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Full Cost Accounting – FAO

October 31, 2017 |

“Sustainability measurement is increasingly pursued through capital accounting, including natural capital, social capital and ESG analysis. Increasingly, companies seek to understand the non-financial factors that improve risk management and unlock new opportunities, investors are interested to  secure stronger returns on their investments, and governments are looking for ways to translate the Sustainable Development Goals into actionable measures to improve performance. Full-cost accounting (also referred to as true-cost accounting, total value or total impact) brings together non-market goods, such as environmental and social assets, into the development equation, in order to allow analyzing the costs and benefits of business and/or policy decisions. To this end, aspects such as (among others) ecosystem services or health must be given a monetary value. The ultimate purpose is not to monetize nature or people, but rather to translate invisible resources (such as intellectual, human, social and natural assets that are not captured in historic financial accounts) into a common currency for strategic decision-making on impact and dependencies that affect overall value creation.

While natural capital accounting and social measurement methods are currently emerging, including total value approaches among large accounting firms, the 2016 Natural Capital Protocol and the 2017 Social Capital Protocol, The Economics and Ecosystems of Biodiversity – TEEB for Agriculture & Food is developing a universal framework for true-cost accounting to better inform decision-makers in governments, businesses and farms. FAO’s contribution to TEEB AgriFood builds on the FAO’s 2013 project on Food Wastage Footprint that included full-cost accounting.

Considering that health impacts remain difficult to quantify and aggregate within full-cost accounting frameworks, a Methodology for valuing the Agriculture and the wider food system-Related Costs of Health (MARCH) is currently under development. This study develops a replicable methodology to measure and place a monetary value on the impacts of food and agricultural systems on health, and concretely tests it by applying the proposed methodology to selected health conditions in the UK.  The methodology offered for assessing the food system’s costs on health uses the Subjective Wellbeing Valuation (WV) approach, an OECD accepted methodology for policy evaluation.  This approach is derived from economic valuation methods used to estimate the monetary value of non-market goods and services. This study is financially supported by the Global Alliance for the Future of Food and is developed in cooperation with Simetrica…”

This presentation was originally published on FAO.

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