Modern corporate accounting systems often overlook broader societal costs like environmental damage or public health impacts, focusing solely on financial profits. This misalignment allows companies to shift burdens—such as pollution cleanup or healthcare expenses—onto society while keeping their reported profits high. For instance, a fossil fuel company’s earnings might not reflect the long-term climate costs of its emissions, or a social media platform’s revenue could ignore the mental health toll of its addictive design. This gap encourages short-term decision-making and undermines sustainable business practices.

A Framework for True Costs

One way to address this issue could involve creating a full-cost accounting framework that quantifies and integrates societal externalities into financial statements. Here’s how it might work:

• Estimation Models: Peer-reviewed methodologies could assign monetary values to externalities, such as carbon emissions or healthcare costs tied to alcohol-related diseases.
• Adjusted Profit Metrics: Companies could publish "true profit" figures, deducting estimated societal costs from revenue to reveal their net impact.
• Transparency Tools: Public dashboards might display high-level adjusted profits, while detailed reports could be offered to investors, regulators, or businesses for deeper analysis.

Unlike regulatory taxes, this system would simulate the financial impact of externalities without requiring policy changes, making it actionable for businesses and investors today.

Potential Beneficiaries and Incentives

This framework could serve multiple stakeholders:

• Investors: ESG-focused funds might use it to quantify risks from unaccounted externalities.
• Corporations: Forward-thinking companies could adopt it to preempt regulation or enhance sustainability branding.
• Governments: Agencies might leverage the data to design policies like carbon pricing.

While some corporations might resist due to reputational risks, early adopters could gain a competitive edge. Investors, increasingly demanding granular sustainability data, would likely find the adjusted metrics valuable.

Execution and Differentiation

An MVP could start with a single externality, like carbon emissions, and expand to health or social metrics later. Existing tools like Persefoni (carbon accounting) or Trucost (environmental externality measurement) focus on specific areas, but this framework would integrate all externalities into financial statements, offering a more holistic view. By translating societal costs into financial terms, it could help businesses align profit motives with broader stakeholder interests.

This approach could redefine how success is measured in business, moving beyond short-term profits to account for long-term societal impacts.