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Aligning Performance Evaluation and Reward Systems with Corporate Sustainability

Goals

Saurav K. Dutta
Associate Professor
University at Albany, SUNY

and

Raef A. Lawson
Professor-in-Residence and Vice President of Research
Institute of Management Accountants
rlawson@imanet.org

Please address correspondence to the second author.

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Aligning Performance Evaluation and Reward Systems with Corporate Sustainability


Goals

Brief Authors Bios


Saurav K. Dutta is an Associate Professor and former Chair of the Department of Accounting
and Law at the University at Albany, State University of New York. Dr. Dutta holds a B.Tech.
in Aeronautical Engineering from IIT-Bombay and a Ph.D. in accounting from the University of
Kansas. He can be reached at sdutta@uamail.albany.edu

Raef A. Lawson is Vice President of Research and Professor-in-Residence at the Institute of


Management Accountants. He was formerly a professor and Chair of the Accounting
Department at the State University of New York at Albany. Dr. Lawson earned M.B.A. and
Ph.D. degrees from the Stern School of Business, New York University. He can be reached at
rlawson@imanet.org.

Executive Summary

This article discusses the problems that arise from having cost measurement, performance
evaluation and reward systems which are out of sync with organizations CSR goals.
Suggestions are provided to help alleviate such misalignment.

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Aligning Performance Evaluation and Reward Systems with Corporate Sustainability


Goals

Introduction

Increasing social and environmental awareness in companies has resulted in greater external
reporting of their sustainability initiatives and outcomes. In 1998, 35% of the largest 250
companies of the Fortune Global 500 were producing environmental reports and an additional
32% were producing environmental brochures or included such reporting in their annual reports
(Kolk, et. al 2001). According to a recent KPMG survey (2008), the percentage of these
companies producing environmental reports in 2008 had increased to 80%. To support these
efforts, much guidance (e.g., the GRI framework) has been provided on the preparation of such
reports.

In addition to external reporting, companies are increasingly incorporating the paradigm of


sustainability into their long term strategy. For some, the goal is to improve their impact on the
environment or society; for others this is a means of enhancing long-term financial performance.
While achievement of the latter goal is manifested through increased revenue, reduced costs,
reduced risk, or new market opportunities, achievement of the former goal is generally not fully
captured by traditional accounting systems. In both cases, the alignment of performance
evaluation and reward systems with organizational goals can be challenging.

A fundamental reason for this potential misalignment is the rudimentary measurement of costs
and benefits by many organizations which ignore social and environmental considerations. As
corporate investment in corporate sustainability reporting (CRS) initiatives grows without

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requisite changes to measurement systems, there is a widening gap between what is important
and what gets measured. Moreover, the performance measurement and reward systems in many
organizations lag even further behind in the consideration of CSR factors that are of strategic
importance to the organization. Yet these systems can effectively motivate a change in corporate
culture that fosters sustainability efforts.

Hence, it is important to have internal measurement and evaluation mechanisms that enable
management to incorporate social and environmental as well as economic factors into decisionmaking and performance evaluation processes. However, most companies do not have an
adequate system for the identification and measurement of social and environmental impacts of
new products, projects, processes, and facilities (Epstein, 2008, 108). The failure to measure
and incorporate the impact on costs, benefits, and risks from CSR initiatives into the various
management systems of a company can result in selection of initiatives that may not be optimal
for the organization or society. To remedy the problem a broader set of performance measures
has to be used. This article outlines the key roles that financial and accounting professionals can
play in facilitating this transition.

The remainder of the article is organized as follows. We start by summarizing the extant
literature and guidance on corporate sustainability reporting. Such guidance was primarily
limited to reporting to external constituents and only recently have been extended to include
internal decision makers. In the next section, we explore the ramifications of various CSR
activities in which organizations engage. We then discuss the pitfalls of having misspecified (or
under-specified) performance measurement and reward systems, and follow it with

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recommendations for improvement. We conclude with ways to achieve greater alignment


between the rewards system and long term corporate strategy.

Professional guidance on CSR reporting


Corporate Social Responsibility reports provide useful insight into a corporations strategy on
environmental and social issues. As such reporting is relatively new, the format and content of
these reports are primarily at managements discretion. Initial guidance on preparing such report
established criteria for reporting and for assessing their quality based on common practice (e.g.,
United Nations Environment Programme and Deloitte Scoring System 1999). More recently,
normative guidelines have been developed regarding the content of such reports. While many
such guidelines exist, such as those developed by CERES (Coalition of Environmentally
Responsible Economies), PERI (Public Environmental Reporting Initiative), and FEE
(Federation des Experts Compatables Europeens), the ones gaining prominence are those
promoted by powerful international organizations. These include the GRI (Global Reporting
Initiative, GRI 2000), ISO 14031 (ISO 1999) and the recently developed IASB framework.

The GRI reporting framework seeks to provide guidance to organizations that wish to disclose
their initiatives and accomplishments in the area of sustainability. It provides guidance regarding
both what needs to be reported as well as how this information ought to be reported. Policy
considerations include broad requirement such as a statement from the CEO, vision and strategy
towards sustainable development, and specific requirement of indicators and management
systems. Also required is identification and reporting of metrics on all of the 3P dimensions, that
is, with regard to people (social), planet (environment) and profits (economic).

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Similar to the GRI requirements, ISO 14031 is a standard that outlines the process of measuring
environmental performance and unlike ISO 14001 is not a standard for certification. This
standard has four categories. The first includes generic information; the other three are
indicators of performance. The performance indicators (or metrics) are in the areas of
management performance, operational performance and environmental condition. Social aspects
are included as part of the environmental indicator. Further, on the environmental dimension
ISO 14031 allows for a much broader scope in terms of explicitly analyzing the effects on air,
water, land, flora and fauna. Similarly, in the operational dimension it is more specific across the
entire value chain of a companys operations, starting upstream with material and energy
procurement and ending downstream with delivery, emissions and wastes.

A recently issued sustainability framework by the IASB urges accountants to expand their roles
beyond that of preparers and assurers of sustainability reports and evolve to a much broader role
within the organization. The framework addresses four perspectives and the inter-dependencies
between these perspectives. These perspectives are: business strategy, internal management,
financial investors and other stakeholders. Within the internal management perspective the
framework emphasizes the need to enhance performance evaluation and measurement. Changes
in internal performance evaluation are posited to lead to changes in behavior. However, such
changes in behavior will only occur over time.

It is interesting to note how reporting guidance with regard to sustainability has evolved. The
earlier guidance was more descriptive in nature in that it was derived from common practices
obtained through survey of leading global companies. Subsequently, the GRI and ISO 14031
provided more normative guidance on the what and how of reporting. More recently, the

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IASB framework provides guidance to accountants not merely on passive reporting of


sustainability issues, but on proactively engaging in such activities. This article furthers the
proactive objectives of the recent IASB framework by analyzing the impact of performance
measurement and incentive programs of companies on CSR initatives and potential pitfalls
arising from inadequate system.

Ramifications of various CSR activities

In a recent issue of Cost Management, Dutta and Lawson (2008) provide a pictorial
representation of the management dilemma in pursuing three goals that are not necessarily
congruent. These goals are short-term profits, customer/organization value and
environmental/social responsibility. In that framework, various combinations on the three
dimensions are marked as desirable (D), bad (B), neutral (N) or ambiguous (A) from a
management decision perspective. The framework provides a useful tool in categorizing and
evaluating various corporate initiatives related to environmental and social responsibility. Of
many such combinations across the three dimensions, the one that is most likely to be
implemented is the one which is desirable from all three perspectives.

An example of such an initiative, undertaken by a wide range of companies, is increasing energy


efficiency. This is accomplished through various means, such as increasing the fuel efficiency of
vehicles (e.g., Wal-Mart), reducing the number of deliveries (e.g., FedEx), or through lighter and
more efficient packaging (e.g., IKEA). These measures are low-hanging fruits in the sense
that they reduce carbon emission while simultaneously curtailing costs and thereby increasing
profits in the short-term. Clearly, such initiatives are desirable from all the above perspectives
and would be undertaken by corporations.
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Some corporations have gone beyond the low hanging fruits and have undertaken initiatives
that may not reduce costs. Sometimes, they have been successful in passing the increased costs
downstream to their customers through effective marketing of their green nature. For
example, Starbucks and Ben & Jerrys have been able to charge a green premium over their
competitors prices for essentially similar products. Not only have their CSR initiatives resulted
in higher margins (or selling price) but they have also led to additional sales. In a similar
fashion, energy producing companies that normally use fossil fuel may diversify into alternate
energy production methods, such as harnessing wind power, and sell energy thus produced at a
premium price. While energy is a commodity and the mechanism of production has no impact
on the utility of the product, through proper marketing efforts a part of the additional cost of
generating clean energy has been passed on to consumers.

Other commonly undertaken CSR measures include altering processes and controls to ensure
better compliance with laws and regulation. In addition to demonstrating good corporate
citizenship and thereby improving corporate image, these measures reduce the potential for
penalties and fines being imposed on a company. Thus the incremental costs of such CSR
measures can be partially off-set by a reduction in fines and penalties. Even in situations where
the explicit benefits from such initiatives may appear to be less than the costs incurred by
implementing better processes, such actions may actually have a net positive financial impact in
that the implicit benefits of enhanced corporate image may be hard to quantify and thus
overlooked. Additionally, the reduction of the risk of catastrophe through better compliance is
often ignored in the analysis of short term costs and benefits.

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In addition to hazard risks, companies face a variety of risks including strategic risks, operational
risks, and financial risks (Walker, Shenkir and Barton, 2002). These risks are firm specific and
need to be enumerated for each corporation. While the importance of reducing risk is widely
acknowledged, the development of tools to identify and assess risks is at a fairly early stage and
they are not used by most companies (Protiviti, 2005). The failure to use an appropriate decision
making model or a technique to measure social and political risks can hamper the ability of
organizations to effectively identify and mitigate these risks.

A variety of frameworks have been proposed for assessing and managing an enterprises risk.
These frameworks generally contain the following components, presented in the order in which
they are undertaken:

Set strategy and objectives,

Identify risks,

Assess risks,

Treat risks,

Control risks, and

Communicate and monitor (IMA, 2007).

As just noted, after risks have been identified they need to be assessed. This includes
determining which risks can be controlled by a company and which cannot. Also important is
knowing whether a risk can be measured and how various risks relate to each other.

The next step requires management to make a determination as to how it will respond to each of
the major risks identified. In this regard, management has a variety of options. These include

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avoiding, reducing, sharing or accepting risks. Often risks can be mitigated by taking
precautionary steps which reduce the probability of unfavorable outcome or reduce damages if
such outcome were to occur. Regardless of the approach chosen, reduction of risk for a business
will normally result in higher costs or forgone profits. There are various tools that can be used to
assess the impact of these efforts. One of these (see Figure 1) is the calculation and plotting of
risk-adjusted revenues which shows the impact of better managing risks. While there are costs
associated with controlling risks, it should lead to more stable earnings for a company, and
possibly higher stock prices.

*** Insert Figure 1 About Here ***

Another way of analyzing the costs and benefits of risk management is depicted in Figure 2. The
graph shows the probability distribution of profits under two situations: prior and post-risk
management. For the prior risk management instance, existing business risks are portrayed by
the skewness of the curve to the left, denoting a small probability of a very large loss. The
possibility of such a large loss could be mitigated by taking preventive measures (such as the
purchase of insurance) which would limit the loss should the rare disaster occur, or by
discontinuation of the business segment or process prone to such adverse events. This scenario is
shown in Figure 2 as the curve labeled post-risk management. While the modal and median
profits are reduced, the variance of the profit distribution is reduced as well. In other words, by
incurring a certain fixed cost the company is able to avoid the large losses in rare but
adverse situations. The incurrence of the fixed cost results in the lowering of profits most of the
time but also prevents the possibility of large losses in rare situations.

*** Insert Figure 2 About Here ***


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An alternative representation of the same phenomenon can be portrayed in a portfolio context


(see Figure 3), by comparing the potential risks and returns of various projects. In the graph
below, the return/profits are denoted on the y-axis and the risk is denoted on the x-axis. The
upward sloping curve indicates the increase in expected returns that accompanies an increase in
risk. The convex shape of the graph denotes that at low risk/return, slight incurrence of risk
could substantially increase the returns, while that trade-off worsens as risk and return both
increase. In other words, when returns are low, a marginal increase in risk will lead to a
significant increase in returns. However when returns are higher, a marginal increase in returns
will require a much greater increase in risk. The efficient frontier for the risk-return trade-off
is unique to each company and has to be determined on a case by case basis. Possible acceptable
projects lie across the efficient frontier once the company has determined its optimal riskreturn trade-off.

*** Insert Figure 3 About Here ***

Pitfalls of misaligned reward systems

In publicly-traded companies ownership and claims to residual profits are segregated from
operational decision making. Hence there is a potential for conflict of interest in that the
managers, responsible for making operating decisions, may not act in concurrence with the
interest of shareholders. An economics based theory of this inherent conflict, agency theory, is
based on the assumption that managers act as economically rational individuals who seek to
maximize their own expected utility. The utility is based on monetary payoffs and associated
risks.

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The design of performance management and compensation systems has been studied from the
perspective of this theory. An effective design achieves alignment of employees goals with
those of the organization, hence mitigating the above agency effects. During the past two
decade it has become increasingly clear that the use of traditional evaluation and compensation
systems, which evaluate managers solely based on financial performance metrics and tie
compensation to the short-term financial performance of the organization, can lead to
dysfunctional behavior. In order to avoid such outcomes, companies are increasingly using both
financial and nonfinancial performance metrics to evaluate manager and organizational
performance. This is often done by using the Balanced Scorecard (BSC) framework, which
emphasizes aligning employees performance measures to organizational goals.

Use of the BSC framework, however, in the reward system may not fully address the concern
that the organizational goals contained therein are too narrowly specified. The four perspectives
used in the BSC (learning & growth, internal processes, customer, and financial) can be viewed
as containing a series of cause-and-effect relationships, with achievement of the various
performance goals leading ultimately to the enhanced financial performance of the firm. Thus,
initiatives which promote an organizations social and environmental goals and are not directly
linked to financial performance may be underemphasized.

An additional issue in aligning employees behavior with organizational objectives is


consideration of risk. Most companies reward managers based primarily on increases in returns
(achieved through increased sales or reduction of costs) with little consideration of reduction of
risk or, more generally, the risks assumed to achieve a given return. The current global financial

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crisis, brought about by the striving for greater returns without understanding and measuring the
risks assumed by companies, demonstrates the perils of pursuing such a policy.

Adapting performance measurement systems

A higher magnitude of CSR investment, along with the need to achieve acceptable financial
results, requires an efficient allocation of resources towards these activities. As noted earlier,
there is also a need to align managers performance measurement and incentives with corporate
goals. This requires adequate measurement systems. Without such systems and analytic tools,
sub-optimal decisions and investments could be made. In this section we outline some of the
challenges in evaluating CSR investments and discuss ways to overcome them.

Only a subset of the myriad of social and environmental issues may be relevant to a particular
corporation. When the normal business activities of a company do not affect a particular
social/environmental issue, little would be achieved through changing business processes to
address that concern. Thus, at the outset each corporation has to determine what
social/environmental issues are most affected by its operations or are closely related to the core
values of the organization. The issues thus identified are most relevant to that organization, and
are those that it should seek to address. Identification of the most important issues in turn
influences selection of a firms key performance metrics.

For these firm-specific CSR issues, both costs and benefits of related initiatives have to be
measured. While benefits of some of the initiatives are tangible and realized immediately, such
as those arising from measures to improve energy efficiency, the benefits of other initiatives such

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as those that reduce business risks or enhance corporate image may not be adequately captured
by the traditional cost accounting systems in most organizations.

The measurement of benefits is complicated due to the externalities created by CSR activities.
These activities benefit society as a whole in addition to an organization. An organization and its
owners benefit indirectly through the improvement of the society in which the company operates
and through the creation of a better corporate reputation/image. Improvement of corporate
image or reputation is not attained overnight but is achieved over a longer period through
sustained positive actions. However, once achieved the benefits are long-lasting, although
intangible (e.g., Walt Disney Company and family entertainment).

Such attributes make measurement and monetization difficult, hence some firms report these
benefits separately from the results of economic activities. For example, Baxter Inc. prepares an
environmental/social impact statement distinct from its financial statement. In addition to
profits, the CSR statement reports the impact on environment and social issues (both positive and
negative) arising from the companys activities.

Since the benefits of environmental and social measures may not be denominated in monetary
terms, a trade-off system may have to be devised. For certain environmental issues such tradeoffs may be objectively available, such as the market of carbon credits for emission of GHGs,
while for other issues such trade-offs may be less apparent. Moreover, such a market, if present,
may be dynamic over time. For example, carbon reduction may have a reducing marginal value
beyond a certain threshold. This creates challenges when planning over a longer time horizon.

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As discussed in a previous section, the benefits of some CSR initiatives may reduce costs and
positively impact profits in the short-term; these initiatives are the low hanging fruit which
would be immediately undertaken by an alert manager. Once such opportunities are exhausted,
further CSR initiatives may not have an immediate short term positive effect but are still
necessary since they reduce the risk of losses associated with rare but catastrophic events with
high social/environmental/corporate costs. Examples of the former include use of energy
efficient fleets or a reduction of fines and penalties; examples of the latter include calamities
such as the Exxon Valdez oil spill or the Bhopal gas leak incident.

The costs of CSR activities are as varied as the activities themselves, but some of the common
costs of these activities are in the form of:

Personnel costs required to implement and monitor CSR programs,

The increased cost of raw materials due to purchasing from differentiated suppliers,

Costs incurred in treating effluents or in properly disposing of waste products,

Capital costs incurred due to investments in CSR projects, and

Training costs incurred to make the employees more conscious of the effects of their and
companys actions on the environment and society.

Some CSR activities generate specifically identifiable additional costs, such as the cost of
installing carbon filters in chimneys, or the cost of trapping carbon-dioxide and burying it deep
in the ground. These costs are fairly easy to measure and categorize as CSR related costs. The
measurement of these costs can easily be captured through minor alteration of the cost
management systems extant in most organizations. These systems can be adapted by creating a
separate category/ line item (similar to R&D or Advertising) for costs related to CSR activities.
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Additional examples of these include post-consumer use and recycling costs. These have been
effectively addressed by Sony Corporation and Hewlett Packard, who have set up recycling
centers for consumers to turn in their used products (toner cartridges for example) for proper
disposal. Other examples of such costs include natural resource restoration costs and
decommissioning costs.

Other CSR activities may lead to higher costs for existing activities, such as higher purchase
prices for raw materials purchased from suppliers who meet the ISO 14001 certification
standards. When large companies with significant clout require their suppliers to have ISO
14001 certification they are implicitly suggesting that they would bear part of the costs of such
certification by paying a higher cost for raw material purchases. For example, the cost of coffee
beans maybe higher for Starbucks when it requires certain sustainability principles be followed
by its suppliers. The costs of such activities include the cost of the monitoring/screening system
that has to be instituted to ensure that suppliers are in compliance with company standards and
the increased price of raw materials from these suppliers. The cost accounting implication is that
not only does the cost of raw material purchased have to be measured but the cost of less
expensive alternative materials available in the market from suppliers who do not meet the
companys standards also needs to be tracked. The cost of raw material needs to be split into
two components, the equivalent cost from the less expensive source and the premium paid to the
environmentally/socially responsible supplier. This premium paid is a cost of CSR and should
be tracked as such. Another example would be the purchase of energy generated from wind
power as opposed to the cost of energy generated using fossil fuel. While the latter is cheaper,
the former is cleaner. If wind energy is purchased at a premium, this difference is attributable to
CSR initiatives.
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Additionally, systems need to be able to provide disaggregated information so that these


measures can be used to measure the performance of individual managers, departments, and/or
divisions. That is, if the current performance measurement system in a company is
decentralized to a given level, the measurement of CSR costs and benefits needs to be at the
same level.

To effectively address cradle to grave costs, cost accounting systems such as life cycle costing
may be more appropriate. The cost measurement system not only measures the direct costs
incurred by an organization, but also the costs of externalities borne by society resulting from
actions of the organization, its suppliers, and its customers. This is an intensive process
requiring enumeration of the effects of the normal course of action of suppliers and that of
consumers while using and later disposing of the product. An example of consideration of the
cost of externalities would be for tobacco companies to incorporate the effects of second-hand
smoke in their decision-making process. While those affected by second-hand smoke are not
necessarily consumers of tobacco companies, their well-being (or lack thereof) has an effect on
those companies corporate images and reputation. Consideration of such negative externalities
could significantly enhance their strategic decision-making.

Designing and implementing a detailed cost accounting system to systematically measure,


categorize and report the costs and benefits of CSR activities is essential for effective and
efficient allocation of resources to these activities. In the past, when such activities were few,
the cost of measuring and tracking such activities perhaps did not outweigh the benefits of
having a more refined information. However, as the importance of these concerns grows and as
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corporate investments in such activities become significant, the lack of a proper cost
measurement system can no longer be ignored.

Alignment of performance measures and reward structures

As previously noted, initiatives that reduce risks may not receive adequate consideration from
firms that use a traditional decision-making framework: often long term risk reduction
(especially of rare events) is ignored or under-emphasized due to misalignment of the
performance measurement system with organization goals. However, consideration of risk is
especially important in the evaluation of CSR initiatives as they frequently try to prevent or
ameliorate low-probability, high-cost events that can lead to environmental or social disasters
(such as the Bhopal, Exxon Valdez, and Triangle Shirt Factory disasters). For similar reasons,
companies need to broaden their reward and performance measurement systems to identify and
attempt to quantify the reduction in risk and the impact on the value of the firm which accrue
from CSR efforts.

Many steps have to be undertaken by companies in order to have systems that align employees
performance with organizational goals. The first step is enunciating a companys mission, vision
and goals and clearly conveying these to employees. These should address financial, social and
environmental performance aspects. The next step involves rolling company goals in the three
areas down to the lower levels of the organization, facilitating alignment of organizational goals.
A challenge facing many organizations is that their systems are missing relevant and
comprehensive measures of performance. Organizations need systems that measure financials
and nonfinancial information related to the three dimension of performance (Epstein, 2008, 126).

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Additionally, companies need to develop performance benchmark for these measures, based on
both internal and external benchmarks. These benchmarks need to be determined both across the
firm (i.e., cross-sectionally), as well as over time (i.e., as a time-series).

The three dimensions of performance (social, environmental and financial) need to be balanced.
In order to do so, the assignment of weights to the various dimensions of performance (or their
subcomponents) can help signal the relative importance placed on them by management.

Companies can design their compensation and reward system to reinforce the establishment and
fostering of a socially responsible corporate culture. For example, they can provide
encouragement of individual employees socially responsible actions, such as sharing of
time/expenses for volunteer efforts. They can also provide preferential parking for employees
driving hybrid cars, or reward those taking public or company-provided transportation (e.g., the
Google bus). By providing such incentives, organizations can convey to their employees in a
powerful way their commitment to their social and environmental goals.

Conclusion

As sustainability considerations gain in importance across organizations, finance and accounting


professionals need to be actively engaged in CSR initiatives. They can utilize their expertise in
the financial domain to evaluate the long term implications of such efforts. Additionally, their
ability to objectively enumerate and assess costs and benefits can facilitate better decision
making by their organizations.

Specifically, finance and accounting professionals can add value to their organization in the area
of sustainability through:
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Aiding in the setting of goals, targets and performance measures through proper
benchmarking.

Evaluating the long-term environmental and social impacts of various investment


alternatives and incorporating these in capital budgeting analysis.

Ensuring that risk management is linked to performance evaluation and investment


decision making. This could include consideration of the risk of environmental disasters,
unfair labor practices by suppliers, doing business in suspect countries and other risks
arising from a firms business practices.

Designing more robust reward systems, drawing on their experience with


multidimensional performance measurement systems such as the balanced scorecard.

Incorporating the relative importance of the various organizational goals (including CSR)
in such systems. This would clearly convey the importance with which management is
pursuing its sustainability agenda vis--vis traditional goals such as profit maximization.

Enhancing upstream supply chain management by installing monitoring systems which


ensure that the firm is engaging with suppliers who comply with company policies.

References
Dutta, S. and Lawson, R.. Broadening Value Chain Analysis to Incorporate the Cost of Carbon
Emissions, Cost Management, July/August 2008, 5-14.

Epstein, M.., Making Sustainability Work, San Francisco, 2008 CA: Greenleaf Publishing.

Global Reporting Initiative, Sustainability Reporting Guidelines on Economic, Environmental


and Social Performance, 2000, GRI: Boston.

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Institute of Management Accountants. Enterprise Risk Management: Tools and Techniques for
Effective Implementation, IMA: Montvale, NJ, 2007.
International Organization for Standardization (ISO), ISO 14031 Environmental Management
Environmental Performance Evaluation Standard and Guidelines. 1999, ISO: Geneva.
Kolk, A., Walhain, S., and vad de Wateringen, S. Environmental reporting by the Fortune
Global 250: Exploring the Influence of Nationality and Sector, Business Strategy and
Environment, 10, 2001, 15-28.

KPMG. KPMG International Survey of Corporate Responsibility Reporting, 2008.


Protiviti, U.S. Risk Barometer Survey of C-level Executives with the Nations Largest
Companies, 2005.

United Nations Environment Programme and Deloitte Scoring System, 1999.

Walker, P., Shenkir, W., and Barton, T., Enterprise Risk Management: Putting it all Together,
The Institute of Internal Auditors Research Foundation, 2002.

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Figure 1. Actual Revenue versus Risk Corrected Revenue

Risk Corrected
Actual

Revenues

19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04

Revenues

Source: Institute of Management Accountants (2007) Enterprise Risk Management: Tools and
Techniques for Effective Implementation, p. 18. Used with permission.

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Figure 2. Effect of Risk Management

Probability

Post Risk Management

Prior to Risk
Management

Return

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Figure 3. Risk/return Trade-of of Investment Opportunities

return

maximum
acceptable

risk

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