Lecture 12 Chapter 17 Environmental and social management accounting

1
Lecture 12 Chapter 17Environmental and social
management accounting
2
Corporate social responsibility and external
reporting

• Involves taking into account the social and
  environmental impact of corporate activity when
  making decisions
• May increase profitability
• Determine long-term survival
• Communicated to stakeholders in annual reports,
  environment reports, stakeholder impact reports,
  social impact reports and social audit reports

continued
3
Corporate social responsibility and external
reporting

• Triple bottom line reporting
• Focus on financial (economic), social and
  environmental aspects of performance
• Aimed at a broader range of stakeholders
• Social performance
• Impact of an organisation's behaviour on society,
  including the broader community, employees,
  customers and suppliers

4
Corporate social responsibility and external
reporting

• Environmental performance
• Impact of an organisation's behaviour on the
  environment, including natural systems of land,
  air and water, people and other living organisms

5
Environmental management accounting (EMA)

• Consists of environmentally-related management
  accounting systems and practices
• Life cycle costing, environmental cost
  accounting, environmental performance measures,
  assessment of environmental benefits, strategic
  planning for environmental management

6
Environmental management accounting (EMA)

• EMA techniques
• Financially-oriented EMA
• Physically-oriented EMA

7
Financially-oriented EMA

• Environmental costs
• Incurred to prevent, monitor and report
  environmental impacts
• Cost of waste management systems, environmental
  training, legal activities and fines, record
  keeping and reporting, cost of remediation of
  environmental impacts

continued
8
Financially-oriented EMA

• Environmental product costing
• Involves tracing direct and indirect
  environmental costs to products
• The cost of waste management, permits and fees,
  recycling

continued
9
Financially-oriented EMA

• Environmentally-linked capital expenditure
• Driven by the desire to improve the
  organisation's environmental impact, or by the
  need to comply with environmental regulations

10
Financially-oriented EMA

• Environmentally-induced revenues
• Arise from positive environmental actions of the
  organisation
• Increased revenue from the sale of recycled
  materials, from higher selling prices for greener
  products
• Increased customer satisfaction, improved
  employee morale, increase in future profits

11
Physically-oriented EMA

• Physically-oriented EMA
• Mechanisms that focus on supplying information
  that accounts for the organisations impact on
  the natural environment
• Kilograms of noxious waste emissions, kilowatt
  hours of electricity used, decibels of noise
• Used for tactical decisions and capital
  expenditure decisions

12
Environmental management systems (EMS) and EMA

• Systems that organisations put in place to manage
  their environmental performance
• Recycling systems, systems to monitor and control
  levels of liquids, material and atmospheric
  discharge and waste
• ISO 14001 is an international standard for EMA
  and its audit

13
Environmental management systems (EMS) and EMA

• EMS and adoption of ISO 14001 requires that
  environmental performance be measured against
  policies, objectives and targets

14
The benefits of recognising environmental and
social impacts

• There is an increasing awareness that recognising
  environmental and societal impacts can have broad
  implications for an organisation
• Attracting highly skilled employees who wish to
  work for an environmentally-responsible
  organisation

continued
15
The benefits of recognising environmental and
social impacts

• Enhancement of the organisations reputation as a
  responsible and caring organisation
• Identification of potential cost savings

continued
16
The benefits of recognising environmental and
social impacts

• Reduction of risk of current and future
  activities
• More effective management of resources
• Improvements in competitiveness
• Greater attractiveness to customers
• Positive reputation

17
Difficulties in recognising and measuring
environmental and social impacts

• Costs of environmental impacts are often hidden
  or forgotten, even though they may be substantial
• They may be difficult to recognise

continued
18
Difficulties in recognising and measuring
environmental and social impacts

• Future ecological and social issues are not yet
  known
• Current work practices and operations may have
  future environmental and social consequences
  which we cannot predict
• Many costs and benefits are external to the
  organisation
• Difficult to detect and assess

continued
19
Difficulties in recognising and measuring
environmental and social impacts

• Many costs and benefits are difficult to measure
  in financial terms
• They relate to the future, and the size of the
  impact may be unknown

20
Difficulties in recognising and measuring
environmental and social impacts

• Defining environmental costs
• The costs that an organisation incurs to prevent,
  monitor and report environmental impacts
• US EPA defines 5 tiers of environmental costs
• Private costs (tiers 1 to 4) and societal costs

21
(No Transcript)
22
(No Transcript)
23
Analysing environmental costs

• Environmental costs can be analysed as relating
  to the following activities
• Prevention activities
• Solve environmental problems before they occur,
  or turn problems into opportunities
• Costs of these activities are investments, as
  they reduce the future outlays and provide
  long-term benefits

continued
24
Analysing environmental costs

• Appraisal activities
• Monitor the levels of environmental impact
• Measuring damage, inspecting processes and
  products, auditing supplier performance

continued
25
Analysing environmental costs

• Internal failure activities
• Correct breakdowns discovered in appraisal
  activities
• Cost of cleaning the plant after spillage, cost
  of occupational health and safety claims by
  employees

26
Analysing environmental costs

• External failure activities
• Occur when resolution and remediation efforts
  fall outside of the organisations management
• Cost of cleaning up polluted sites, fines for
  environmental damage, lost profits associated
  with damage to reputation

27
(No Transcript)
28
Improving supply chain management through
environmental and social accounting

• Suppliers
• An organisation may be willing to pay more for
  supplies that have reduced environmental and
  social impacts
• Organisations working with suppliers to adopt
  more responsible environmental and societal
  practices, can lead to cost reductions

continued
29
Improving supply chain management through
environmental and social accounting

• Formal supplier evaluation can include assessment
  of a range of environmental and social factors,
  as well as financial factors

continued
30
(No Transcript)
31
Improving supply chain management through
environmental and social accounting

• Customers
• An organisation can work with customers to reduce
  the adverse environmental and social impact of
  products
• Recycling and disposal programs
• Substitution of materials
• Cost savings

continued
32
Improving supply chain management through
environmental and social accounting

• Sometimes customers may be willing to pay more
  for a more environmentally-friendly product
• Marketing and strategic considerations need to be
  considered in such pricing decisions

continued
33
(No Transcript)
34
Measuring environmental and social performance

• ISO 14031 environmental performance indicators
• Operational performance indicators include
  measures of waste levels and energy consumption
  relative to sales or some other activity

continued
35
Measuring environmental and social performance

• Management performance indicators measure the
  efforts of management to improve environmental
  performance
• Environmental performance indicators measure the
  condition of the environment at a local, national
  or global level.

continued
36
Measuring environmental and social performance

• A socially balanced scorecard
• Environmental or social dimensions may be added
  to the balance scorecard
• Measuring and reporting social values
• Some organisations include these measures in
  their annual report to shareholders, in triple
  bottom line reports or in specialised reports to
  stakeholders

37
(No Transcript)
38
(No Transcript)
39
Social audits

• A formal process where organisations measure and
  report the extent to which they have operated in
  accordance with their stated values and
  objectives
• Requires the involvement of many stakeholders
• The outcomes of the audit are subject to external
  verification

40
Social audits

• Problems may be highlighted and stakeholders
  invited to assist with solutions
• Helps managers understand stakeholders concerns

41
Environmental outcomes capital expenditure
analysis

• Consideration of environmental cost and benefits
• May make financially non-viable projects more
  attractive
• May make financially viable projects less
  attractive

continued
42
Environmental outcomes capital expenditure
analysis

• The weighting given to environmental cost and
  benefits depends on the organisation's values and
  preferences
• Some capital expenditure analysis may be driven
  by the need to be environmentally responsible
• Compliance with environmental regulations

continued
43
Environmental outcomes capital expenditure
analysis

• Some environmental costs and benefits can be
  included in the financial analysis
• Some factors are considered after the financial
  analysis, such as
• Benefits/losses to the environment
• Impact on employee attitudes
• Impact on community attitudes or concerns
• Impact on the organisations reputation

44
(No Transcript)
45
(No Transcript)