The man of Vitruve is an ideal representation. The use of metrics makes it possible to represent the entire length of the palms: a circle centered on the navel and a square for size and span.
The advantage: everything is there, thanks to balanced proportions. A model or the shape (the drawing) joins the background (with mathematical balances).
Accounting is like defining a caneva applicable to any business. It is the ability to evaluate any stack of objects as a whole: financial value. It constitutes a harmonious frame of reference, both in terms of content and form.
This offers a great advantage: the ability to compare stacks of objects or any economic activity.
However, accounting describes very well the internal factors of the company: its capital, its activity, … but fails to describe the external factors or its sustainable development strategy.
CSR initiatives have all failed on this point because they were trying to classify and then count quantities of heterogeneous objects. This mixture is the consequence of a physical world interacting with serial impacts that are not always quantifiable in a homogeneous metric, but in the physical unit of objects (volumes of water, kwh of electricity, tons of CO2, and degrees more …).
This transformation of physical units into common economic units is complex:
Finally, the objective is to answer the following question:
How can we evaluate the sustainability strategy of any company (or societal role of the company), from the coal mine to the consulting firm, on the basis of a common formalism.
The recipe for making data from a heterogeneous environment comparable lies in two ingredients:
For the function, economic science defined the sum of these indirect cascading impacts early on: this is the externality. It is the difference between the social cost (borne by the environment, which includes ecosystems and societies) and the private cost (borne by the company).
However, as we shall see, this definition needs to be clarified to ensure a homogeneous basis for all companies.
Second point: how to measure the slope of this function. It is not possible to evaluate it directly, but it is possible to go through quantities of substitutions for which the marginal cost is known. Accounting, a master disciple in the art of substituting physical quantities for monetary quantities, allows us to convert a quantity that is impossible to evaluate into an equivalent quantity in terms of impact that can be evaluated.
Once the externality and the marginal value of an externality have been defined, it remains to set the zero point, the point at which the externality function cancels itself out. On this point, the best of the worst methods is to take a reference that represents the public interest. But what better represents the public interest than laws or public policies?
It is also necessary to be able to define evaluation rules according to the types of impacts. We therefore propose the following typology for the sources of externalities:
This classification makes it possible to subsequently define rules for evaluating the social cost according to the sources.
The problem in the balance of externalities comes from the evaluation of the social cost to society.
Indeed, the evaluation of a social cost must first be limited to a few drivers, since the majority of impacts come from an infinite number of factors (butterfly effect).
The second point concerns the value chain and the scope of the company’s responsibility. Indeed, a company’s responsibility is not limited to its value chain, but may extend to its entire supply chain. This implies an endless complexity (with a feedback loop in all directions), and to this day, even if mathematical models exist, we would be unable (lack of data, and lack of computing capacity) to simulate and extract a social cost. If we want to move forward, we must therefore limit the calculation to the externalities linked to the added value produced by the company (first-level externalities).
Finally, we need to define this equilibrium point common to all externalities.
After defining a common metric, the externality, a function that can vary, with a marginal value, slope, and an equilibrium point, then we can begin to formalize a state synthesizing the whole. The externalities are classified by impact: environmental, social, and economic, and then summarized in a table in the same way that one would present an income statement or balance sheet, the balance of externalities.
The formalism and function are clear, but the functions of evaluations depend on many factors. Substitution rules exist, but in many cases the analysis suffers from a lack of data. Thus this object, which is necessary, must see the light of day in order to evolve. It must be considered as a being: it is its birth that will allow it to evolve. Let’s not wait. Let’s go.