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OPINION: upgrade the monetary system and pay people to do the right thing

Stephen Hinton 2016, photo Maj-Lis Koivisto

 

Money and markets are powerful tools in developing our world, most would agree. However,  the negative effects, some might say unintended results of their application are painfully apparent. These include environmental degradation, unequal distribution and crowded, unhealthy cities. To achieve a sustainable future, and the Sustainable Development Goals in particular, all options for changing the economic system should be on the table.   Should we abandon industrial capitalism and our present monetary system altogether? Should we introduce a form of sustainable five-year planning regime? Read More…

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OPINION: Accounting needs to adapt to the circular economy

Photo: Maj-Lis Koivisto

We often hear about how hard it is to change the course of large ships, and as an analogy our current economic system seems to be hard to turn away from its course of counter-sustainability. However, large tankers DO make it into port. I would like to offer the idea that our economy can change course too. As with large ships, we need to understand and master the controls. Very few talk about accounting and sustainability. That is a shame, as several built-in features (and some easy to build in) could offer a way to turn the economy around. It’s not rocket science and it would be a big leap forward!
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Putting sustainability into financial reporting

We can envisage a balance sheet from which it is possible to glean the current state of the firm’s investment in circularity. A worked example is given below. Note that by  circular infrastructure we mean infrastructure that:

  • runs (or can run) on renewable energy
  • uses recycled materials and recycles materials
THE TRANSITIONAL COMPANY
PERIOD ENDED 31/12/2016
CURRENT ASSETS CURRENT LIABILITIES
Cash 200 000 € Accounts payable 0 €
Accounts receivable 0 € Accrued Expenses 0 €
Inventory 0 € Taxes owed 0 €
TOTAL CURRENT ASSETS 200 000 € Long term debt 0 €
TOTAL CURRENT ASSETS 0 €
PROPERTY AND EQUIPMENT
*Circular Infrastructure 100 000 € LONG TERM DEBT
*Non-circular Infrastructure 50 000 € *Loans for Circular investment 100 000 €
Less depreciation -4 000 € *Loans for other infrastructure investment 30 000 €
NET FIXED ASSETS 146 000 € Other loans
TOTAL LIABILITIES 130 000 €
OTHER ASSETS STOCKHOLDERS EQUITY
Licence 0 € Paid in Capital 0 €
Goodwill 0 € Retained Earnings 0 €
TOTAL OTHER ASSETS 0 € TOTAL NET WORTH 0 €
TOTAL ASSETS 346 000 € TOTAL LIABILITIES AND NET WORTH
*Percentage circular infrastructure value 67% *Percentage investment loans for circular infrastructure 77%

As the example above shows, the infrastructure is 67% circular. In terms of loans the 77% invested in circularity gives a degree of transparency for investors. For example, if investors think that regulations will become stricter in future, then the investment is sound.

Extended Profit and Loss Statement

An extended profit and loss statement can also be created as shown below.

From this you can derive measures like % of sales of circular products, cost of circular technology, circular vs non-circular expenses and trends over time. This again creates transparency for the capability of the firm to operate in an environmental way.

INCOME STATEMENT
PERIOD ENDED 31/12/2016
CURRENT
OPERATING INCOME
*Circular product sales 50 000 €
*Non-circular sales 100 000 €
Net sales 150 000 €
*Renewable energy 2 000 €
*Non-renewable energy 2 000 €
*Non-circular materials purchase 2 500 €
*Circular materials purchase 2 500 €
Other costs of good sold 100 €
GROSS INCOME 140 900 €
OPERATING EXPENSES
*Renewable energy 2 000 €
*Non-renewable energy 4 000 €
*Non-circular materials purchase 3 000 €
*Circular materials purchase 10 000 €
*Repairs and maintenance on linear infrastructure 20 000 €
*Repairs and maintenance on circular infrastructure 30 000 €
*Costs for waste elimination, non-recycled 2 000 €
Other expenses
TOTAL OPERATING EXPENSES 71 000 €
Other income 0 €
Other expenses 0 €
NET INCOME BEFORE TAXES 69 900 €
TAXES 25 000 €
NET INCOME 44 900 €
Circular products 50/150    75%

Renewable energy 2/6        50%

Circular materials 10/13     77%

Circularity lost to waste    15%

Circular infrastructure

costs 30/50                           60%

The Baltic: a dying sea on the doorstep of industrial giants

At a Stockholm seminar on the 18th January held by the Baltic Works Commission,  scientists, government officials and NGOs came together to discuss the dying briny depths on their doorstep: the Baltic Sea. The general consensus is one of emergency where technology provides an as yet unproven ray of hope. This is only if the countries surrounding the Baltic are ready for bold investments, policy changes  and some bold pilot studies. If nothing is done, the nutrients contained in the dead sea floor could flow into the water body and – worst case – cause the whole sea to turn in to a dead algal soup. Read More…

Case Study: Dealing with transition to fossil-free food provision and refugees at the same time

food-securityPLACE: Sweden. Municipal level
SITUATION: Swedish municipalities are facing several resilience challenges at once. They have to provide shelter and care to the highest influx of refugees and migrants per capita in Europe whilst preparing for the ambitious government-led transition to fossil fuel independence and carbon neutrality by 2050. Food security is at risk too, as Swedish food provision field to plate is fossil-fuel dependent and food waste is high. Sweden is also dependent on food and fodder imports;  farmers are struggling to compete with imports from countries that have lower food safety and animal welfare standards, better soil and growing seasons, and lower costs.
FRAMING QUESTION: How can municipalities work towards a de-fossilised food provision system that reduces waste, manages the influx of migrants and refugees whilst ensuring the farming community can live on what it produces? Read More…

The economics of pollution and non-renewable material surcharges

Market based instruments

If renewable solutions were cheaper for firms to use, they would. This is how price signals function to steer the behaviour of firms. For the circular economy to function,  price signals should favour circular products and production methods. In other words, it needs to make better business sense to install circular and renewable energy infrastructure, and to install and use infrastructure that uses recycled materials. Without that, the linear economy –  one that inputs extracted materials and outputs materials as waste  will continue to be the modus operandi of the profitable firm.

This article explores how to use price signals to steer firms’ buying behaviour in a way that keeps the economy stable. Market-based instruments are financial mechanisms that steer price signals to guide the behaviour of firms and markets in general. Read More…

Opinion: Ericsson divorces Sweden and kills technology

Technology died today. Not the machines, but the paradigm. The belief that delivering high-tech creates jobs, prosperity and shareholder value got killed. The news hit this morning in Sweden’s newspaper SVD among others, that Sweden’s flagship, Ericsson, is shedding thousands of jobs and shutting down manufacturing in Sweden. The decision is sending shock-waves through the municipalities where Ericsson units are one of the largest employers. The likely effect is that whole communities will suffer in a domino effect decimating local suppliers then local services then house prices. And it’s probably the best thing to happen to Sweden for a long while. More on that later. First to the situation. Read More…

A circular economy needs a framework of rules and financial incentives to work

The idea seems logical: when a product or material enters the economy it should stay there – if it comes from below the ground. If it comes from nature it can return at a rate the eco-system can absorb it. The problem is, we are living in a society that has been weaving a complicated web of laws, rules and, taxes and fees since money was created. At the moment it just doesn’t pay. Ushering in the circular economy means making sure it pays by dismantling a few parts of this framework and replacing others. But where to start? Are there existing points of control that can be adapted to stimulate circularity? This article identifies a few essentials. Read More…

The economics of the circular economy

Economic Fiscal Reform calls for the economic system to align with the twin purposes of preserving and  indeed restoring the environment whilst providing a standard of living for citizens. Up to now, these purposes have not been central to the way economics has been practiced. We are, however, facing a pressing situation: soil degradation, atmospheric warming and mineral depletion are forcing us to rethink. The idea of the circular economy – where biological and mineral material circulate in the economy without being deposited – is gaining ground. Read More…

Community finance: a Permaculture approach

ABOUT COMMUNITY FINANCE:  We are living at the peak of human achievement, but also at the peak of our resources. A change towards sustainability includes handing over to future generations the possibility to create for themselves a standard of living at least equivalent to that we enjoy. This requires fundamentally re-thinking how we use resources, indeed many of the social arrangements we take for granted, including our relationship to money. And we need to start now. The basic values in this article come from Permaculture: People care, Earth care, Fair share. However, you do not need to know Permaculture to understand the article.  We will  explores ways, within the current financial system, to create communities that align to these values. Read More…