Guest Article: Unveiling the Political Landscape of True Cost Accounting | SDG Knowledge Hub | IISD

The Hidden Costs of the Global Agrifood System

Introduction

The global agrifood system has recently been revealed to have hidden costs that have a profound impact on the environment, human health, and society. According to the State of Food and Agriculture (SOFA) Report published by the Food and Agriculture Organization of the UN (FAO), these hidden costs amount to a staggering USD 12.7 trillion, which is equivalent to USD 5 per person or 10% of global gross domestic product (GDP).

Impact of Hidden Costs

The FAO’s analysis shows that health-related issues, such as obesity and non-communicable diseases (NCDs) like diabetes and heart disease, contribute to 73% of the hidden costs. Environmental impacts account for more than 22% of the quantified hidden costs, while social costs related to poverty and malnutrition make up 4%.

True Cost Accounting (TCA)

True Cost Accounting (TCA) is a methodology that analyzes and quantifies the impact of the agrifood supply chain on the environment, economy, society, and individuals. It aims to make the hidden costs and benefits of products or services visible, providing a tool for informed decision-making.

Implementation of TCA

A recent panel discussion at the Biofach trade fair in Nuremberg, Germany, explored the implementation of TCA in sustainability policy and financing. The panelists emphasized the need for integrated reporting and a reform of corporate accounting and reporting to transition towards a more sustainable and socially responsible approach to business.

The Role of TCA in Financial Reporting

TCA serves as a gateway to monetize sustainability information and integrate it into financial reporting. Sustainable Performance Accounting (SPA), a form of TCA, allows for the inclusion of positive and negative sustainability aspects in corporate balance sheets, providing a precise representation of true costs and benefits at the company level.

Challenges and Opportunities

The private sector is increasingly recognizing the importance of transparency in sustainability performance. However, there is a need for uniform sustainability standards and political support to ensure widespread adoption. The panelists highlighted the potential of political commitments, such as the German coalition agreement and the recognition of the SOFA 2023 report by UN Member States, to pilot TCA.

Conclusion

Political action is necessary to expand current accounting systems and adequately account for the financial costs of non-sustainable economic activities, as well as the financial values of sustainable economic activities. The upcoming SOFA 2024 report is expected to provide further insights and policy recommendations on the use of TCA within a systemic framework.

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 2: Zero Hunger – The article discusses the hidden costs of the global agrifood system, which is directly related to food production and consumption.
• SDG 3: Good Health and Well-being – The article highlights the health-related issues stemming from diets that contribute to obesity and non-communicable diseases.
• SDG 8: Decent Work and Economic Growth – The article emphasizes the need for reform in corporate accounting and reporting to transition towards a more environmentally sustainable and socially responsible approach to business.
• SDG 12: Responsible Consumption and Production – The article discusses the need for true cost accounting (TCA) to analyze and quantify the impact of the agrifood supply chain on the environment, economy, society, and individuals.
• SDG 13: Climate Action – Although not explicitly mentioned in the article, the environmental impacts of the agrifood system contribute to climate change and are relevant to SDG 13.

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 2.1: By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious, and sufficient food all year round – The article highlights the hidden costs associated with current food production and consumption.
• SDG 3.4: By 2030, reduce by one-third premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being – The article discusses the health-related issues stemming from diets that contribute to obesity and non-communicable diseases.
• SDG 8.4: Improve progressively, through 2030, global resource efficiency in consumption and production and endeavor to decouple economic growth from environmental degradation – The article emphasizes the need for reform in corporate accounting and reporting to transition towards a more environmentally sustainable approach to business.
• SDG 12.3: By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses – Although not explicitly mentioned in the article, the discussion on true cost accounting (TCA) in the agrifood industry relates to responsible consumption and production.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator 2.1.1: Prevalence of undernourishment – The article highlights the hidden costs associated with current food production and consumption, which can be measured by assessing the prevalence of undernourishment.
• Indicator 3.4.1: Mortality rate attributed to cardiovascular disease, cancer, diabetes, or chronic respiratory disease – The article discusses the health-related issues stemming from diets that contribute to non-communicable diseases, which can be measured by tracking mortality rates attributed to these diseases.
• Indicator 8.4.1: Material footprint, material footprint per capita, and material footprint per GDP – The article emphasizes the need for reform in corporate accounting and reporting to transition towards a more environmentally sustainable approach to business, which can be measured by tracking material footprints.
• Indicator 12.3.1: Global food loss index – Although not explicitly mentioned in the article, the discussion on true cost accounting (TCA) in the agrifood industry relates to responsible consumption and production, which can be measured by tracking the global food loss index.

SDGs, Targets, and Indicators Table

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Source: sdg.iisd.org

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