A two-pronged route to accountability for corporate harm

Hello and welcome to the latest edition of the Counterbalance. This week, Balanced

Economy Project’s Claire Godfrey, and Social Value International’s Jeremy Nicholls

look at why competition policy and accounting count what really counts.

A company that pollutes a river, underpays its workers or sits on public resources it

has no use for can be, by its own accounts, highly profitable. Nothing in financial

reporting requires it to record the damage, and in many of these markets nothing in

the competitive landscape forces it to stop. Two systems are meant to discipline

corporate behaviour (i) competition, which should stop any firm growing powerful

enough to dictate terms, and (ii) financial accounting, which should measure

honestly what a firm does. Both ignore the harms of doing business, and these

failures reinforce one another.

At the heart of the problem lies a distortion around what counts as a “cost.”

In standard financial accounting, costs linked to production and operation such as

salaries, raw materials, and rent are methodically counted; others, while real

economic costs, are excluded and picked up by society. These costs can extend to

include river and air pollution, climate damage, resource and nature depletion, or

poor health outcomes, community disruption, household labour, or inequality effects.

The standard accounting system ignores these so-called “negative externalities”; in

other words, the ability of companies to externalise these costs for society to pick up.

The result is a system that includes costs that don’t reflect real value, while excluding

those that matter most. As argued in The Accounting Paradox, modern accounting

doesn’t just fail to capture harm—it actively incentivises it. By focusing narrowly on

financial returns, it rewards value extraction while ignoring value destruction.

There is also wider structural costs to consider. When a business becomes so big

that it can influence the operation of a competitive market, there are costs as

competition is reduced. Prices go up. Innovation in new products and services goes

down. Lobbying power even reduces government’s ability to regulate to protect

consumers and citizens.

This accounting ‘blind spot’ is not accidental; it’s created and reinforced at the

structural level. Competition enforcement has centred on a presumptive efficiency of

companies that is often reflected in their ability to convert revenues into profits while

maintaining competitive pricing. It assumes state non-intervention in the market

except to correct for non-conformity with this norm.

Decades of underenforcement of competition law and merger control has led to most

sectors - agriculture, retail, banking and financial services, asset management,

pharmaceuticals and media – being dominated by just a few firms with the ability to

influence or control the terms and conditions on which goods are bought and sold.

These firms use their monopoly power to design and embed value extraction

strategies that maximise short-term returns across entire sectors, regardless of the

broader social or economic consequences.

The 2017 UN Trade and Development report warned of the impacts of “rentier

capitalism” because of corporate consolidation. Research by SOMO illustrates how

monopoly power played out 2020 to 2022 with the top 1 per cent of firms (by market

capitalisation) being able to exploit events to gain a phenomenal 78 per cent nominal

rise in gross profits across the two years (the bottom 50 per cent of publicly listed

firms worldwide saw their profits decline by 29 per cent). This system of monopoly

has emerged in part because of competition authorities principal analytical tools

essential are concerned with prices and profits. Yet the externalities run far wider

and deeper than just manipulating prices of goods and services.

Consequently, dominant firms have built positions of market and strategic power

where they’ve been able to gain two advantages: they can externalise costs,

effectively dumping environmental and social damage onto society. They can also

undercut responsible competitors, shaping the market in their favour. Over time, this

dynamic entrenches power. In many industries, firms have become too big to fail, too

powerful to challenge, and too insulated to care.

The UK’s Digital Markets, Competition and Consumers Act (DMCC) 2024 is a case

in point. It empowers the Competition and Markets Authority to designate firms with

strategic market status and impose conduct requirements tailored to each. In

October 2025 the CMA designated Google in general search, and Apple and Google

in mobile platforms. Since then the CMA has imposed three conduct requirements,

all of them on Google’s search business. On mobile platforms, where the firms’

revenue model is at stake, it took a different route, accepting voluntary commitments

that took effect in April 2026 and which it cannot enforce without reopening the

conduct requirement process. Binding rules on steering, the practice that sits closest

to that revenue model, were only put out to consultation at the end of June 2026,

twenty months after the regime began. Every delay widens the gap between public

interest and market reality.

Nowhere are the failures of these two systems more visible than in the rapid

expansion of AI data centres.

The race to build these facilities reflects a familiar “growth-friendly” playbook;

privatise returns through stable, long-term rents and strategic control over emerging

markets, and socialise costs by passing environmental, economic, and infrastructure

burdens onto the public. Data centres are often granted priority access to electricity

grids ahead of residential developments and industrial users. The opportunity costs

are immense, yet they remain largely invisible in both company accounts and policy

decisions. Would data centre expansion look so attractive if accounting fully captured

its societal costs, and if competition policy prevented excessive concentration? The

answer is plainly no.

Changes to accounting standards

We need to redefine what accounting is for. Instead of treating profit as a purely

financial metric, accounting standards should require firms to internalise the cost of

compensating for harm done to people and the environmental, and allow positive

impacts, where they exist, to be disclosed. In practice, disclosure should mean

recognition of harm being included in the profit and loss account and balance sheet.

Missing costs should be recognised, irrespective of any arguments regarding any

other benefits and these costs cannot be netted against those benefits. Businesses

accounting for this harm as a cost would create a feedback loop, the more harm the

higher the cost, the higher the cost the lower the financial returns. Investment moves

away from businesses that cause harm.

This would require a change to the International Financial Reporting Standards

(“IFRS”) Conceptual Framework for Financial Reporting to align accounting with

both investor expectations and the public interest. This change would provide a truer

picture of value, while aligning business incentives with societal outcomes..

Ultimately, it would transform accounting into a tool for both private and societal

accountability.

A change in purpose would mean that costs imposed on consumers and businesses

from monopoly power would now be relevant and would be included in the accounts

if they can be faithfully represented. Company directors, accountants and auditors

would need to work together to develop measures of these costs that met this

requirement. This will be easier for some costs than others, and perhaps more

difficult in the context of market influence, but the realisation that these costs are

relevant drive the work required.

A competition policy ‘paradigm shift’

Competition and contestable markets are a pre-requisite for growth. Policymakers

should stop treating them as a barrier to it. We have the essential legal frameworks

in place to tackle abuses corporate power but regulators need to move beyond the

narrow focus of price and profit metrics and make competition policy responsive to

real-world social concerns while maintaining legal and institutional integrity. This

means enforcing existing laws more decisively, tackling entrenched economic

concentration and incorporating broader public interest considerations into

competition decisions.

The bottom line

Right now, our economic system rewards companies for generating profit even when

that profit is built on harm. As long as accounting ignores those harms, and

competition policy tolerates the power that sustains an extractive model, the cycle

will continue.

Fixing one system without the other would change little. Fixing both could reshape

the rules of the game by supporting value creation rather than shifting the cost of it.

The Counterbalance is published every Thursday. This week, we are offering this bonus edition ahead of our regularly scheduled publication. Please send any thoughts and feedback to scott@balancedeconomy.org.