability benefits etc)
Restoration cost based on market
price of carbon sequestration
Market prices of carbon
sequestration
www.climatecare.org
www.futureforests.com
www.co2.com
$3 - $5/tonne
Emissions trading market price
Current market prices reported in
Environmental Finance
www.environmental-finance.com
Examples of emission trading
transactions from around
the world.
www.cleanerandgreener.org
£30/MW (approx £0.03 per kWh)
Cost of Renewables Obligation
Certificates
www.dti.gov.uk
Unit value
Valuation method
Source
$6,400/ton
Market spot price: NOx emissions
trading price (2003)
www.environmental-finance.com
www.cleanerandgreener.org
$4,500 - $4 800/ton
Market future price (2005)
www.natsource.com is a site for
a US brokerage service that
trades NOx
Dutch Gilders (NGL) 10/kg
Marginal abatement costs
BSO/Origin 1990-1994
Nitrogen oxide
HEPS Accounting for Sustainability Guidance
67
$19-$1,025/ton (UK)
Damage cost approach based on
willingness to pay to avoid adverse
human health effects, agricultural
effects and material damage.
CWRT (1999, p. 3-64)
$12,610/ton
Damage Cost
ExternE Project
$90-2,003/ton
Damage Cost
ORNL/DOE (1995)
Unit value
Valuation method
Source
£2,400/tonne
Environmental tax
Based on EU and Scandinavian
environmental tax rates (linked to
external damage costs)
$2,000/ton
US SO2 trading scheme penalty
for non-compliance
OECD, Encouraging
environmentally sustainable
growth: experience in OECD
countries, 2001
$105-$225/ton
Market spot price (2001)
www.environmental finance.com
www.natsource.com
$69-$212/ton
US EPA Acid Rain SO2 Trading
Program
www.cleanerandgreener.org
NGL 14/kg
Marginal abatement cost
BSO/Origin (1990-1994)
$444/ton
UK damage cost approach
(health, agriculture and material
damage)
CWRT (1999, p3-64)
$4,140-6,050
Damage cost
ExternE Project
$10-1,002
Damage cost (selected aspects)
ORNL (1995)
Unit value
Valuation method
Source
£2 800/tonne
Marginal Abatement Cost
BSO/Origin figure from 1995
Accounts
$850-$34,004/ton
Damage cost
ORNL (1995)
$3,200-$43,800/ton
Damage cost
RCG/Hagler Bailly Study (1995)
$16,060/ton
Damage cost
ExternE Project
Sulphur Dioxide
Particulate matter (PM)
68
HEPS Accounting for Sustainability Guidance
Volatile organic compounds (VOCs)
Unit value
Valuation method
£7,200/tonne
Abatement cost: cost of installing
end of pipe technology to reduce
emissions to lowest practical level
Source
Waste
Type
Valuation method
Unit value
Source
Botton Ash
NGL 100/tonne of dry
matter
Marginal abatement
Cost
BSO/Origin (1990-1994)
Fly Ash
NGL 200/tonne of dry
matter
Marginal abatement
Cost
BSO Origin (1990-1994)
Sewage Sludge
NGL 500/tonne of dry
matter
Marginal abatement
Cost
BSO Origin (1990-1994)
Waste to Landfill
£23/tonne
Based on difference
between UK and
Austrian rate (based on
damage costs)
UK landfill tax
£12/tonne
Austrian landfill tax
£35/tonne
Water effluent
Unit value
Valuation method
Source
NGL 12/inhabitant equivalents
Treatment costs
BSO Origin (1990-1994)
Transport
Unit Value
MECU/
vehicle km
Average
diesel car
Average
3-way-cat car
Valuation
method
Source
PM
134.80
10.85
Damage cost
ExternE Project (transport)
(www.externe.jrc.es/trans.pdf
Nox
7.31
4.75
Damage cost
As above
CO2
2.62
3.16
Damage cost
As above
HEPS Accounting for Sustainability Guidance
69
Capri Project: Total external costs from transport (damage costs): ECU/1000 vehicle kms, 1995
Mode
Accidents
Air pollution
Noise
Climate change
Total
Cars – urban
56 – 204
7.3 – 83.8
3.3 – 13.5
2.3 – 5.4
65.6 – 293.2
Cars – interurban
8 – 25
7.8 – 109.0
2.0 – 10.1
29.1 – 157.6
23.9 – 912.6
6.0 – 24.2
29.9 – 936.8
Trucks – urban
Trucks – Interurban
50 – 60
20.0 – 343.5
71.2 – 277.7
22.1 – 68.4
163.3 – 749.6
Bus – diesel
814 – 870
152 – 1575
210
7.9 – 8.7
1183.9 – 2663.7
Tram
8
19.2
33.1
60.3
Rail – passenger
13 – 36
36.8 – 500.6
50.6 – 455.6
14.6 – 460.5
115 – 1452.7
Rail – goods
13 – 36
91.0 – 723.1
848 – 3152
48 – 1744
1000 – 5655.1
Air passenger
7 -35
804.0
250
710
1771 – 1799
Air transport: Capri Project
Per Unit value
Valuation method
Source
40 – 200 ECU/tonne CO2
Avoidance cost
Capri Project
Agriculture and forestry
70
Type
of impact
Per unit
value
Valuation method
Source
Agriculture
£208/ha (1996)
Damage costs including water
contamination; damage to
wildlife habitat; emission gases;
soil erosion and food poisoning
Pretty et al (2000)
Forestry
$3,225/tree
Replacement Cost
New York Neighbourhood
Tree Survey, New York Times,
12 May 2003
HEPS Accounting for Sustainability Guidance
Appendix
Acknowledgements
5
Forum for the Future and the Higher Education Partnership for Sustainability
would like to thank all those who have participated in meetings and seminars and
given their time, advice, comments and suggestions relating to the production of
this guidance. In particular we would like to thank representatives from the
following organisations.
Anglia Polytechnic University
Aston University
Bolton Institute of Higher Education
British School of Osteopathy
British University Finance Directors Group
Brunel University
Cardiff University
Chartered Institute of Purchasing and Supply
Chartered Institute of Public Finance and Accountancy
City University
College of St Mark and St John
Department for Environment, Food and
Rural Affairs
Department for Education and Skills
Department for Education and Learning
Northern Ireland
Education and Learning Wales
Higher Education Funding Council for England
Heriot-Watt University
Higher Education South East
Imperial College
Lancaster University
Leeds Metropolitan University
Liverpool Hope University
Liverpool John Moores University
London Business School
London Metropolitan University
London School of Economics and Political Science
Loughborough University
Manchester Metropolitan University
Middlesex University
Nottingham Trent University
Queen Mary University College
Queen’s University, Belfast
Royal Holloway University of London
Royal Veterinary College
Standing Conference of Principals
Scottish Higher Education Funding Council
Sheffield Hallam University
South Gloucestershire Council
Swansea Institute of Higher Education
Thames Valley University
The Open University
The Surrey Institute of Art and Design
UMIST
Universities Superannuation Scheme
Universities UK
University of Aberdeen
University of Birmingham
University of Bradford
University of Brighton
University of Cambridge
University of Glasgow
University of Gloucestershire
University of Leeds
University of Leicester
University of Newcastle
University of Nottingham
University of Plymouth
University of Salford
University of Sheffield
University of St Andrews
University of Stirling
University of Surrey
University of the West of England
University of Wales Bangor
University of Wales College
University of Wales Institute, Cardiff
University of Wales Swansea
Wessex Water
Writtle College
York St John College
HEPS Accounting for Sustainability Guidance
71
Disclaimer
Whilst every effort has been made to ensure that this document is factually correct
at the time of going to press, the data, discussions and recommendations are
not intended for use without substantiating investigations by the users. Mention
of a particular website does not imply endorsement of a company by Forum for
the Future or the other authors of this guide.
No responsibility for loss suffered by any person acting or refraining from acting,
as a result of this publication will be accepted by Forum for the Future or the
other authors of this document.
Forum for the Future Sustainability Accounting Cube
Timing of impact
Flow
External
Social
Internal
Economic
Location of impact
Stock
Environmental
Type of impact
Traditional financial accounting only includes the internal stocks and flows of financial
value on the balance sheet and profit and loss account respectively. Sustainability
accounting desegregates the internal accounts to show costs and benefits relating to
economic, social and environmental performance. It also extends the accounting
boundary to consider the monetary value of external impacts.