Beruflich Dokumente
Kultur Dokumente
Accounting
Aaron Shannon
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Contents
What is Sustainability Accounting?................................................................................................. 1
Advantages...................................................................................................................................... 1
Competitive Advantage ............................................................................................................... 1
Enhance Company Image, Reputation, and Customer Loyalty................................................... 2
Risk Management........................................................................................................................ 2
Disadvantages ................................................................................................................................. 3
Comparability .............................................................................................................................. 3
Additional Time and Cost ............................................................................................................ 4
Opposition from Critics ............................................................................................................... 5
Authors Position and Conclusion ................................................................................................... 5
Bibliography .................................................................................................................................... 8
see less risk in companies practicing sustainability than they do in companies practicing
unsustainable practices.
PwC claims studies have suggested there are positive relationships between
environmental, social, and governance factors (ESG) and financial performance. Also, ESG factors
can enhance investment value and/or mitigate risk. The firms report also points to a working
paper by Harvard Business School which confirms in the findings that sustainability leaders tend
to have better stock performance, lower volatility, and greater return on assets (ROA) and return
on equity (ROE).
Financial institutions are establishing sustainability research departments, according to
PwC, which implies such institutions believe researching sustainability mitigates risk, otherwise
there is no need for them to waste effort if the research does not promote better decision making.
The evidence and results suggest CSR reporting is important to investors for mitigating risk.
Disadvantages
Three disadvantages are comparability, additional time and costs, and opposition from
critics.
Comparability
The challenge of comparability involves how to properly assess and measure the value of
the environmental and social activities undertaken by a company, how to integrate the
information with the financial accounting, and then effectively reporting the information to
investors and other stakeholders. In addition, accurate measurements are needed for a company
to compare the data to previous years to know how much they have improved and how much
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money they have saved or will save when they receive the return on their investments. Various
accounting firms and other organizations are continuously working on standards, frameworks, and
methods in order to overcome this comparability challenge.
KPMG, a large public accounting firm, states in their Sustainability reporting What you
should know report, For sustainability programs to be properly integrated into operational
strategy, meaningful and reliable metrics must be developed along with the underlying processes
and systems to produce such information. They have already developed a Climate Change &
Sustainability practice (CC&S) to provide consulting and auditing to help companies meet their
sustainability challenges.
Pwc claims it is easier today to compare and understand the relationship between
corporate financial and sustainability data. Investors are able to analyze a companys social and
environmental impacts and to assess and value the impact of ESG factors on a companys
[Earnings Before Interest and Tax] EBIT performance and share price. They offer three examples
of available tools, namely Thomson Reuters Quantitative Analytics, MSCIs ESG Impact Monitor,
and Bloombergs ESG Valuation Tool. Comparability is improving.
Additional Time and Cost
The second downside is the additional time and cost to gather the information, organize,
and develop the reports. A firm may have to hire additional staff in order to meet the demand for
CSR reporting. According to the International Journal of Business, Humanities, and Technology, a
firm may increase the load of current employees which may potentially result in poor health,
absenteeism, decreased job satisfaction, and an unstable emotional state. The journal also points
out the expensive cost of training employees in the procedures needed to accomplish triple
bottom line reporting. The challenge may be overcome by corporations outsourcing the tasks or
hiring consultants, thus saving the company money in training costs. Even if the initial costs
outweigh the benefits in the short-term, the savings in the long-term should save the company
large amounts of money.
Opposition from Critics
Thirdly, opposition from critics--according to the International Journal of Business,
Humanities, and Technologycould negatively impact, at least initially, the company perception
as the organization transitions. They point out critics are slow to praise and quick to criticize. As
a result, companies might hesitate to embrace a sustainability agenda, or become extremely
introverted during the shift toward TBL reporting. This challenge is probably a small risk, because
the sustainability trend is increasing in popularity and any reasonable person should acknowledge
any ethical problems which may have existed in the past are acknowledged by the company and
corrective action is being implemented.
Authors Position and Conclusion
In the opinion of the present author, the current trend towards sustainability and the
developing sustainable accounting is extremely exciting for health, environmental, and socially
conscious individuals. Grassroots movements have been working hard for decades and to see their
work paying off as the corporate world progresses towards sustainability is quite encouraging and
motivating. Capitalism is good or bad, depending on the assumptions and principles practiced.
Crony capitalism is largely concerned with maximizing profits at the expense of many
stakeholders, ignoring the negative impact on people and the planet. Conscious capitalism, a
newer theory, focuses on maximizing value for all stakeholders rather than maximizing profits for
investors. The reality is the principle of maximizing profits for investors is less beneficial
economically than the principle of maximizing value for all major stakeholders. The former is a
win-lose scenario. The latter is a win-win scenario. Sustainable accounting is a perfect fit for
conscious capitalism, and a threatening adversary to crony capitalism.
An important truth to remember is criticism is not proof of a theorys failure, but instead
criticism is an opportunity for improvement and corrective action. Criticism is crucial for growth
and motivation for change. Without good criticism, mediocrity would prevail over the pursuit of
excellence. One weakness of business as a whole is the lack of accountability and transparency, of
which sustainable accounting is one of the means of correcting the deficiency. International
Journal of Business, Humanities, and Technology says accountability is a necessity in the corporate
world. Accountability requires companies to extend their information beyond financial data; TBL
connects the financial reporting with the businesss everyday activities in a way that provides a
broader awareness of the impact of the business upon society.
KPMG and PwC definitely believe sustainable accounting is an important aspect of
accounting theory, otherwise they would not be offering consulting and auditing services for
producing such reports. The Global Reporting Initiative (GRI) is a major non-profit organization
developing standards and providing guidance and support to help standardize sustainable
reporting. G4 is their latest version of their Sustainability Reporting Guidelines which is widely
used around the world. One day these standards may reach the same level of authority as
Generally Accepted Accounting Principles (GAAP), Financial Accounting Standards Board (FASB),
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and International Accounting Standards Board (IASB). Sustainability accounting is the future.
Companies which resist the change will fall behind. Join the movement!
Bibliography
GRI. (2014, December 6). About GRI. Retrieved from Global Reporting Initiative:
https://www.globalreporting.org/Information/about-gri/Pages/default.aspx
Jackson, A., Boswell, K., & Davis, D. (2011). Sustainability and Triple Bottom Line Reporting What
is it all about? Monroe: International Journal of Business, Humanities and Technology.
Retrieved from http://ijbhtnet.com/journals/Vol_1_No_3_November_2011/6.pdf
Lopresti, S., & Lilak, P. (2012). Do investors care about sustainability? New York:
PricewaterhouseCoopers LLP. Retrieved from http://www.pwc.com/en_US/us/corporatesustainability-climate-change/assets/investors-and-sustainability.pdf
Mackey, J., & Sisodia, R. (2013). Conscious Capitalism. Boston: Harvard Business Review Press.
Minan, P., Hickox, J., & Gimigliano, J. (2011). Sustainability reporting--What you should know.
Amstelveen, Netherlands: KPMG LLP. Retrieved from
http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/iarcssustainability-reporting-what-you-should-know.pdf