Quality and balance of externalities – Accounting for Externalities

The homo habilis, our ancestor, developed the first tools to hunt, cut, and improve his daily life.
The first tools, in comparison with today’s hunting rifle, may seem quite ridiculous. Nevertheless in his time, these first tools allowed him to vary his food bowl, to be more efficient when hunting and to imagine other more efficient tools.
From then on, whatever the subject, if it is new, quality cannot be a prerequisite. We will see in this article, how quality must be taken into account.

Quality standards do not define quality on the basis of an absolute rating that would allow it to be assessed.
They are all based on the principle of continuous improvement, which consists of measuring the progress of quality (marginal value). Quality is therefore part of a learning process that allows for improvement and learning from mistakes that may be made. Thus, no quality standard sets a precondition for the result, but they all define a framework for measuring its progress over time.

Why is this?
Mainly because this concept depends on a multitude of factors, which can be objective (durability) but complex to measure, or subjective (taste, customer relations) but complex to grasp in the absolute.

Quality is therefore not a prerequisite, but must be considered as a learning process: this is what we call “quality management”. So, how can quality be considered for the balance of externalities?

Whether for the balance of externalities, or any other CSR reporting, quality cannot be considered as a prerequisite. However, the standards that enable the implementation of such reporting (CSR ESG) must nevertheless define the conditions necessary to improve the quality of the data provided.

How is the CSR standard necessarily different from a financial standard?
If we take the example of IFRS, the financial standard has never made quality a core value. Indeed, IFRS preferred a compound ambivalent system:

on the one hand materiality (reinforced by the principles of intelligibility and relevance)
on another the reliability and sincerity.

The assembly of these two elements makes it possible to dispense with a learning system (and therefore one that would have become increasingly complex), while maintaining the requirement for reliability. It should be noted that IFRS emerged from an accounting heritage that is more than 400 years old, and that they have come to freeze a homogenous and structured financial vision for all listed groups.

The dilemma for the balance of externalities is that it has to deal with the two systems set out above. Nevertheless, these two systems are clearly delineated and responsibilities are distinct. Thus, over the definition of private costs and the identification of sources of impact (volume), sincerity and materiality must prevail. Consistency with existing standards must be maintained.
On the other hand, standard social costs must take into account as many aspects as possible, bearing in mind that it is not conceivable to ask for the maximum from the outset, but that these standard social costs and the quality of the information they reflect must be part of a long and tedious learning process.

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