Resources

This is a fresh, new, back to basics accounting approach to any commitment to achieve ‘net zero by 2040’ or ‘a 50% reduction in Scopes 1 and 2 by 2030’ for example. At its heart is the simple application of double-entry bookkeeping to recognise each £1 of capital allocated into building sustainable relationships with the environment, nature, people and society as stakeholders as investments into intangible assets on the balance sheet.

This paper explains how by using normative accounting and governance to inform decision-making on the intangibles impacted by a net zero transition commitment we can tackle the root cause of the climate crisis—being upside down accounting incentives and, by cause and effect, an upside down transition mindset.

The portion of the world's economy that doesn’t fit with the old model just keeps getting larger. That has major implications for everything from tax law to economic policy to which cities thrive and which cities fall behind, but in general, the rules that govern the economy haven't kept up. This is one of the biggest trends in the global economy that isn't getting enough attention.’
Bill Gates, reviewing Capitalism Without Capital: The Rise of the Intangible Economy

Today's accounting practice defies GAAP and accounting standards and has thereby created a system in which the incentives to transition are seemingly illogical and upside down. Rethinking Capital has stated that net-zero is guaranteed to fail without introducing changes aligned with public interests.

This paper explains how Rethinking Capital's normative accounting theory of intangibles could be the missing link. It supports Bill Gates' observation that the rules have failed to keep pace with the transition to an intangible economy and explains why this is the root cause behind today's climate and social inequity. It explains the blueprint for today's economic system design, pinpoints how and where to apply a permanent fix and how to test that fix on the net zero transition. Finally, it explains how to secure the fix into new rules that will begin to transform the economic operating system.

In February 2020, BP made a commitment to become carbon neutral by 2050, creating an obligation to society and investors. We explore how accounting practice constrains BP’s transition plans. While BP can achieve much of its net zero obligation through technical innovation, these investments will typically be expensed through the income statement, whereas capital expenditures on hydrocarbon projects would tend toward capitalization and slow depreciation through the income statement. And whereas internally-generated innovation will be expensed, intangibles acquired in M&A will be capitalized. Accounting's logic must support BP's net zero obligation as a social imperative and reward its acceleration. Normative accounting for intangibles provides a promising solution to overcome these challenges and restore accounting for net zero decision-making and reporting.