Ronnie Downes, OECD Budgeting & Public Expenditures Division
Ever hear of triple-bottom line accounting? This is what businesses use to go beyond the usual financial balance sheet to ensure their accounts reflect environmentally and socially responsible profits and loss. Shareholders and clients increasingly want companies to be clean and responsible in their business practices, to such an extent that it can affect their stock value.
But what about government? Shouldn’t public finances also follow such quality criteria so that we can hold our politicians to account and ensure our tax money is taking care of the environment?
In our view, budgeting is not a “neutral” reporting exercise, but one of the most effective ways of making sure that public money is put to work properly, and that policies are actually helping governments to achieve important goals, like fighting climate change and cutting pollution, for instance.
“Green budgeting” aims to use the budget–taxes, spending and policy co-ordination–to assess and promote the alignment that is essential to meet environmental goals. For example, green budgeting shows financial outlays that have positive climate change impacts, and highlights tax policy choices that must be confronted as fuel is “decarbonised”, whittling away a major source of government revenues.
Many large private corporations employ the triple-line accounting championed by the likes of the Global Reporting Initiative, an independent organisation, to measure overall company performance according to not only traditional profit and loss, but social responsibility to people, and environmental performance as well. But the public sector has been slow to do the same. This will have to change. The climate change targets we have set in the Paris Agreement, Aichi Biodiversity Targets and the United Nations’ Sustainable Development Goals require that governments know what portion of their budgets is moving their countries towards reaching these targets and what portion is hindering it, and to craft their policies accordingly.
With the backing of France and Mexico, OECD Secretary-General Angel Gurría announced the green budgeting initiative at the One Planet Summit in Paris in December 2017, along with a call for meaningful carbon pricing.
French president Emmanuel Macron welcomed the initiative enthusiastically: “We are launching the “Paris Collaborative on Green Budgeting” within the framework of our zero-emission objective,” he said at the global climate financing summit. “Analysis of the budgets of OECD countries furthers transparency, and I thank Angel Gurría for his contribution to this framework. The work of the OECD will enable budget presentations launched by a group of pilot countries. Obviously, we will be contributing with presentations that show how the budget each year is distributed according to climate objectives.”
The OECD has brought together a cross-disciplinary group of environmental, tax, budget and fiscal affairs experts who will partner with countries to help them assess and improve their budgets and fiscal policies for climate resilience. Among other things, green accounting looks at how subsidies that are harmful to biodiversity or which push the planet’s carbon emissions output compare with resources the government puts in these two areas. The Collaborative will analyse how coherent fiscal policies are with developing low-emissions, sustainable strategies. And, taking inspiration from the OECD’s work on “gender budgeting”, which determines how budgets impact gender equality, it will promote environmentally-sensible budgeting.
The OECD will work with countries to set a new global agenda for green budgeting with agreed-upon definitions, and common methods, guidelines and tools to bring about sustainable public finance flows. Tools include those that track the impacts of decarbonisation and carbon pricing on fossil fuel use and tax revenues in each country, and voluntary “green budget statements” to show the environmental credentials of the annual budget.
Companies adhere to triple-line accounting because it shows the true cost of doing business. Likewise, by knowing the environmental costs and benefits incurred in serving its citizens thanks to green budgeting, governments will be better able to raise the planet’s bottom line.
References and further reading
OECD (2017) Investing in Climate, Investing in Growth, http://oe.cd/g20climate
OECD (2015) Recommendation of the Council on Budgetary Governance, http://oe.cd/UA
OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, Paris, http://oe.cd/2bz
For more on the Global Reporting Initiative today, see www.globalreporting.org and read Massie Robert Kinloch (2001), “Reporting on sustainability: A global initiative”, OECD Observer No 226/227, Summer, http://oe.cd/wbO