Problem: Many companies account for their profits before they account for broader societal impacts like pollution or long-term community health effects of their activities.
Solution: The solution for this business would innovate and push for “full-cost accounting” or accounting that understands the true “profits” of a business by balancing the private dollars that companies receive along with the public impacts they have (addiction, pollution, health outcomes, etc). I first came across this idea in the Harvard Alumni Entrepreneur’s podcast with Henry Whitlow.
Full-cost accounting would include incorporating into the income statement costs such as:
A carbon tax that cuts into the profits of a corporation. Thus true “profit” would be that which is produced after this tax is deducted.
A health tax on the long-term effects of what a product does to people. After analysis, the company would publish the true "profits" of alcohol, cigarettes, coal, and more.
A mental health tax on products designed for addiction or that encourage binging.
What’s important to remember is that this business wouldn’t actually be charging businesses taxes; it would simply estimate the cost of these external, public effects and estimate how these costs would affect a true company’s profits if integrated into the income statement. Broadly speaking, this business would try to bridge the gap between profits and pollution (in all forms, environmental, social, health-based, etc.)
In today’s model of accounting, profits are private, but pollution is public. A company will focus on making money off their product in the short-term rather than considering the public in the long term. Many corporations today operate with the ethos that “negative down-stream effects are for others to figure out, whether it's the individuals, the governments, or the hospital systems.”
Since we live in a capitalist system where profits seem to drive everything, accounting for the exploitation of the public in a profit-based or profit-adjusted model may create long-term systemic change. An example of a few companies that would be affected by this include alcohol companies (large negative health impacts), mining companies (large negative environmental impacts), or social media companies (large negative mental health impacts).
The global accounting software market size was valued at $11 billion in 2018 and is projected to reach USD $20 billion by the end of 2026, exhibiting a CAGR of 8.02%. The global market is expected to have a significant growth in the forecast period owing to the demand for computerized accounting. While this business wouldn’t necessarily be only in global accounting software, it definitely would play in this sphere while building a new model of ethical accounting.
Monetization: True profits displayed to the public for free; in-depth reports at a cost and/or service provided at a fee.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)