The potential and development of Full Cost Accounting

The potential and development

of Full Cost Accounting

through the view of stakeholders

January 2017

Marieke van den Berg

Student number 3026620, m.van.den.berg.23@student.rug.nl

MSc BA – Organizational & Management Control Faculty of Economics and Business

University of Groningen Supervisor: Joanna Guść, j.s.gusc@rug.nl

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Abstract

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Table of content

3.1 Case selection: Eosta ...12

3.2 Research process ...14

3.3 Data analysis ...16

4. Results ...18

4.1 Discussion points amongst stakeholders ...18

4.1.1 Organizational level or policy level ...18

4.1.2 Reductionist approach or holistic approach ...20

4.1.3 Guidance and tips in the use of TCA ...22

4.2 A framework linking terminologies and the sustainability dimensions ...25

4.2.1 Input for the TCA social dimension from literature ...26

4.2.2 Prioritizing human needs ...27

4.2.3 The development process of the Sustainability Flower at Eosta ...28

4.2.4 Final notes on the framework...30

5. Conclusion and discussion ...32

Appendices ...34

Appendix I: ‘Common framework of dimensions’ of Prescott-Allen (2001) ...34

Appendix II: Notes Meeting Soil & More with Anne 18-10-2017 ...35

Appendix III: Notes Meeting Soil & More with Anne Tobias Maike 19-10-2017 ...37

Appendix IV: Participant Agenda True Cost Accounting Community of Practice 2017 Oct 31-Nov 2 ...39

References ...42

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1. Introduction

In 1987, the United Nations Commission on Environment and Development (UNCED) addressed that the indicators of planetary health were showing increasingly alarming trends (Bebbington, Gray, Hibbitt, & Kirk, 2001). The past few decades, the term ‘Sustainable Development’ has risen more and more on the international agenda of policy making, giving attention to global threatening issues like environmental desecration and social injustice. More recently, in 2016 the 17 Sustainable Development Goals (SDGs) came into force which represent the global goals of sustainable development1. These SDGs are adopted by 194 member states of the United

Nations and their goal is to balance the three dimensions of sustainable development :  economic growth, environmental sustainability and social inclusion. A broad consensus has been reached among academics that social and environmental issues cannot be separated from economic success (Schaltegger & Wagner, 2017). Specifically food systems are under increasing pressure to globally produce sufficient secure food in a socially just way and decrease the environmental impacts of production (Schipanski et al., 2016).

The business world is recognizing its responsibility in these global issues. A new way of thinking is arising, in which companies do not only have responsibility for generating economic value, but also for generating environmental and social value (Argandoña, 2011; Jensen, 2001; Retolaza & San-Jose, 2011; Retolaza, Ruiz-Roqueñi & San-Jose, 2015; Porter & Kramer, 2011; Emerson et al. 2003). Corporate sustainability has thus become a key management topic for businesses (Dyllick & Hockerts, 2002; Schaltegger & Wagner, 2017). A transformation is taking place from focus on solely performance analysis for shareholders through economic impact, to a more integral performance for all stakeholders with focus on the environmental and social impacts as well. The external impacts of an organization are called externalities. These externalities can be positive and negative impacts (costs and benefits) of the company’s economic activity experienced by unrelated third parties, and are therefore created by one agent in society but borne by others (Müller, Sukhdev, Miller, Sharma & Hussain, 2015). The way a company manages its externalities is, unlike in the past, essential to a company’s position. By decreasing its negative and increasing its positive impacts a company can raise its revenue, reduce risk and save costs (Van Maurik, Sonnen & Damen, 2016). Currently, external impacts which are not included in the price (for example water pollution) are ignored (Bebbington et al., 2001). This means, if the aim is to globally work on sustainability, the prices and costs on which decisions are based have to be reviewed. For incorporating externalities into the current way of decision making, these externalities need to be monetized (Burrit & Schaltegger, 2010; Barg & Swanson, 2004). The EU Commission’s Fifth Action Program therefore calls to develop Full Cost

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Accounting (EU Commission, 1993). The goal of Full Cost Accounting (FCA) is effectively incorporate sustainability issues into corporate decision-making processes (Hendriksen, Weimer & McKenzie, 2016) through incorporating monetary measures of all costs and benefits, including social and environmental externalities (Bebbington et al., 2001; Lamberton, 2005; Burritt & Schaltegger, 2010). FCA is a tool to pursue a future which is environmentally and socially better off, and seeks to work through the mechanisms of the current economic system to achieve this. FCA includes positive as well as negative external impacts that are not yet captured in the market (Barg & Swanson, 2004). Bebbington et al. (2001) state FCA is a tool which could transform the current economic context. The website of the Food and Agriculture Organization (FAO) of the United Nations states the following about FCA2_:

“FCA 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.”

Externalities of organizations can be divided into the three pillars of sustainable development: the economic, environmental and social dimension3_{. For externalities in the economic and}

environmental dimension several monetization templates are already available (FAO, 2014; Müller et al., 2015; NCC, 2016; NCC, 2016a). For externalities in the social dimension, however, monetization templates are very scarce. Often FCA is adopted through monetizing the environmental impact, without a comprehensive coverage for social impact (Antheaume, 2004; Bebbington, Brown & Frame, 2007; Bebbington & Larrinaga, 2014; Frame & Cavanagh, 2009; Herbohn, 2005). Therefore, there is a need to develop more comprehensive sustainable accounting systems which are able to generate meaningful and understandable information about social impacts, as well as environmental and economic impacts (Luke, 2016; Taleb, 2016). For this, a better conceptual understanding of the social dimension is needed first, since a clear common definition on what the social dimension of sustainability entails is not yet reached (Colantonio, 2007).

Adams & Larrinaga-González (2007) state that literature on sustainability accounting has largely ignored practice within organizations and argue that it would be positive to have further engagement in research with organizations, to reduce the distance between research and practice. Malmi & Granlund (2009) and Baldvinsdottir, Mitchell & Nørreklit (2010) also recognize the need for practice oriented research, addressing what accounting systems or techniques to use, how to change management accounting practices, and address the potential

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Source FAO website: www.fao.org/nr/sustainability/full-cost-accounting

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shortcomings and inherent limitations. Therefore, this research is from the practitioners perspective. It seeks to provide insight in the current FCA related discussions amongst different stakeholders, and also to give insights into the implementation process of FCA in practice. This research will investigate how different stakeholders view the use and development of FCA. For example, this research aims to find out more about how the stakeholders view the conditions in using FCA in practice. Also, this study will zoom in on the case study, specifically their development process of a FCA tool and on the relatively new social dimension. The development of the social dimension is still in progress and therefore object of analysis in the current research.

The research question of this paper is:

How is the potential and development of FCA viewed

by different stakeholders?

What are the current discussion points in FCA? What are the similarities and differences in the views of different stakeholders? How does the development process of a FCA tool evolve in practice?

How do stakeholders view the relatively new social dimension of sustainability?

In summary, this paper tries to fill the gap between understanding of FCA in theory and practice, through adding insights from FCA practitioners to the knowledge in literature. Furthermore, this research will attempt to formulate an understanding of the different dimensions of sustainability, in particular on the relatively new social dimension. In this way a theoretical contribution is made to the FCA literature by adding the view of practitioners to the literature base. For practice, this research will give an overview of the main current discussion points regarding FCA amongst different stakeholders. Arguments of different stakeholders can help in understanding how to move forward in practice. Also, managers can use and apply this information in their organization. FCA helps companies reduce the negative externalities and build on positive externalities. In this way, the new information on FCA enriches the information for decision making for managers.

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2. Literature review

The aim of this research is to understand the different views of the stakeholders and to investigate how to expand the social dimension of FCA, therefore a thorough understanding of FCA is needed. Both FCA and the social dimension are briefly discussed in the introduction. The purpose of this literature review is to to substantiate the motives for this research, develop a more in-depth understanding of FCA, and build input for the empirical part of the results section. In the results, the theory and the perceptions from practice are described sequentially to develop answers to the research questions. In that, the results section of this paper will dive deeper into literature. There, additional academic sources will be cited and linked to the results to embed the findings in literature, give context and meaning to the results, and provide opportunities for both practical and theoretical insights (Jöhnsson & Lukka, 2006). This way of analyzing the results is common in action research and will be explained more in depth in the methodology section.

Accounting in general is referred to as a language that communicates information to stakeholders of the organization (Drury, 2013). Accounting can be used as a decision making tool for management internally, and is then called management accounting. It can also be used for external integrated reporting and is then called financial accounting (Drury, 2013). FCA is also used for external reporting purposes and internal decision making (Bebbington et al., 2001; Burritt & Schaltegger, 2010; Litman, 1997; Plagiannakos, Howes, Khan, Boone & Reuber, 1997). In FCA as a reporting tool for external communication, a benefit with FCA is that people favor quantitative and monetized estimates over qualitative estimates (Maas, 2008). Therefore non-monetized externalities receive overall less attention in impact assessment compared to economic effects (Maas, 2008). FCA helps making these externalities more visible by turning them into monetized values. The FAO: “The ultimate purpose is not to monetize nature or people, but rather to translate invisible resources (…), 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”4_{. For example, the FAO (2014) used the current existing FCA methods to}

estimate the hidden annual environmental cost of world food wastage which amounted to USD $700 billion per year. The hidden social costs of food wastage were estimated to be even higher, namely USD $900 billion per year. And now we are only talking about food wastage, just to give a sense of how big the issue of externalities is.

In FCA as a tool for decision making, FCA enriches the information for managers. Barg & Swanson (2004) state the key reason of organizations to apply FCA, is the need for better information for decision making. Monetizing allows the comparison of costs and benefits of

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different dimensions (economic, environmental, social) in the same single measure (money) (Burritt & Schaltegger, 2010). For example, instead of comparing the amount of injuries on the workplace with CO2 emissions, it is possible to compare the social costs of the injuries in a currency with the environmental costs of the emissions in the same currency. The current way FCA is used is to, as showed in the example above, reduce diversity and complexity, so impact can be compared and improvements can be included in decision making (Burritt & Schaltegger, 2010). The reduction of diversity and complexity of data will be further discussed later in this paper. This paper aims to create a picture of how TCA stakeholders in practice view the use of FCA, and if they think if FCA is mainly meant as a internal decision making tool, or as a external reporting tool, or both.

According to the stakeholder theory the basis function which legitimizes companies in society is to create value for society. Based on the stakeholder view, the way companies create value needs to be considered broader than the traditional view in two ways (Retolaza and Sand-Jose, 2011; San-Jose & Retolaza, 2012; Retolaza, Ruiz-Roqueñi & San-Jose, 2015; Retolaza, San-Jose, Ruíz-Roqueñi, 2016). First, taking into account value to all stakeholders besides shareholders only. Example are including taxes, dividends, reserves, wages, social spending and R&D. Second, the non-economic impacts on the stakeholders in the environment and society must also be integrated, such as for example impacts on public environmental goods like clean water and air, but also job generation and health impacts. Ever since the accounting framework ‘the Triple Bottom Line’ (TBL), sustainable development has consisted of three dimensions: economic, environmental and social (Elkington, 1997; Lehtonen, 2004). Again, at the Johannesburg World Summit in 2002, sustainable development was defined as embracing economic development, environmental aspects and social inclusion (Busco, Fiori, Frigo & Riccaboni, 2017). Also, the recent SDGs are based on the economic, environmental and social dimensions of sustainable development5_{. The social dimension is the least developed and most neglected element of those}

three dimensions and is often presented in relation to environmental or economic sustainability (Vallance, Perkins & Dixon, 2011; McKenzie, 2004). Vallance, Perkins & Dixon state “a better understanding of the concept’s social elements is crucial in reconciling the often competing demands of the society–environment–economy tripartite.” Similarly, according to McKenzie (2004) business has tended to overlook social justice. He says despite its inclusion in the triple bottom line, the social concerns in organizations are rarely equal to the economic and environmental concerns. He explains economic and environmental sustainability were implemented first into several models, and social sustainability was added later on. McKenzie

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suggests more social science research is needed, which complements scientific research but stands out as a focus of inquiry in its own right.

A problem is that a clear common definition on what social sustainability entails is not yet reached (Colantonio, 2007). What literature does contain is descriptions of the general goals of social policy. McKenzie (2004) describes social sustainability as either a currently existing positive condition, or as a goal that remains to be achieved. When there is a lack of social sustainability, the community may be deemed ‘at risk’. Furthermore, when social sustainability is seen as an asset, for maintaining coherence and overcoming financial distress and change, it is called ‘social capital’. In his paper McKenzie defines social sustainability for use on organizational level, which is new, since in most research the dimensions are approached from a national political level. But there is no clarity of which indicators or impacts would fall under this social dimension. Gilbert, Stevenson, Girardet & Stren (1996) focus in their definition of social sustainability on the individual needs – such as health and well-being, nutrition, shelter, education and cultural expression – as the core of social sustainability. Black (2004) on the other hand focuses on societal level and defined social sustainability as “the extent to which social values, social identities, social relationships and social institutions can continue into the future”. In some researches the term social sustainability is also used referring to all externalities as a whole. Often in these researches there is a main focus on environmental externalities and leave social externalities mostly out of the equation, which can also be confusing (Retolaza, San-Jose & Ruíz-Roqueñi, 2016). This paragraph shows that the many and varied contributions of social scientists have led to a degree of conceptual chaos, which according to Vallance, Perkins & Dixon (2011) compromises the term’s utility and importance. McKenzie (2004) says “Social sustainability must first be defined as distinct from environmental or economic sustainability, in order for it to develop its own models of best practice. (…) This will result in a truly interdisciplinary model of sustainability.” This paper therefore aims to create a clearer understanding on social sustainability, the relations between the different terminologies, and the different indicators that together form this dimension .

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3. Methodology

This research is exploratory as it considers a relatively unexplored literature field. The aim is to contribute to the further development of TCA, through insights from stakeholders and through research on the indicators of the social dimension. Initially, the idea was to solely focus on the social dimension for this research, but in the discussions with the stakeholders it turned out there was little response to the questions solely about this dimension. However, it stood out that there were other subjects of discussion about TCA in general that received significant attention and were perceived as very relevant by the stakeholders. There were for example recurring discussions about on which level TCA should be applied (strategic, operational, policy), and if TCA should be used for communication, decision making or comparative purposes. Therefore, in this paper current issues of TCA in general as well as the social dimension are discussed. In the results chapter there will be more elaboration on this shift of focus.

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move back from the emic perspective to the etic one. This is why in the results section of this paper, the link between results and literature will be made instantly, to embed the findings in literature and move back to the etic perspective. This shift between differing logics provides opportunities for new insights which are both practically and theoretically interesting (Jöhnsson & Lukka, 2006).

In this research the researcher gives meaning to the findings through the interpretive view, since interventionist research is part of the interpretive school of thought (Westin & Roberts, 2010). According to Maali & Jaara (2014), this is important for management accounting research, because the economic reality and accounting objects are socially constructed. The existence of accounting objects is dependent on accounting rules and procedures, which are set by human, thus they are socially constructed objects. The functionalist approach was for a long time the dominant approach in accounting research and is based on the view that the meanings attached to variables are independent of the situation in which they are used. Two decades ago criticisms on this approach arose and many accounting researchers started endorsing interpretive accounting research, which is concerned with “developing an understanding of how people make sense of their world and how their shared meanings affect the way that they interact with each other” (Richardson, 2011). The past twenty years the literature applying the interpretive approach has grown considerably (Maali & Jaara, 2014). Maali & Jaara:

“There has been a continuing call for understanding accounting in the context in which it operates. (…) Accounting is a social science and is better understood by gaining the views of different parties

involved, which is largely done by utilizing interpretive accounting research.”

3.1 Case selection: Eosta

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of communicating that organic products result in different external impacts compared to non-organic products.

Eosta’s mission is to contribute to healthy food, a sustainable environment and social responsibility6_{. Or in other words there is a focus on: healthy, organic and fair. For this mission}

Eosta uses the Sustainability Flower (as part of their trace & tell brand Nature & More)7_{. This}

Sustainability Flower (SF) is a sustainability concept which Eosta uses to measure, manage and market sustainability performance of their growers. Every single grower of Eosta has a personal SF filled with qualitative and quantitative data, which forms the profile of that grower. This personal SF is used to show the story behind the product of the grower, providing visibility to the grower's efforts towards a greener, fairer, more social and more sustainable society. In this way, Eosta wants to empower the consumer to make a well-informed purchasing decision, at a price that is fair to the producer, society and the environment. The SF was originally developed in 2009 by an international think-tank, a group of pioneers and innovators of the organic movement called the "Belbis Desert Club". Among them were the founders and leaders of Eosta, Sekem, Alnatura, Lebensbaum, Rapunzel, Fibl, IFOAM, Soil & More, the Soil Association and others, who together created this think-tank. They developed the SF to unite ecological and social values in a single model. After this, every organization was free to use the SF in their own adjusted way, which is exactly what Eosta is doing ever since. The CEO of Eosta Volkert Engelsman says: "There can be no sustainability without transparency. (…) The Sustainability Flower has greatly helped us to bridge the anonymity gap between the farmer and the consumer.”8

In February 2017 Eosta published a TCA-FFF (True Cost Accounting in Food, Farming & Finance) report in which Eosta tried to integrate TCA into their SF for the first time9_{. There were}

some templates to monetize economic and environmental indicators which Eosta used in this report, but monetization templates for the social dimension were missing. There was a lack of clarity about what indicators the social dimension entails, which was the motive for Eosta to cooperate in this research. Also, besides this need for attention to the social dimension, there was also a need for a new version of the SF, which would be adequate for Eosta for communication as well as strategic purposes. In the end of September I joined a meeting with the CEO and the communication department of Eosta, in which the first brainstorm session took place on the new version of the SF. For the new SF version to be complete, extra information on

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the the social dimension of sustainability was needed. The further research process is described below in a chronological way.

3.2 Research process

During the next few months in-depth interviews were held with contributors to Eosta’s TCA-FFF report, namely the CEO of Eosta, a Senior Manager Climate Change & Sustainability from EY, the Project Manager of the SF at the Soil & More Foundation, and the owner of Soil & More. The Soil & More Foundation owns the rights of the original SF since June 2015 and carries the responsibility to further develop the sustainability assessment concept10_{. Soil & More is the}

organization who performs the assessments of growers for Eosta with the SF, and wants to make a positive difference in practice with and for farmers. These contributors to the TCA-FFF report explained what indicators are in the SF and in what stage the SF is in terms of integrating TCA. After this, I participated in the second convening of a group of external stakeholders in TCA and agribusiness from all over the world, who work daily with TCA and want to meet up regularly to share information and discuss ideas. This group is called the TCA Community of Practice (CoP). During their second convening in the end of October I participated for two days in the in-depth discussions about the further development of TCA in agribusiness. The reason this convening was chosen for this research is because it gave an opportunity to reach a broad group of practitioners in TCA in one time. The connections at Eosta and Soil & More helped make it possible to reach these practitioners. The CEO of Soil & More already was part of this CoP and arranged an extra invitation for the convening for me to join. The goal of the CoP is to stimulate the development and acceptance of TCA in agriculture. The agenda set up prior to the convening was very flexible and set up to move along with the topics which would arise organically in the moment of the convening. There were also some constructive discussions through emails prior to the convening, which will be included in the analysis. An overview of the TCA practitioners which joined the discussions in the e-mails as well as in the convening can be found in figure 1. The subjects of discussion about TCA in general which received significant attention and were perceived as relevant by the practitioners will be discussed in the results. Whether these stakeholder groups have similar or opposing ideas and beliefs of TCA will also be analyzed in this research.

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Stakeholders at TCA CoP Role in TCA

Organizations on farmer level Creating a stronger foundation for the value of organic

agriculture and supporting the food transition.

Certification agencies Support the integrity of eco-label claims, promote fair and transparent trade and the organic and ecological quality of products.

Researchers in accounting and

sustainable development

Develop a fundamental base of FCA literature.

Consultancy agencies Develop a tool to apply at their customers: large enterprises

Foundations and initiatives supported by different stakeholders in organic agriculture

Push the agenda for more sustainable food and agriculture systems globally. Enhancing the whole organic movement through representation focusing on a particular sector.

Agencies supported by governments

Bring together scientists, economists, policymakers, business leaders, and farmers organizations and support members in their efforts to ensure access to high-quality food, through supporting policies and making relevant information available.

Development organizations Promote fundamental rights, provide advocacy, support knowledge sharing and strengthen governments.

Figure 1 Stakeholders at the True Cost Accounting Community of Practice

Several brainstorm sessions with the CEO and the communication department of Eosta contributed to the forming of the design of the new SF. But these sessions also showed that additional external information on the social dimension was needed to enlighten ourselves for this decision. The next step of the development process of the new SF was to perform a desk research on the social dimension of TCA. Joining the CoP as described above also helped obtaining the right sources for the establishment of the new SF and its different dimensions. Finally, in November 2017 there was a final brainstorm and decision making meeting on placement of the social dimension in the SF.

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ideas of the interviewee, unexpected topics and individual differences that emerge during the interview. Prior to the interviews, a list of themes to be discussed and several example questions were prepared. To enhance the controllability of the research, the themes and several examples of the interview questions formulated beforehand are stated in figure 2. Questions were also added or adjusted during the research process.

Theme Example questions

Definition and externalities of Social dimension

(Show the different definitions of the Social dimension in literature) Do you agree with this definition? Do you think something is wrong or missing in this definition?

Integrating TCA in the Social dimension of the SF

In giving substance to the social dimension of the TCA-FFF report for Eosta, what was the process? What limitations or obstacles did you encounter?

New monetization templates for the Social dimension

What data is available at Eosta and Soil & More for measurement of the social dimension? What data do you think is important but missing?

Figure 2 Themes and sample questions of the in-depth interviews

The internal validity is ensured through taking minutes of the interviews and discussions, keeping a logbook of the research process, and through participant reviews of the findings (Brink, 1993). The research bias is controlled firstly by taking minutes of the interviews. Secondly, the interviews, discussions and analysis were all performed by the same researcher, which minimizes the chance that the way of asking the questions and the interpretation of the answers would differ amongst each other. The respondent bias was controlled by using multiple respondents for the interviews, through which multiple views on the topic were gathered. 3.3 Data analysis

Through actively participating in the discussions with the CoP and in the brainstorm meetings at Eosta, I created an understanding of the different dimensions of TCA, and their relations to the different capitals, terminologies and externalities. Through this research method, I was able to follow the process of the development of the new SF and insert input from the CoP in this process of Eosta, as well as the other way around. For example, Eosta asked for my input on the terminology and externalities of the social dimension, on which I gained information at the CoP and my desk research. This information was then used internally at Eosta and were input for the SF brainstorm sessions.

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4. Results

According to the research steps introduced in the methodology, the findings section starts with discussion on how TCA is understood by different stakeholders in the TCA Community of Practice (CoP). This section will elaborate on the discussion points which kept coming forward in the discussions of the CoP, and when relevant tries to grasp the point of views of the different stakeholders in these discussions. After this, the focus will shift to a framework developed in this research, based on information from literature, information from the Eosta case and the development process of Eosta’s new version of the Sustainability Flower.

4.1 Discussion points amongst stakeholders

As mentioned in the methodology, participation in the second convening of the CoP was part of the research process. The CoP consists of stakeholders who work daily with TCA and want to meet up regularly to share information and discuss ideas. During their second convening in the end of October they held in-depth discussions for two days about the further development of TCA in agribusiness. The different subjects of discussion about TCA in general which received significant attention and were perceived as relevant by the practitioners will be discussed below. Whether these stakeholder groups have similar or opposing ideas and beliefs of TCA will also be analyzed in this research.

4.1.1 Organizational level or policy level

The first discussion point which received significant attention was the disagreement on which level TCA must be implemented: on organizational level (for example farm level) or on policy and market (system) level. The stakeholders on farm level are using TCA as a practical tool, applied to the context of farm level. They use it for example to translate the costs of the use of different fertilizers in farming on the environment. They want to change the way things are done on farm level with a new practical tool. On the other hand, several stakeholders of the CoP do not want to focus on further developing TCA as a practical tool, but want to focus on applying TCA on system level. They want to change the way of thinking and stimulate change on a systemic level. The below section will elaborate on this discussion.

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of the motivation to make a difference as soon as possible, there is a desire to develop a revolutionary practical framework for use in practice. Some certification agencies say TCA in itself has nothing to do with change, transformation or transition. They say the tool itself changes nothing, it is about how the tool is applied and used. A research from literature supports this statement, Maxwell (2017): “Valuation and having accounting methods alone will not result in sustainable market transformation”. Farmers want to use TCA for decision making and after this for external communication purposes, so people see the value of organic farming and products. On the other hand, the stakeholder group of development organizations11 _{believe in}

general TCA is not something individual farmers should be bothered with. They want to foster change and induce a revolution on system level. They believe TCA is primarily a tool to set frame-conditions right, so that farming creates more net value to society. They state some case studies in TCA are needed, to produce data to refer to. But they do not believe in calculating true costs for every organic farm or product. The development organizations want to implement TCA at policy level and in markets, meaning new rules and guidelines for the information companies need to provide to their stakeholders. In this way they believe TCA has greater impact on system level instead of organizational level. Development organizations want to also use TCA for communication purposes to show the value of organic farming as opposed to the value of conventional farming, just like the stakeholders on farm level, but on system level.

Reviewing the arguments of the different groups, it is possible that these groups are focusing their discussion in the wrong way. Choosing on which of the two levels TCA should be implemented may be unnecessary and it may be able for both ways to exist alongside one another at this point. One approach is revolutionary on an organizational level, and the other approach is revolutionary on a system level. All stakeholders mentioned above see TCA itself not as a driver of change, but believe TCA can help in marketing and communicating externalities of conventional versus organic products and contributing to a stronger position of organic products. Both farmers and development organizations want TCA to be used for decision making, only one on farm level and the other on international policy level. The reason for the different perceptions of these stakeholder groups may lay in their approach through looking at their own scope of influence. The stakeholders who work with or in farming practices logically focuses on influencing these farming practices, while the development organizations focus on changes on national policy level, since their focus lies there. In other words, both stakeholder groups want to drive change in the contest that they work in. Moreover, farmers use the tool on organizational level for internal decision making and for external communication of their efforts. And as the development organizations indicate, they themselves also need these practical

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studies which produce concrete data to refer to. For this, the case studies of the stakeholders on farmer level and the certification agencies come in handy.

However, the aspect from this discussion which does need some attention is the fact that the development organizations want to use TCA in a new way. As mentioned in the literature review, up till now, FCA is viewed by management accountants as a decision making tool for management internally. However, the development organizations want to use TCA on policy level. The different stakeholders viewing the same tool for different purpose forms a problem for the discussions They are discussing the properties and preconditions of the tool, but there is a great chance that they are not aware that they are talking about a tool for two distinct purposes. It is important to keep in mind for which purpose a tool is appropriate. It may help to acknowledge this, and investigated if TCA in its current form is an appropriate tool for policy level. It can be that for use on policy level adjustments need to be made for the tool to be appropriate.

4.1.2 Reductionist approach or holistic approach

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SDGs (Tosun & Leininger, 2015). First, taking action to improve one sustainability issue can influence another sustainability issue. For example reduce social inequities can also influence family health and income, since social inequities can serve as barriers to broader improvements in family health and income (Schipanski et al., 2016). Second, one sustainability issues can be influenced by multiple sustainability dimensions. An example is that a disease in the Gran Chacao is better controlled through addressing both environmental and social sustainability dimensions at the same time (poverty, poor housing, inadequate health care) than addressing the health sector alone (Gürtler, 2009). By simplifying TCA into one reductionist framework, the farm level stakeholders and the development organizations say dimensions will partly be left out and the model will be incomplete. As literature, Gasparatos, El-Haram & Horner (2009), shows considering the reductionist approach in sustainability:

We believe that assessing the progress towards sustainability with a single metric is a very difficult task that seems impossible at the moment and attempting to do so is likely to send misleading policy messages. As a result methodological pluralism coupled with stakeholder participation

seems a safer path to tread.

Gasparatos, El-Haram & Horner mention that it becomes more clear that there is not one truth, as we witness the process in which the public as well as governments learn more and more about sustainability, the different dimensions of sustainability and what it entails. According to the paper of Gray (2010) we have to repudiate any notion of there being any possibility of ‘‘a” or ‘‘the” account of organizational sustainability: “We need to develop narratives and counter-narratives to test each other, and in this way reach a multiple and plural expression of sustainability in organizations.” The farm level stakeholders and development organizations state the development of TCA should be as holistic as possible, including all dimensions. They advocate for the holistic approach, through setting up a TCA knowledge hub, where new developments can take place alongside another and information is shared.

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Stevens, 199812_{). Viewing TCA as a benchmarking tool may therefore have adverse}

consequences in the near future. As is stated above, TCA needs to be as holistic as possible because of the inter-linkages between the sustainability dimensions. One cannot measure sustainability without including all dimensions. Also, partly coverage of the dimensions causes sensitivity to greenwashing. Stakeholders on farming level stated if organizations are not covering all sustainability dimensions, they can use TCA in their advantage, choosing the indicators which are for them attractive and showing only the measurement with a positive outcome. In literature Kolk (2003) had comparable criticizing arguments by stating sustainability reporting had been used as a public relations tool and the focus in sustainability reporting had been mainly on enhancing the corporate image. Literature about practices of business reporting teach us that most business reporting on sustainability actually have little, if anything to do with sustainability (Gray, 2010). Also according to Gray, the reporting might be interpreted as how organizations would like to understand sustainability and how it would convenience them. As a response agriculture foundations in the CoP convening state one thing TCA does have to be is complete, meaning all of the KPIs addressed: “There is no other way to achieve the SDGs. To be ‘true’ one should show positive directionality on all KPIs”. If there is true value in the holistic approach, this would also give more value to the CoP. For a holistic approach the different stakeholders in the CoP working together is important. If all stakeholder groups would work on their own island without discussing with one another a holistic approach would not work. In this discussion the meeting eventually ended in still some disagreement about the reductionist or the holistic approach, with a majority in favor of the holistic approach. The TCA stakeholders agreed on a few basic requirements a TCA tool must meet. These will be discussed in the next section.

4.1.3 Guidance and tips in the use of TCA

Unfortunately not all dimensions of sustainability can be fully measured, therefore TCA cannot cover all dimensions equally. In literature, Costanza recognized already in 1987 the issue of non-monetized values and the partial quantification gap. He said the only solution to this issue is (Costanza, 1987):

“…to recognize and deal with the range of imprecision inherent in any decision. This means looking at the full range of possible outcomes, given the level of precision of our models and data, and making decisions in that context. It is seductive to try to obtain a precise, decisive, answer by using

as input to precise mathematical models only that which we can measure precisely. But it is extremely dangerous to do so. As Albert Einstein once said; ‘the laws of mathematics, as far as they

refer to reality, are not certain, and as far as they are certain, do not refer to reality.”

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Some TCA practitioners believe that the interrelations between the dimensions of sustainability will party solve this quantification gap issue. According to them some impacts which cannot be monetized will follow out of others. For example, if people are provided with financial capital they have a basic resource to provide in their basic needs. Only, it is not yet clear what these exact relations between the dimensions are yet. TCA practitioners also say it is a waste to leave out all the impacts which cannot be measured precisely. Indicators which have a high uncertainty and cannot be measured in an exact way are still useful for insights for decision making. In this case, proxies are used to make an estimation of the value. For example, some numbers needed for calculations would in reality differ per country or region, but these numbers are not precisely known per region. Let’s say for this calculation one would use one global proxy number instead. Even though there is a difference per region and the outcomes of the calculations will therefore not be exactly right per region, the results can still be used to show and make people aware of the size of the impact globally. Remembering taking some caution in what proxies are used. In literature, Gasparatos et al. 2009 gives an example:

For most sustainability assessments underlying assumptions are not the same (…) so it is not appropriate to utilize standard values. For example, the chemical energy of chemical species (…) is

defined only subject to a (…) specific environment that of course is not encountered in all parts of the planet. As a result a certain degree of subjectivity is entering the calculations. However, for the sake of consistency and simplicity such standard values are used freely by analysts because in most cases recalculating them is a prohibitive task (effort and money consuming) and it may not render the results comparable with other case studies. (…) Thus uncertainties that affect the quality of the

final sustainability assessment are unavoidable.

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development of TCA in this way. By sharing their knowledge and experience with society, such as with the use of proxies, what works and what does not work.

The stakeholders see two important aspects in this guidance of what and how to measure: the completeness of the indicators, and the importance of context and transparency in TCA. In other words, or TCA to work properly, these requirements are crucial: including all sustainability dimensions (being holistic), being transparent about what is included and what indicators are being left out and including context. The members of the CoP agreed on the importance of always covering as many dimensions as possible and presenting TCA with transparency. With being transparent they mean including the assumptions and limitations in the TCA reporting, so stakeholders know which level of precision and measurements are used, and also explaining which dimensions are not fully covered. A way of informing readers of the limitations of a report’s outcome is containing a list with the impacts which are not covered, like with GRI13_.

Furthermore, a farmer level organization of the CoP explains the importance of context:

“Therefore it is a rather comical situation if true costs of production are to be estimated by experts (…), notably importers thousands of miles away up North, and excluding several huge dimensions of the situation (…). Can you imagine estimating true cost of production from the viewpoint of the

primary producer?”

According to this stakeholder TCA has to take the past and the context of each case and the local region into account. Besides this, practical cases, as discussed above, can support in finding out which developed measurement templates work in practice. In the introduction is mentioned FCA reduces diversity and complexity, so the externalities on different dimensions can be compared with one another and issues of possible improvements can be identified (Burrit & Schaltegger, 2010). But there is a good chance that too much relevant information and context is lost in this way, and diversity and context is precisely what is needed and sustainability is too complex to simplify to such extent. In this case there is more truth in the quote of the FAO from the literature review, which claims the ultimate purpose of FCA is not to monetize nature or people, but rather to translate invisible resources. Which brings us back to the issue discussed above, where is argued TCA is not suited for comparison purposes, but more suited for communication purposes.

There is an agreement amongst the stakeholders of the CoP that new TCA templates need testing in practice. The predominant idea is that they should learn by trial and error, through developing new templates and then testing them in practice. My idea of this is that the process of generative learning suits for this process. Generative learning is a process of active integration of

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relationships and associations of new ideas with the learner’s existing knowledge, beliefs and experiences (Hanke, 2012). Also, the researchers stakeholder group state more literature review is needed to create a fundamental understanding of the different dimensions of sustainable development, especially the relatively newer social dimension. This will be further reflected on in the second part of the results.

4.2 A framework linking terminologies and the sustainability dimensions

This part will discuss the framework which is developed in this research to clarify the relations between different terminologies, and the meaning of the relatively new social dimension. Input for this framework will be discussed below. Below, first, there is a section headed ‘Input for the framework from literature’, which discusses amongst others a existing framework from literature which is used as an input for the framework developed in this research. Second, a section headed ‘Prioritizing human needs’, which discusses if certain human needs in the social dimension can be prioritized. Furthermore there is a section headed ‘The development process of the Sustainability Flower at Eosta’, in which the brainstorms and discussions during the development process of the new Sustainability Flower (SF) at Eosta will be discussed. The analysis of this development process at Eosta teaches how a TCA development process actually evolves in practice, what challenges it brings and what aspects are taken into consideration during this process.

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fundamental base for terminologies and concepts. A spokesman of a foundation in agriculture at the CoP stated that if we look closely, we see there is already a lot of commonality of approach in these different schemes and terminologies which makes it feasible to integrate the inter-linkages between these. Therefore, for generating more clarity, creating the linkages between these terminologies seemed to be the most obvious step. The different terms and schemes are integrated into one framework including (examples of) associated indicators, as can be seen in figure 3. The columns of the framework in figure 3 outlines the different ways and terminologies used to grasp the concept of sustainability. These columns entail the three pillars of sustainability, the capitals, topics per dimension, and examples of the corresponding indicators of externalities. It shows the linkages between these different schemes, and in this way gets to the comprehensive sustainability dimensions (marked by the green frame).

Figure 3: Framework with linkages between different schemes on sustainability & the comprehensive sustainability dimensions which arise from this

4.2.1 Input for the TCA social dimension from literature

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organization can use in the production of goods or services’. In the third column of the framework these capitals are also integrated, so it becomes clear how these capitals relate with the three pillars of sustainability, the dimensions of Eosta and the topics and externalities. The capitals are related to the dimensions, but do not fully cover the dimension.A critique on this term ‘capital’ is that it is found to be pejorative, because human beings, human communities and ecosystems are not merely forms of capital provided to companies in order to be drawn down or built up (Adams et al., 2013). Another critique on the term ‘capital’ is that it is too linked with financial concepts, associated with economic thinking and that there is a danger of falling back into framing corporate reporting in terms of an economic conceptual framework (Adams et al., 2013).

As discussed in the introduction, according to the stakeholder view, we need to look beyond this solely economic thinking. Therefore, the topics for the environmental and social dimension are for a large part based on the framework of Prescott-Allen (2001). Prescott-Allen states people are both spiritual and physical, social and individual. Therefore, personal and community interests as well as material and nonmaterial values must be included into the framework. He claims assessments must include all the aspects in the framework, despite the technical and political challenges they pose. As can be seen in figure 3 both the individual level needs (such as health and education) and the focus on societal level are covered, both levels were also mentioned in the literature review. The framework of Prescott-Allen is a national oriented framework (Appendix I). An advantage of this model is that therefore it includes all impacts, not only internal impacts within business boundaries. A disadvantage is that the framework of Prescott-Allen is focused on national policy level and therefore needs to be translated to business level in terms of scope and in terms of influence. For example, influencing Inflation and Population are not within the scope of a business, and are therefore left out in the framework in figure 3.

The model of Prescott-Allen focuses on the ‘people’ (or social) and ‘planet’ (or environmental) dimension. The topics and externalities mentioned by Prescott-Allen on these dimension were included into the framework in figure 3. Based on the examples in reports of other businesses who did include the economic pillar and the linkage of the SDG’s to the sustainability pillars (Bientinesi, 2017) was decided to put the economic aspects of Human Capital (namely income and employment) under the Economic pillar of sustainability (see figure 3).

4.2.2 Prioritizing human needs

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And nonmaterial needs come second, like: work, participation in decision making and security, but also self-determination, self-reliance, national & cultural identity, and sense of purpose in life (Dillard, Dujon & King, 2008). According to Raworth (2012) the first priority must be: “to ensure that all people are empowered with the rights and resources needed to provide a social foundation for leading lives of dignity, opportunity, and fulfillment”. Focusing on this social foundation sets out only the minimum of every human’s rights. This can be a reason that until recently there is overall little attention in policy and the SDGs for social, emotional, psychological and spiritual well-being, since this is seen as a secondary need. While, at the end, sustainable development envisions people and communities prospering far beyond social foundation only, leading lives of creativity and fulfillment (Raworth, 2012). Employees from Soil & More argue that we cannot divide primary and secondary needs in this way. They argue you cannot define basic needs in general, and that basic needs are context dependent. For example, in some developing countries spirituality and inspiration are very important. Therefore, they look at the context of the region an organization is in. They perform a GRI G4 materiality analysis, through which they look which indicators/themes are important for company and other stakeholders and then make a selection. So, to make a big indicator list and ask the local people what for them is important, and then select the relevant indicators. Eosta see the importance of a spiritual and inspirational dimension, but realize that at this point this cannot be monetized. This is also an argument why we would not want to subscribe one static single framework for every situation. You can compare companies in terms of total holistic impact, but not per impact. Therefore, to be complete, we include all needs – primary and secondary – into the SF.

4.2.3 The development process of the Sustainability Flower at Eosta

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sustainability14_{. The six environmental petals and the three words in the center together formed}

nine dimensions (see SF Soil & More Foundation in figure 4). These nine dimensions all individually represented a number of formal indicators through which sustainability achievements were determined.

The SF is originally from the Soil & More Foundation. Eosta tailored the SF for their own business, making a few adjustments described here further on. In Eosta’s version of the SF the three phrases cultural life, societal life and economical life in the centre of the SF were renamed as freedom, justice and solidarity which originate from the French Revolution quote Liberté, Égalité, Fraternité (see SF1 in figure 4). Employees at Eosta explained that Eosta merged the petals Energy and Air into Climate later on, for a presentation in accordance with the approach of the FAO (2014) towards True Cost Accounting. They did this because Energy and Air indicators were often overlapping and stakeholders in the agribusiness found it hard to understand the differences between the two petals. At the same time, Eosta merged Animals and Plants into Bio-diversity to present all the living ecological elements. Besides this, Eosta turned ‘Freedom, Justice, Solidarity’ into one petal labeled as Social, so all the indicators were in the petals of the flower. Health was not included in the original grower-oriented framework but was added for TCA and communication purposes, because Health was and still is a very prominent topic in the sustainability spectrum of the agriculture industry (see SF2 in figure 4). The people from Eosta made clear that it is important identify and cover the most pressing current topics of their industry, which are seen as relevant by the public, and put these in the model. The reason for this is because they want to raise attention for TCA and the external cost in agriculture, and think this will be most successful by including topics which are popular and much discussed, because then they will get more attention.

Figure 4: Development process of the Sustainability Flower

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Source website Soil & More Foundation

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SF2 was the current state of the SF at the time this research started in September 2017. In February 2017 Eosta had published a report called True Cost Accounting for Food, Farming & Finance (TCA-FFF) in collaboration with Soil & More, EY, Triodos Bank and Hivos (Eosta et al., 2017). This report was the first attempt of Eosta to integrate TCA into their SF. In this report Eosta presented the ‘true costs’ of several fruits and vegetables of farmers, and the ‘true impact’ of the company as a whole. Eosta managed to fill several of the Environmental petals up with monetization methods, since through the years quite some information about this was generated. But missing in this report were the monetization templates for the Social dimension. In the report, in consultation with EY, the Social dimension was represented by the calculations for Livelihoods. But looking back, Eosta was not satisfied with this decision and thought the social dimension was not covered well this way. Also, in general there was not yet satisfaction of the transformation of the three words Freedom, Justice and Solidarity into the Social petal, and adding the separate Health petal. One could say that Health is also part of Social. Therefore, there were some difficulties in defining the Social petal. As mentioned in the methodology, for the new SF version to be complete, extra information on the dimensions of sustainability was needed. In summary, there was a lack of clarity in the division of the different dimensions and in what indicators the social dimension entails. The input used in the framework in figure 3 was used in the discussions at Eosta, and the other way around.

In the discussions at Eosta on the social pillar and including the information on the capitals, we concluded that the social pillar consists of an individual and an societal level. The often use terminologies for these two levels in other businesses and literature are ‘Human’ and ‘Social’ or ‘Societal’. The term ‘Social’ was already used to describe the social dimension. Splitting the dimension into Human and Societal can work confusing, because it implies that Societal is not about Humans. When Human is used, they refer to the individual level. Therefore here we have chosen for the term ‘Individual’ and ‘Societal’ in the SF as well as in the framework. The final dimensions which will be used by Eosta are ‘the economic dimension’, ‘the environmental dimension’, ‘the individual dimension’ and ‘the societal dimension’. Where the economic dimension stands for the economic flows between the organization and stakeholders. The environmental dimensions represents all impacts to the planet/ecosystem. The individual dimension focuses on the support of individual development. And the societal dimension stands for all impacts related to social relations within and connected to the organization.

4.2.4 Final notes on the framework

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brackets represent synonyms for the term above them. For example, the term ´people´ represents the same pillar of sustainability as the term ´social´, and the term ´planet´ is an equivalent for ´environmental´. This is why ´people´ and ´planet´ are placed between brackets. Another example is that the term ‘social’ is used in different ways in different sources, as mentioned in the literature review. The overall sustainable value creation for society is sometimes referred to as ‘social’ value, this is why on the left side of the framework the term social is put between brackets. While in this paper the term ‘social’ is used to refer to one of the three pillars of sustainability, as can be seen in the framework as well.

This framework in figure 3 is meant to continue the discussion of if the framework is ´complete´ and which indicators should be included. The purpose of the framework is not to reduce the information available (reductionist approach), but to visualize the relations amongst different schemes and terminologies. Awareness is only possible through observing and experiencing and not through simplifying and reducing. By leaving elements out we would miss the complete picture. Therefore, it was a conscious choice to place all relevant schemes together in one integrative framework to visualize the existing and the potential relationships.

The framework in figure 3 was received positively by Eosta. The new version of their SF will be based on the framework in figure 3, see SF3 in figure 5 below. Before this research they struggled with the division of the social dimension, which is now solved, by splitting the social dimension in societal and individual level. Also they now have a clearer picture of what these dimensions entail, through the linkages of these dimensions with the capitals, topics and externalities pictured in figure 3.

Figure 5: New Sustainability Flower Eosta

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5. Conclusion and discussion

Through the lack of practice oriented research at the start of this research there was curiosity towards the point of view of different stakeholders on FCA. Besides, this research aimed to create a better understanding of the relatively new social dimension. The following research question needed to be answered in this research:

How is the potential and development of FCA viewed

by different stakeholders?

The insights of these stakeholders in the first part of the results provided conditions for the TCA framework developed in the second part of the results. The framework developed in this research aims to create more clarity in the different schemes and terminologies used to describe sustainability, and in the meaning of the corresponding indicators with the sustainability dimensions. Specifically those of the social dimension, since existing research indicated a lack of knowledge about the social dimension of sustainability and also the case company has been engaged in TCA considerable time with a working model, but lacked information on the social dimension. This research studying the social dimension has contributed to a deeper understanding of the social dimension and the corresponding externalities, by aspiring to create more order in the conceptual chaos, which according to Vallance, Perkins & Dixon (2011) compromised the term’s utility and importance. As Vallance, Perkins & Dixon mentioned before, this better understanding of the social dimension was crucial in reuniting the often competing demands of the society–environment–economy tripartite.

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Concluding from the paragraph above, what is needed is to get the people supporting the reductionist view to shift to thinking holistic instead. Oliver, Vesty & Brooks (2016) talk about the concept of generative learning, which is a intellectually playful nonlinear process of reflection and creativity in sustainability accounting practices. They state this process is especially useful in complex contexts with broad interrelations, dependencies and social indicators. According to them it is a necessary process to “remain ahead of the formalized hard systems KPIs that can easily become outdated”. Oliver, Vesty & Brooks say it is not so much about convincing people of a new approach, but about continuously engaging into conversations and showing that there are multiple ways of viewing and presenting sustainability. Generative learning is about getting conversations back and forth, debating over values and beliefs, and making people aware of how they position themselves in a discussion about closing their eyes for things which cannot be measured. This concept of generative learning is only possible through a continuous process. Future research may dive deeper into the conditions and actions needed to get people engaged in these dialogues of generative learning.

Secondly, this paper suggests not to use TCA for comparison or compensation purposes and always to include context. Sustainability with all its indicators is complex which makes comparison of two different cases one on one based on numbers and without context very difficult. The concept of sustainability includes so many indicators which also interrelate. Several aspects cannot be fully monetized, but cannot be left out of the story either. Therefore, TCA is better suited to be applied for communication purposes and creating awareness, taking in consideration the (local) context of the case presented. It may tempting for controllers and management accountant to quantify and monetize the social dimensions, but because of the importance of context this may be disastrous for the outcome. TCA is mainly a tool for the organizations who are intrinsically motivated and contribute to a more sustainable society, and want to visualize their efforts to make their stakeholders also aware of this. It is a tool suitable for communicating external costs to governments and the public, to raise an awareness about the external impacts of organizations. It is a way of visualizing these impacts and draw attention for it.

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Appendices