Social and Environmental Sustainability vs Financial Sustainability - Essay Example

Social and Environmental Sustainability Vs Financial Sustainability Table of Contents Introduction 3 How Do the Concepts of Social and Environmental Sustainability Differ From That of Financial Sustainability, the Accountants Idea of Going Concern 4 2. What Implications do These Differences Have for the Ways in Which A) Businesses Operate and B) The Ways in Which They Report on Their Activities? 7 3. How, If At All, Might These Differences Be Reconciled? What Are the Major Obstacles to Reconciling the Differing Views 11 4. What Might The Implications For The Future Of Business (Operational And Reporting) Be Of Reconciling These Differing Views? What Might the Implications Be Of Not Doing So 14 Conclusion 15 References 17 Introduction Sustainability can be described as the combination of performance relating to social, environmental and financial aspects or factors. Sustainable development of a business can be possible through the improvement of the environmental, social and financial factors by overcoming different restrains. Social and environmental sustainability help to reduce the issues associated with unethical practices, which are affecting the society or a community as a whole. On the other hand, financial sustainability depicts the phenomenon about procedure based on which a company provides products and/or services with the aim of meeting its expenses along with generating profits (CSU, 2015). The differences among social as well as environmental sustainability and financial sustainability can be resolved based on the different views. Social economic is also essential for the purpose of doing a business properly and improve economic growth of businesses. In the recent trends, there is a huge scope for a business. Sustainability can also be defined as the long-term growth economically, financially, environmentally and socially (IFC, 2012). In this context, the paper deals with the implications of the differences among social as well as environmental sustainability and financial sustainability in two ways such as the ways through which they can operate their business properly and also can report on their activities. In addition, it intends to explain how these differences can be reconciled or resolved along with the major obstacles for reconciling different views. 1. How Do the Concepts of Social and Environmental Sustainability Differ From That of Financial Sustainability, the Accountants Idea of Going Concern Social and environmental sustainability is different from financial sustainability based on going concern of the accountants. Social and environmental sustainability is important to prevent the issues related to social and environmental aspects and on the other hand, financial sustainability is essential to prevent financial issues in a business. In a business, there are several factors, which play an important role for the development of a business. Social sustainability helps to support the future generation to maintain a healthy as well as well-being society and community (IFC, 2012). Environmental sustainability can be described as the process through which demands of an environment can be attained. Environmental sustainability is also important to reduce the negative impact of the business and to take effective decisions regarding the business purpose and also for the improvement of the natural environment. On the other hand, financial sustainability means long-term productivity, which is important for the economic growth of a business. Financial sustainability can be attained, when a business can be able to provide products as well as services to the market at affordable prices (SHRM, 2015). Going concern is a business concept, which is accepted by the professionals of accounting. The concept of going concern can be defined as the ability power of a company to make huge money and to avoid the same from bankruptcy. The concept of going concern is related to the social as well as environmental is also important for the sustainable development of a business or a company. The major attention of sustainable development is the settlement of the present as well as future generation. Currently, maximum number of countries has developed their understanding about sustainability in different spheres that include social, environment and financial considerations (Jones, 2010). Financial sustainability or accounting sustainability is a general term, which is essential to collect information about the activities of corporate and the issues of sustainability. In an organization, sustainability mainly focuses on the long-term growth. Therefore, social and environmental sustainability focuses on social and environment related issues such as social justice and inequality to reduce these issues for the long-term growth of a business. On the other hand, financial sustainability is also essential to reduce the issues related to accounting and to gather accurate information, which can beneficial for the sustainable development of a company or a business (AON, 2015; Fulop & Hernadi, 2013). Figure 1: Sustainability Report of a Company Source: (Schaltegger & Burritt, 2010) From the above graphical representation, it can be evaluated that sustainable development of a company or a business depends on social sustainability, environmental sustainability and the economic sustainability. Economic sustainability is related to financial sustainability because economic as well as financial sustainability is required for the economic and financial growth of a company. From this graphical representation, it can also be assessed that social sustainability is associated with factors that include human rights and equal opportunities of individual. Environmental sustainability involves in the development of a business with major consideration towards health issues and prevention of pollution. On the other hand, economic sustainability involves in the return of the shareholder or stakeholder and the profitable growth of a business (Schaltegger & Burritt, 2010). According to the national government of a country, sustainability and sustainable development of a company or a business is recognised to be depended on three aspects such as social, environmental and financial along with economic aspects to a large extent. These three elements have their own actions to achieve sustainable goals of a company (Giovannoni & Fabietti, n.d.). In this respect, accountants of a going concern are needed to emphasise social and environmental sustainability along with financial sustainability that have great impacts on the corporate social responsibility for the improvement of a business on a long-term basis. Corporate social responsibility has developed various theories such as the motivational theory or political economy theory, legitimacy theory and stakeholder theory. Accountants are needed to adopt as well as implement these theories, which are essential for the improvement of a company and also for the long-term growth of a business. Therefore, based on the concept of going concern, it can evaluated that social and environmental sustainability different from financial sustainability, but these three are essential to improve profitability, ensure long term growth and avoid bankruptcy problem (Tilt, 2000). For example, the concept of social and environmental sustainability is different from the financial sustainability in HSBC, because HSBC is one of the leading banking services in Hong Kong. Therefore, the organization has to maintain two different reports such as financial sustainability report and social as well as environmental report for the sustainable development in future (HSBC, 2012). 2. What Implications do These Differences Have for the Ways in Which A) Businesses Operate and B) The Ways in Which They Report on Their Activities? Accountants are required to deal with social as well as environmental sustainability and financial sustainability, as these factors have large impact on business operations and also have an effect on the changes of business operation processes. The idea of sustainable development is considered by accountants, as it is a new idea for the corporate business activities through which long-term growth of a business can be possible. The differences between social as well as environmental and financial sustainability have the effects on the return of the stakeholders. In this respect, accountants focuses on the fact that the expectation of the stakeholders are met with a better stability in different factors that include social, environment and financial aspects (Eccles & et. al., 2015). These differences also have an impact on the cost structure along with human resources of a business. It has also an effect on equal rights of the employees in a business along with the manufacturing cost of the entire business process (IISD, 2015). Social and environmental sustainability are also considered as the corporate social responsibility, which mainly focuses on human rights and health issues of employees of a company. Therefore, it has a positive effect on the business operation rather than financial sustainability (Global Reporting, 2011). The differences between social as well as environmental sustainability and financial sustainability also have an impact on financial aspects and opportunity cost. The cost of the business operations is managed by the accountants and therefore, it is the responsibility of the accountants to implement financial sustainability to reduce the financial risks and also maintain the entire cost of business operation for sustainable development of a business (Oracle, 2011). Due to the differences between social as well as environmental sustainability and financial sustainability, there can be certain changes in the business operation processes for long-term sustainable development. Social and environmental sustainability is developed on the basis of SMART model to reduce the environmental issues and improve sustainable development of a business. Due to these differences, different instruments or tools can be used in different aspects for the sustainable development as well as long-term growth of a business (European Competitiveness Report, 2008). Figure 2: Sustainable Development of Business operation Source: (Amato & et. al., 2009) From the above diagram, it can be assessed that sustainable development or development of a business depends on brand name, customers and business process. The major objective of sustainability is to improve the communication system and develop a new leadership strategy to attain competitive advantage. In the recent trends, innovative ideas and advanced technology has been used for the improvement of the business operations. In addition, it can be evaluated that for sustainable development and increase in profitability, it is essential to meet the demands of the customers by providing them with branded products. The model provided above is also identified to be effective for accountants to enhance their knowledge about the different accounting procedures to be considered for ascertaining that business operations are conducted based on ecological and financial considerations (Amato & et. al., 2009). Sustainability report provides information about social, environmental and economic or financial performance of an organization. Sustainability report should be maintained by managers of an organization to keep a record of the performance and improvement. However, due to the differences in social, environmental and financial sustainability, there is an effect on maintaining the sustainability report of an organization. Presently, most of the organizations make an annual report to keep the record of the accounting information in relation to their organizations through which profit and loss of an organization can be analysed (Global Reporting, 2015). Due to differences in social, environmental and financial or economic sustainability, an organization should maintain two different sustainability reports that include financial sustainability report and social and environmental sustainability report. Owing to the changes in social, environmental and financial aspects, accountants are facilitated with the opportunity of having a better understanding about the operations and performances of an organisation, so that long-term growth as well as sustainability can be ensured. Accordingly, most of the organizations prepare as well as store the report in two ways such as hard copy as well as soft copy to reduce future risks and also for the safety of the report (Global Reporting, 2015). For example, the differences in social, environmental and financial sustainability have also an effect on the business operations of Tesco. Due to these changes, Tesco modified the business process and implement new strategies such as leadership strategies for the sustainable development globally (Tesco, 2012). 3. How, If At All, Might These Differences Be Reconciled? What Are the Major Obstacles to Reconciling the Differing Views Social as well as environmental sustainability and financial sustainability can be reconciled by applying new strategies and technologies. Theoretical model also play an important role in reconciliation these differences. In the present day context, sustainability is required for the solutions of national as well as international problem faced by a business and society. These differences can also be reconciled by reducing the issues faced by the employees in an organization or people in the society. The differences can also be reconciled by maintaining connection between social, environmental and economic or financial sustainability (Mensah & Castro, 2004). In this context, accountants are recognised to be playing an important role for reconciling different issues faced due to social, environmental and financial issues. In this context, through international business along with economic development as well as growth, the differences can also be reconciled. By building healthy as well as long-term relationship, the differences can be reconciled, because long-term relationship is also important to improve coordination and trust amid the stakeholders. But, there can be certain problems or difficulties at the time of reconciling the differences, because at the time of reconciling, the views as well as opinions of individual can be different (Harris & Goodwin, 2003). The opinions or views of individuals should be based on the concept of international business along with the concept of sustainable development. Based on the view of accountants, natural system can be recognized as the assets, because it provides the materials as well as energy, which are identified to be effective and helpful to prevent stress. Therefore, as per the view of accountants, through the natural system, the differences between the three elements of sustainability can be redesigned or reconciled. Accountants focus on market conditions and environmental resources as well as society to reduce the obstacles or difficulties from the environment and society along with financial issues (Wagner, 2001). The major obstacles and problems of different views can be the investment for the future prospects and the technologies for future development. The views can be different based on the thinking and the perception of individuals. Other obstacle of different views related to reconciling the differences can be different concepts and different cultural backgrounds. The problems of different views can be resolved through the discussion about the three elements of sustainability and the procedure it can be redesigned for sustainable development in the future (Wagner, 2001). Figure 4: Reconciliation among the Social, Cultural and Environmental Source: (Hunter & Jones, 2002) The above graphical representation explains about the connection between the social, cultural and environmental factors and also describes the procedures based on which these factors are essential for the long-term growth of a business. There should be a healthy relationship among the people of the society. It can also be assessed that there should be healthy and wider environment for the employees, so that they perform well and the employees should have good leadership skills along with motivational power for the sustainable development of a business (Hunter & Jones, 2002). 4. What Might The Implications For The Future Of Business (Operational And Reporting) Be Of Reconciling These Differing Views? What Might the Implications Be Of Not Doing So Reconciliation of the differences of social, environmental and financial sustainability can be beneficial for the future of business operational activities and reporting, because social, environmental and financial sustainability are important for reducing the issues and achieving competitive advantage. Therefore, the differences of the three elements of sustainability can be reconciled based on the views of accountants. Based on the views of the accountants, new leadership strategy can be helpful for improving the future business operation, because through the leadership strategy the employees can be able to work as team members for better outcome from the business operations (Carroll & Shabana, 2010). There should be an innovation process and advanced technologies should be implemented for the improvement of the business operations. Motivational theory is also essential because through the motivational theory the senior managers can motivate the junior employees for better performance and on the other hand, the employees can influence the customers for selling more products. Due to reconciling the different view, the obstacles in business operations can be reduced and future improvement can be possible (Bertagni & et. al., 2010). The three aspects of sustainability have their own value and advantage through which they can reduce the issues involved in society, environment and finance. Therefore, if the reconciliation can be attained effectively, then it can be strengthen and make effective strategic decision regarding the improvement of business operations. Reconciliation of three aspects of sustainability can also be helpful for the development of the policies related to trade as well as investment, which can be benefited for the improvement of business operations in the future (Crowther & Aras, 2008). On the other hand, if the reconciliation of the social, environmental and financial sustainability cannot be attained, then it can be a problem for the improvement of business operations and reporting in future. It can also create the problem in globalization of a business and achieve the goals of international business (Bosselmann & et. al., 2008). If the reconciliation cannot be made efficiently, then it can also create problem in social justice and human rights, which can have negative effects on the business operation. The problem can be related to economic growth, as it can negatively affect the performance of business operations. It might be a problem in maintaining the entire cost of the business operation along with the manufacturing cost of producing the products. It might also be a problem for the accounting department to maintain the accounting report properly and also for improving the economic growth of a business (Elliott & Elliott, 2011). For instance, General motor has reconciled social, environmental and financial or economic sustainability for the future improvement of the company and also for keeping the record through annual report. By maintaining annual report along with profit and loss account report, the company is able to increase the profitability and achieve sustainable growth (Buss, 2014). Conclusion From the above discussion, it can be stated that social, environmental and financial sustainability are different from each other, but these three aspects are essential for the sustainable development of a business. Social and environmental sustainability are also recognized as the corporate social responsibility of an organisation, which is essential for achieving competitive advantage for long-term growth. In addition, it can be evaluated that social, environmental and financial sustainability has certain implications in the business operations. In contrast, accountants are required to develop financial reporting on the basis of performance of an organisation in the market segments for meeting the needs of the stakeholders and ascertaining the growth of the same in comparison to competitors. Therefore, reconciliation of the differences in social, environmental and financial sustainability should be required for the future improvement of the business operations and business reporting. Reconciliation helps to improve the communication system, leadership strategy through which globalization of a business can be possible. The different views can also be reconciled for the improvement of the business operation. References Amato, D. A. & et. al., 2009. Corporate Social Responsibility and Sustainable Business. A Guide to Leadership Tasks and Functions, pp. 1-91. AON, 2015. Sustainability – Beyond Enterprise Risk Management. Sustainability. [Online] Available at: http://www.aon.com/about-aon/intellectual-capital/attachments/risk-services/sustainability_beyond_enterprise_risk_management.pdf [Accessed April 20, 2015]. Bertagni, B. & et. al., 2010. Sustainability, Social Responsibility and Ethical Instruments. Ethics & Business, pp. 5-625. Bosselmann, K. & et. al., 2008. Governance for Sustainability Issues, Challenges, Successes. IUCN Environmental Policy and Law, pp. 1-253. Buss, R., 2014. The Sustainability Business Case for General Motors. The Sustainability Business Case for General Motors, pp. 4-95. Crowther, D. & Aras, G., 2008. Corporate Social Responsibility. Book Boon, pp. 10-27. CSU, 2015. CSU Degree Initiative – Environmental, Social and Financial Sustainability. Sustainability Guidelines, pp. 1-3. Carroll, B. A. & Shabana, M. K., 2010. The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice. International Journal of Management Reviews, pp. 86-105. Eccles, G. R. & et. al., 2015. The Impact of Corporate Sustainability on Organizational Processes and Performance. Harvard Business School, pp. 1-46. European Competitiveness Report, 2008. Overview of the Links between Corporate Social Responsibility and Competitiveness. Sustainable Business. [Online]. Available at: http://ec.europa.eu/enterprise/policies/sustainablebusiness/files/csr/documents/csrreportv002_en.pdf [Accessed April 20, 2015]. Elliott, B. & Elliott, J., 2011. Financial Accounting and Reporting. Pearson Education Limited, pp. 1-884. Fulop, G. & Hernadi, H. B., 2013. Sustainability Accounting: A Success Factor In Corporate Sustainability Strategy. New Challenges of Economic and Business Development, pp. 229-241. Global Reporting, 2011. Sustainability Reporting Guidelines. Resource Library. [Online]. Available at: https://www.globalreporting.org/resourcelibrary/g3.1-guidelines-incl-technical-protocol.pdf [Accessed April 21, 2015]. Giovannoni, E. & Fabietti, G., No Date. What Is Sustainability? A Review of the Concept and Its Applications. Department of Business and Law, pp. 21-40. Harris, M. J. & Goodwin, R. N., 2003. Reconciling Growth and the Environment. Global Development and Environment Institute, pp. 2-25. Hunter, W. J. & Jones, T., 2002. Globalization and sustainable Development. International Review of Environmental Strategies, Vol. 3, No. 1, pp. 53-62. HSBC, 2012. Sustainability Report 2012. HSBC Holdings plc., pp. 1-40. IFC, 2012. IFC Performance Standards on Environmental and Social Sustainability. International Finance Corporation, pp. 2-53. IFC, 2012. International Finance Corporation’s Policy on Environmental and Social Sustainability. International Finance Corporation, 1-12. IISD, 2015. Business Strategies for Sustainable Development. Business. [Online]. Available at: https://www.iisd.org/business/pdf/business_strategy.pdf [Accessed April 20, 2015]. Jones, H., 2010. Sustainability Reporting Matters: What Are National Governments Doing About It. The Association of Chartered Certified Accountants, pp. 5-33. Mensah, M. A. & Castro, C. L., 2004. Sustainable Resource Use and Sustainable Development A Contradiction. University of Bonn, pp. 2-22. Oracle, 2011. Sustainability Matters: Why-and How-Business Is Widening Its Focus to Consider the Needs of All Stakeholders. Sustainability Matters. [Online] Available at: http://www.oracle.com/us/solutions/business-intelligence/057079.pdf [Accessed April 20, 2015]. SHRM, 2015. HRM’s Role in Corporate Social and Environmental Sustainability. SHRM Foundation’s Effective Practice Guidelines Series, pp. 1-41. Schaltegger, S. & Burritt, L. R., 2010. Sustainability Accounting For Companies: Catchphrase or Decision Support for Business Leaders. Journal of World Business, Vol. 45, pp. 375-384. Tilt, A. C., 2000. Corporate Responsibility, Accounting and Accountants. Flinders Business School, pp. 11- 32. Tesco, 2012. Annual Report and Financial Statements 2012. Tesco. [Online]. Available at: http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf [Accessed April 24, 2014]. Wagner, M, 2001. How to Reconcile Environmental and Economic Performance to Improve Corporate Sustainability: Corporate Environmental Strategies in the European Paper Industry. Journal of Environmental Management, Vol. 76, pp. 105-118. Read More