Public Debate on the Environment - Coursework Example

Financial ments and the Environment “Recent public debate on the environment suggests that the published financial statements of UK companies as they are at present may not provide an adequate means of assessing the success of the companies’ activities”. Discuss. Introduction The public debate on the environment is no longer limited to governments dfoing their part in order to create legislation which minimizes the impact which businesses have on the environment. The debate today looks at companies themselves to come up with ways and means through which they can help the environment and reduce things such as their carbon footprint. Of course, the idea of profitability also remains important since financial statements have to show how well the company has performed while remaining a ‘green’ company which is friendly towards the environment. The Environment Agency of the UK defines Environmental Accounting as: "The collection, analysis and assessment of environmental and financial performance data obtained from business management information systems, environmental management and financial accounting systems. The taking of corrective management action to reduce environmental impacts and costs plus, where appropriate, the external reporting of the environmental and financial benefits in verified corporate environmental reports or published annual reports and accounts (Environment Agency, 2008, Pg.1)". Of course environment accounting goes beyond the idea of not spreading pollution in the planet’s atmosphere. It includes things such as fair play, ethics, social responsibility and even having positive relations with suppliers from third world countries (Odum, 1995). Much of this data remains hidden since it is not mandatory for companies to release such information to the consumers. However, for many companies which behave ethically or are trying to project an image of being ethical, such data becomes very important when they present their corporate citizenship reports or their finances with regard to how good they have been in terms of helping the planet. Many Companies, One Objective There are several such companies which can be used as examples of what they tell the public with regard to their financial dealings that connect with the environment and what they hide. Undoubtedly, environmental degradation is a critical topic for the world today as different non-profit groups as well as for-profit organisations focus on the ways and means in which they can help the environment (Green, 2005). However, the focus on helping the environment seems to be more connected with presenting a positive image than actually helping the environment. Corporations are no exceptions since government pressure as well as the opinions of consumer groups can push them to be friendly towards the environment (Schulte, 2006). Human activity, as well as the business decisions that have been taken by corporations had a visible impact on our world and this has been recognised by the scientific community on several occasions where governments were asked to make laws to make sure that a bare minimum is done by companies. The corporations of the world today know that they cannot be seen to damage the environment in their search for more sources of profitable income (VonAncken, 2006). In fact, consumer opinion and watchdog organisations such as Greenpeace have focused so much on corporate activity that doing the bare minimum is not enough for many businesses (Planque, 2006). Consumers may demand that the company or the brands which they buy from should behave ethically and be responsible for their impact on the environment. For companies such as Cadbury Schweppes, Apple Inc., Star or GE, the reason why they have to focus on environmental accounting and show their concern for the environment is quite plain. The reason is the presence of ethical consumers who like the fact that the company they buy from actually helps the social and environmental issues facing the world (Ethical Consumer, 2006). By being friendly to the environment, these companies are only helping their stakeholders while hoping to improve their overall profits. Companies such as Cadbury Schweppes know that ethical consumers will make buying decisions which are influenced by some measure from the operations of the seller and the level of ethics that the shown by the seller. Knowing this, the company makes it very public that they support many environmental causes and even tell the consumers that the trucks they use for shipping cocoa and the dealings they have with cocoa farmers are all environmentally friendly as well as ethical (Cadbury Schweppes, 2008). While the company does not make it clear if the trucks are operated on alternative fuels or define the exact contracts they have with cocoa farmers, they still suggest and comfort the buyers that their operations are very socially responsible. Undoubtedly, the company wants to have a positive image since that image would translate to higher sales and thus be a real benefit for the company’s profit margins. Since the image of the company is important, a positive image for the consumers will mean that they would be more likely to buy from Cadbury if other things remain equal. On the other hand, a negative image may mean that the sales might start dropping (Brown, 2005). In fact, Cadbury Schweppes actually pushes that image to the consumer much like a government which would want to be seen as an ethical (Yeatman, 2004). As Cadbury is dealing with consumer goods and consumable items, the notion of reliability, the image of being environmentally friendly and the picture of being a good company for the world at large is important for the company. The search for this ethical image does not stop there. Cadbury Schweppes have made significant investments in making sure that they have continually running cocoa suppliers and have setup their bottling plants with the sole aim of making a profit but their search for profits has to be tempered with social concerns. The company supports recycling drives, helps and funds nature preserves and even provides financial assistance to poor farmers (Cadbury Schweppes, 2008). However, the company does not make it clear how much money or how much of its profits are used to help in funding such drives. In fact, it is easy to consider that dad there been no drive or external motivation for companies or individuals to be more concerned about environmental situations, it would be unlikely that Cadbury Schweppes or any other company for that matter would be focused at all on these problems. The behaviour of ethical egoism may be another type of corporate greed but the reality of the situation is that it an ethical approach to business which seems to create a win-win scenario for everyone. Environmental accounting therefore has to look at both the financial impact of a business and the decisions made by the business. This is done with regard to the environmental impact of the business. Instead of looking only at the profits which can be gathered from investing in certain ventures, accountants have to understand what social impact the venture is going to have. Thus, the business decisions have to look towards a socially responsible way of making money for the shareholders. In fact, focusing on the environment itself to make business decisions has picked up steam as a good idea in recent times. While some investors may remain unaware of this type of investment, many companies and some investment houses have created investments completely focused on the environment. Mutual funds such as the Green Century Balanced Fund, Sierra Club Mutual Fund, the Winslow Green Growth Fund as well as the New Alternatives fund are all seen as possible solutions for an investor who seeks to make socially responsible investment decisions (Co-op America Foundation, 2005). While these funds are connected with social causes, they do not ignore the idea of profitability. For example, The Sierra Club Fund is heavily invested in several blue chip companies which have given high returns to their investors for years. As described by MacDonald (2004), the director of Sierra Club fund, Garvin Jabusch reported that the fund totally avoids risky ventures into alternative energy companies and instead looks towards established organisations such as Dell which deserves praises for its strong recycling initiative and Starbucks which is creating a low environmental impact through its corporate initiatives to conserve water. In this manner, social investing can be coupled with high returns if the investor him/herself is responsible. Of course at the end of the day, it is the investor’s money and his/her right to invest in whatever company s/he thinks is the best. However, those investors who chose to invest with their social responsibility in mind may get the benefit of high returns while knowing that they have put their money where their mouth is when it comes to saving the planet, doing the right thing and making ethical decisions. A company which does disclose some financial information concerning the social causes it supports is GE. Being a well established international organisation gives it a global footprint and considering the kind of profits it makes; it seems strange that they only donated $215 million in 2005 to various charitable organisations. They do say that they gave $1 million to UNICEF but the total figure seems quite low as compared to their profits. Of course this single donation is a lot more than many other companies put together but perhaps the company and others like it could be asked to do more. Nevertheless their socially responsible accounting which took out money for charitable causes was highly appreciated by Xiaojin Gu who is the Secretary General of the China Youth Development Foundation as well as Professor Agyeman Badu Akosa who works as the Ghana Health Service Director General since both of them have given their highest commendations to the company (GE, 2006). Additionally, to remain socially accountable, GE imposes strict rules for those who wish to do business with the company. For example, GE will not do business with nations that have a record of human rights violations such as Myanmar and will not work with any suppliers who use workers under the minimum age requirements or use forced or indentured labourers. Further they make sure that the workers of their suppliers are not coerced, have reasonable hours of work and overtime wages, comply with local environmental laws and do not affect the local communities in a negative manner through unsafe work conditions or through socially irresponsible actions (GE, 2006). Considering the strength which GE has as a business partner and their ability to force their various suppliers into following socially responsible accounting practices, it certainly becomes a global advantage for GE to enforce their conditions on others. In fact, as reported by the company, In 2005, GE evaluated more than 4,000 suppliers which were supplying parts for their company and found out that 272 could not come up to their ethical requirements. After warning them, the company ended the relations it had with such suppliers (GE, 2006). Chwastiak and Young (2003) have suggested that gaps in financial reports concerning socially responsible behaviour may be glossed over but GE (2006) says that 97% of employee or government raised concerns have been handled by them within the six months of the report being made. Further, they are actively working to cover any residual issues which remain since they want to show the world that they are what they say they are i.e., a socially responsible ethical company which does good business. While GE stands as a good example of how a company can be ethically responsible while making sure that their financial statements reflect what they are doing for the environment, there are companies for whom style may be more important than substance. Apple Inc. is one company where the product made by them and the packaging of the product itself came under fire for being environmentally damaging (Planque, 2006). To counter this negative image, Apple quickly changed the packaging to make itself appear to be more environmentally friendly. Planque (2006) noted this change in Apple and discusses how Steve Jobs (the famous CEO of the company) reacted when it came to launching a new version of the iPod by focusing on the packaging itself and saying, “Weve got some new packaging for the new Nano as well. And its 52% less volume. This turns out to be an environmentally great thing. Because it dramatically reduces the amount of fossil fuels we have to spend to move these things around the planet (Planque, 2006, Pg. 1)”. Of course this also reduces the transport costs for Apple and thus leads to more net profits but that is brushed under the carpet. Greenpeace gives a very low ranking to Apple with regard to environmental and ethical issues since the company uses toxic chemicals and only has recycling plans where they are required by law. Greenpeace notes that, “It is disappointing to see Apple ranking so low in the overall guide. They are meant to be world leaders in design and marketing, they should also be world leaders in environmental innovation (Planque, 2006, Pg. 1)”. Apple’s website seems to avoid such issues and gives more importance to their thinner (possibly more attractive) packages which are supposed to help the environment (Apple, 2008). Conclusions The overall objective of many companies seems to be to appear environmentally beneficial while continuing to do business as usual. Of course some companies may be pushed into taking environmentally friendly decisions but the nature of business itself may not have moved towards being environmentally responsible. At the same time, there seem to be no standards for environmental accounting where by the company can show how it has reduced its carbon footprint or how it has actually become carbon negative (Adams, 2004). Clearly, a lot remains to be done with regard to environmental accounting since standards need to be defined which can be used to grade companies with regard to their environmental impact. For centuries we have had blue chip companies and A rated organisations and it seems that this rating is due for a modification. The parameters which are made to define a company as being good or bad need to include environmental measures as well as financial measures which means that environmental accounting will only gain importance as the future becomes more concerning with the planet and not with profits alone. Word Count: 2,598 Works Cited Adams, C. 2004, ‘The ethical, social and environmental reporting-portrayal gap’, Accounting, Auditing and Accountability Journal, vol. 17, no. 5, pp.731-757 Apple. 2008, ‘Apple and the Environment’, [Online] Available at: http://www.apple.com/environment/design/ Brown, R. 2005, ‘The ROI of Diversity’, Mortgage Banking, vol. 65, no. 12. pp. 111-113. Cadbury Schweppes. 2008, ‘Environment, health and safety’, [Online] Available at: http://www.cadburyschweppes.com/EN/EnvironmentSociety/Environment/ Chwastiak, M. and Young, J. 2003, ‘Silences in Annual Reports’, Critical Perspectives on Accounting, vol. 14, no. 1, pp. 533-552. Co-op America Foundation. 2005, ‘Social Investing’, [Online] Available at: http://www.coopamerica.org/socialinvesting/April2007SevenWays.cfm Environment Agency. 2008, ‘What is Environmental Accounting and why is it a good idea?’, [Online] Available at: http://www.environment-agency.gov.uk/business/444255/1758360/1760923/1760995/?version=1&lang=_e Ethical Consumer. 2006, ‘Why Buy Ethically?’ EthicalConsumer.org, [Online] Available at: http://www.ethicalconsumer.org/aboutec/whybuyethically.htm GE. 2006, ‘Citizenship Report’ GE.com, [Online] Available at: http://www.ge.com/files/usa/citizenship/pdf/GE_2006_citizen_06rep.pdf Green, J. 2005, Reducing Air Pollution. Gareth Stevens Publishing. MacDonald, J. 2004, ‘Has social investing lost its way?’, [Online] Available at: http://www.csmonitor.com/2004/1115/p13s01-wmgn.html Odum, H. 1995, Environmental Accounting, Wiley. 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