Corporate Social and Environmental Cost Disclosures in Australia - Research Paper Example

Corporate Social and Environmental cost Disclosures in Australia Customer Inserts His/her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 25, 09, 2011 Abstract With the increased standards of corporate governance in organisations, transparency and accountability to all stakeholders in the company has been awakened. This has consequently lead to the demand for more information by shareholders and other stakeholders not only accounting for the financial performance of the company but also the social and environmental endeavours of the company. This report analyses various companies in Australia that have deliberately published social environmental reports in addition to annual financial statements consequently partaking in the triple bottom line reporting which incorporates all the cornerstones of investment entities; economic, social and environmental facets. The report further indicates the various periods to which the report relates to and the measure methods used and disclosures made in the report. The report further recommends further harmonization of the sustainability report across industries and firms in order to ensure that they can be compared across firms and entities. Table of Contents Introduction 4 Research Methodology 7 Discussions 8 Corporate Social and Environmental cost Disclosures in Australia 9 Recommendation 15 Conclusion 16 References 17 Introduction Traditional accounting roles and responsibilities being critical aspect of corporate governance have drastically changed with the wider expectations of the society being experienced within organisations. According to Bauer& Otten, (2003), corporate reporting to owners in most cases has been driven by the information requirement by these critical stakeholders with regards to mainly profitability and financial position of the company as far as assets and liabilities are concern. The establishment of corporate organisations in a community and environment widens the reporting requirement from the accounting officers. The need for social and environment reports from corporate entities may or may not be legally instituted but it is a noble responsibility that corporate entities become accountable to all stakeholders. The very existence of a company in a community or environment gives that company a responsibility of being a good neighbour and member of the community by partaking in activities that will always improve the community’s interest and not jeopardise the well-being of other members of the community. Corporate success therefore should not just be measured just in terms of financial success by use of accounting measurement of profitability but also with regards to the societal ethical contributions and environmental performance. Triple bottom line measurement accounting proponents have argued on a solid measurement that make organisation not only to focus on profits but also people and environment (Collins & Lapsley, 2002),). It wouldn’t be objective to have the success of organisations only be measured on grounds of profitability which is the very axis of capitalism but also with regards to their outputs to the society as far as the products they make, contributions towards to health and education and also their working environment conditions and rewards to its human resources. Organisations may truly make great strides with regards to accounting profitability but fails as a good neighbour on grounds of being a source of pollution affecting the environment. It isn’t enough to measure organisation success with regards to parameters which only addresses the key performance expectations of the shareholders while excluding other stakeholders like the employees, government, community and environment. This therefore brings into perspective the need for other performance measurement parameters like the social and environmental reporting by corporations in order to add value to the reports. Without the community social responsibility ventures by corporate organisations being undertaken, there is a general feeling that an organisation is very insensitive to their social and physical environment. Problem statement Triple bottom line reporting is no longer an option for most companies but a desirable management tool to assess the organisations’ sustainability and general operations as a going concern. This research is intended to analyse the various measurement approaches by five Australian companies mainly on the energy and agricultural sector on the preferred triple bottom line measurement method. Literature review Social and environment cost are attributable cost that an organisations incurs in its endeavours to fulfil both the business, environmental and the societal roles. This cost has to be accounted for by organisation as social and environmental costs which can be monetary or otherwise. It has been apparently challenging to agree to one reporting standards with regard to social and environmental costs and many organisations have been treating this area of reporting differently some just indicating the qualitative aspects while others quantitative. Triple bottom line is truly a measurable indicator and therefore it has it quantitative aspects being based on social performance or impact. This therefore means that the social indicators of diversity, industrial relations, health and safety, child labour and community can provide a good measurement with relative objectiveness while undertaking the social environmental costs of an organisation. As much as this may not be empirically verifiable social audit do help in ascertaining the objectivity in arriving at that particular cost. Measurement of social and environmental cost in Australia has been driven much by the need to maintain a sustainable benefits from the working environments for the benefit of the internal and external stakeholders. This has led to the much accepted sustainability report which is mainly driven by the fact that organisations are no longer valued in financial aspects only but also with regards to the company’s ability to sustainably engage in its core business with the satisfaction of both internal and external stakeholders ( MacDonald, 2003). According to the department of the Environments’ and heritage Australia’s Guide to triple bottom line reporting, it is apparent that Australia’s federal government is dedicated to promoting company’s’ social and environmental reporting. The olden approaches that only recognised the profit maximization objective driven corporate financial reporting is currently time barred and therefore the crucial and paramount responsibility undertaken by companies not only affects the economy but also social and physical environments. It is not only in the interest of investors to ensure that the going concern principle is adhered to but also the interest of the government, consumers and future generation. The sustainability principle is the core of social and environment reporting since economic growth for Australia depends on the management of organisations in such a manner as to ensure that the physical environment is not destroyed, social norms and regulations are not broken and government regulations breached in such that it may result in the company’s closure. Measurement indicators for sustainable reporting in Australia have been developed as a guide complementing Global Reporting Initiative (GRI 2002). The benefits of triple bottom line reporting according to the Australian Guide to triple bottom line reporting extends to economic and social spheres and not just limited to the environment (Australian Government, 2005). TBL benefits include; development and adherence to sound corporate governance systems, prudent and improved risk management strategies, Improved and formalised communication with all stakeholders, Attracting and retaining a competent workforce and indirect gains like good corporate image and easy access to capital. It is therefore imperative to recognise that Triple bottom line reporting in conjunction with financial reports has ensure the production of a balanced and objective corporate status to all its stakeholders. Triple bottom line (TBL) reporting is a requirement that has been geared towards sustainable corporate existence and production of environmentally friendly products and services. TBL there has been harmonised so that they are standardized for objective reporting to be achieved by different companies. Aggregation claim has been a major assumption in the measurement of Social environmental costs as it incorporates the overall effects or implications of the various strategies to ensure sustainable operations of an entity. The major component in measurement of social environmental costs will therefore involve the net social gain or loss Various measurement methods for TBL are designed to capture particular indicator for sustainability of companies and are listed as follows; Energy Measurements Greenhouse gases emissions Material usage and recycled Water usage and recycling Waste management Emission to land air and sea Biodiversity impacts and improvements Ozone layer depleting substances management Suppliers environmental performance Products and services and their environmental effects Compliance to regulatory environment issues Social and environmental costs measurement disclosures must always be corroborated from financial management reports and confirmed through social audits. Research Methodology The research will focus mainly on Australian companies mainly disclosing their social and environmental costs. Companies targeted are those mainly involved with the energy and chemical processing sectors who are the major contributors to environmental degradation. The main focus will be on 5 companies around the Australia setting standards in social and environmental costs reporting by use of annual sustainability reports. Second the focus will be developed on these companies and the way they deal with triple bottom line strategy and how each company differentiate of the other entity in the way it reports. Before focusing on the 5 Australian companies, some earlier reports done on the same domain and reflecting a various strategies on how different companies are addressing environmental and social issues are reviewed. Recent guide done by KPMG Australia, which is considered one of the major corporations in the globe that offer advising for many areas such as tax, finance, accounting, and regulation also is major source of insights in the research. The guide indicates that organizations integrating their operations with the Triple bottom line reporting will benefit more in their overall rating by the society. Discussions Even though there has been an improvement on the number of companies appreciating sustainability reporting in Australia since 1994, it is comparatively lower than other developed economies of UK and Japan as indicated in the table below as researched by KPMG in their guide to sustainability reporting in Australia. The KPMG guide associates the less appreciation of sustainability reporting by companies to lack of legislations for its enforcement and high short term profit motive by most investors. Most of the companies who have appreciated Social economic cost disclosures have done so by use of a dedicated annual sustainability reports but a few still use notes to financial statements. The figure below indicates that Australia has 35% of its top 100 Companies compliant with sustainability reporting. Corporate Social and Environmental cost Disclosures in Australia In Australia, Corporate entities are gradually appreciating sustainability reporting as being complimentary to the financial objectives and there have given much equal emphasis to Triple Bottom Line reports as to financial reports. Most entities reviewed in this research have been able to develop their yearly sustainability reports with relevant social environmental indicators to their community and area of business. 1. Wesfarmers Limited Wesfarmers Limited has its business spread from supermarkets, department stores, home improvement and office supplies; coal mining, energy, insurance, chemicals and fertilizers and industrial and safety products. This is a domain of business generally covers almost every social and environmental indicator consequently in its sustainability report, Social environmental disclosures Wesfarmers has its business objectives anchored around social economic and environmental consciousness as indicated in the sustainability report for the year 2010. Their major driving force in their business is customer and other stakeholders’ welfare and satisfaction and therefore their business reputation and image is critical. Wesfarmers has its sustainability underlying principles being; proper maintenance and enhancement of their physical environment through strategies aimed at minimizing carbon emissions; improve water and energy efficiencies and waste management. The company also endeavors to provide its manpower a safe and secure working environment and treat its customers and suppliers amongst other stakeholders with decorum and respect. This has made the company to have the following disclosures in the report; Greenhouse emissions in tonnes Energy usage in gigajoules Water consumptions in Magalitres Safety data Community contributions in cash, in kind, product and other assistance Sustainability challenges Ethical sourcing of products Measurement of the social and environmental costs by the company has been purely quantitative and based on Global Reporting Initiative parameters and guidelines. Validity The methods used are quantitative consequently very objective and easy to establish social/ ethical performance. Even though the overall social benefits of sustainable processes undertaken by the company are not deliberately summarized, the report has been moderately balanced and detailed. 2. Fuji Xerox Australia Fuji Xerox Australia is a corporate entity dealing with products like copiers, printers, Document management software’s and Scanners. The core of Fuji Xerox Australia’s sustainability reporting customer focused services, continuous improvement and creativity, ethics and integrity and teamwork. All this core values have resulted in Fuji Xerox Australia’s focus on the principles of commitment to the environment, increased and solid financial performance and socially responsible corporate stakeholder. Social environmental disclosures Since Fuji Xerox is mainly a document services technology vendor and manufacturer, its main environmental indicators used in the 2010 sustainability report includes; a) Delivery of products and services to the customers’ expectations and satisfaction b) Ensure a working environment that will ensure that will attract and retain the best workforce by providing a clear framework career growth in the organization. c) Improve on the stakeholder communication. d) Ensure synergetic and amicable change management practices. Measurement methods used For each of the disclosures and indicators that Fuji Xerox aspires to achieve, the following core principles have their measurement methods and parameters as indicated below; a) Commitment to sustainable environmental management b) Improving the customer experience c) Improve on the business performance measurements includes; d) Corporate governance and compliance to regulations as measured by; The measurement methods adopted by Fuji Xerox are very objective and targeting the entire social, environmental and economic parameters consequently a holistic view of the company. 3. Shell Australia Shell in its corporate philosophy do appreciates the role and involvement of communities in their business as a critical pillar to their long term success consequently; it has been involved much in social and environmental activities in the Australian community. Shell business being centered on energy products and projects has many challenges with regards to sustainability and the ever increasing demand and therefore the organization has endeavored to engage in a continuous innovation into the areas of alternative sources of energy, energy efficient systems and cleaner energy. Social environmental disclosures are in the following domains in the period 2010 I. Economic performances II. Environmental III. Social Shell being a global multinational disclosed the above critical indicators and subsequently undertook independent sustainability report audit. This gave its disclosures a proper perspective as it applauded and criticized equally where necessary and consequently enabled the continuous improvement in their sustainability strategies Measurement methods used For the various disclosures several measurement methods were used as indicated below; a) Economic performances b) Environmental measures c) Social measures 1) Fatalities for both employees and contractors 2) Injuries in hours for both employees and contractors 3) Occupations illness in working hours for both employees and contractors 4) Use of armed security both country, contractor and company 5) Gender diversity as a percentage of woman in management, supervisory and leadership positions 6) Regional diversity as a percentage of countries with the highest percentage of local nationals in the senior leadership positions 7) Staff forums and grievances procedures as a percentage of staff with access to staff forums 8) Child labour parameters 9) Integrity as far as code of conduct violations and contracts cancelled with non-compliance with regulations 10) Contract and procurement parameters measuring estimated expenditure on goods and services form locally owned industries and businesses 11) Social investment parameters estimating equity on voluntary social investment Validity of each method Most of the shell Australia’s parameters are internationally accepted for the Oil sector and also are very quantitative consequently enabling periodic, regional and intercompany comparisons. 4. Origin Energy Limited Origin energy Limited is a company mainly operation in Australia and New Zealand as a provider of energy products. Being a company in the oil sector, origin energy has established internationally accepted metrics for measuring social environmental costs in its sustainability report for 2010 mainly based on global reporting initiatives (GRI). It main drivers in the social environmental reporting is the desire to take all feasible steps to eliminate or minimize any adverse impact that it business activities have on the environment, to reduce the greenhouse gas intensity and emissions of origin energy production and distribution and non-producing assets and finally to maintain community support and goodwill for the Company’s activities. In order to all these targets the following social environmental disclosures are been developed and incorporated as part of the core business objectives a) Leadership strategy in green energy products production and distribution b) Strategy of increased sales of low carbon intensity products and ultimately low greenhouse gas emissions. c) Industry leadership in hardship and access response to consumer challenges d) Reduce ombudsman complaints significantly as a way of ensuring increased communication with stakeholders. Measurement methods In order to achieve the above deliberate and five year strategic goals with regards to sustainability of the origin energy limited, deliberate global reporting initiatives (GRI) parameters have been used as indicated below; a) Energy Measurement in Megawatts b) Greenhouse gases emissions and intensity c) Water usage and recycling d) Waste management e) Emission to land air and sea f) Rehabilitation of waste land g) Gender diversity as a percentage of women in management, supervisory and leadership positions. h) Biodiversity impacts and improvements i) Ozone layer depleting substances management j) Suppliers environmental performance k) Total recordable incident frequency l) Regional diversity as a percentage of countries with the highest percentage of local nationals in the senior leadership positions m) Compliance to regulatory environment issues Validity With the major concentration to Global Reporting Initiate standards as a basis of sustainability reporting for Origin Energy Limited, objectivity in reporting and ease of performing peer review is achieved. The use of benchmarks will also ensure attainment of accepted level of social environmental indicator targets and ease to which organizations can undertake their social environmental planning. 5. Toyota Motor Corporation Australia, Automobile manufacturer Toyota Motor Corporation Australia being a regional subsidiary of a leading global giant in automobile industry has higher level awareness with regards to social environmental responsiveness and its impacts on the overall performance of the group. This has been witness by it sensitivity to withdraw some of its non-standard products it had delivered to the market. Social environmental disclosures Toyota Motor Corporation Australia’s plant has been one of the most innovative and environmentally conscious plant having been at the forefront in the development of the hybrid vehicles which has been a more environmentally friendly. It main disclosures have been in the following domains of sustainability; Environment Social and community spirit and Economic metrics Measurement methods used Toyota Motor Corporation Australia has been one of the leading companies in Australia to appreciate GRI triple bottom line reporting standards having been a subsidiary of Toyota International from Japan where the concept had been incorporated into mainstream company operational processes. The following GRI parameters have been incorporated into Toyota Motor Corporation Australia; A. Economic performances B. Environmental measures C. Social measures Validity of each method Being quantitative and global accepted parameters, the measurement methods used by Toyota are very objective and relevant for decision making and communicating with the stakeholders. This enhances Recommendation In order to ensure consistency in social environmental or triple bottom line reporting, companies need to have an institution that will guarantee objectivity on the sustainability reports. In general all companies especially in chemical processing and energy sector have realized the invaluable role the social environmental reports have with regards to overall stakeholders’ satisfaction with the operations of the company especially where all the expectations are met. Social environmental reporting though a very critical business process has its relevance the organization strategies and operations have been fundamentally been made compliant with the triple bottom line requirements consequently ensuring the generation of a positive environmental reports. Conclusion Triple bottom line or the social environmental reporting will no longer be done as a public relations document with stakeholders but rather an accountability document to stakeholders with regards to how the business is discharging its responsibilities ins such a way as to meet their various needs. Where the stakeholders have issues with the report, they should be able to raise their dissatisfaction with the report. It is important this reports are subjected to social audits so as to give an external view and recommendation the management of the organization as to the credibility of their social environmental indicators used. References Australian Stock Exchange (ASX), 2003. Principles of Good Corporate Governance and Best Practice Recommendations, Australian Stock Exchange Corporate Governance Council, Sydney. Australian Government, 2005. Corporate Social Responsibility. Discussion paper, Corporations and Markets Advisory Committee, November, pp.115. Bauer, R., Gunter, N. & Otten, R., 2003. Empirical Evidence on Corporate Governance in Europe: The Effect on Stock Returns, Firm Valuation and Performance, Journal of Asset Management, vol. 3, no. 4, pp. 296-314. Burritt, R.L., 2005. Environmental risk management and environmental management accounting - developing linkages, chapter in Implementing Environmental Management Accounting: Status and Challenges Rikhardsson, P., Bennett, M., Schaltegger, S. and Bouma, J.J. (Eds) Kluwer Academic Publishers,Boston/Dordrecht/London, pp.123-141. Australian Government, 2005. Corporate Social Responsibility. Discussion paper, Corporations and Markets Advisory Committee, November, pp.115. Burritt, R.L., 2005. Environmental risk management and environmental management accounting - developing linkages, chapter in Implementing Environmental Management Accounting: Status and Challenges Rikhardsson,, P., Bennett, M.,Schaltegger, S. and Bouma, J.J. (Eds) Kluwer Academic Publishers,Boston/Dordrecht/London, pp.123-141. Clikeman, P. M., 2004. Return of the socially conscious corporation, Strategic Finance, vol. 85, no. 10, pp. 22. Collins, D.J. and Lapsley, H.M. (2004), Counting the costs of tobacco and the benefits of reducing smoking prevalence in Western Australia, The Cancer Council Western Australia, Monograph Series Number 4 2004. CPA Australia (CPA), Sustainability Reporting: Practices, Performance and Potential, 2005a. [Online], Available:http://www.cpaaustralia.com.au/cps/rde/xbcr/SID-3F57FEDF-CD81A6F3/cpa/sustainability_report.pdf Fuji Xerox Limited, Sustainability Report 2010. [Online], Available: http://www.fujixerox.com.au/about/media/articles/678 Gaffikin, M.J.R., (2008) Accounting Theory: Research, regulation and accounting practice, Pearson Education, Australia. Global Reporting Initiative (GRI), 2010. Sustainability Reporting Statistics, Global Reporting Initiative, Amsterdam. Norman, W. and MacDonald, C. (2003) Getting to the Bottom of Triple Bottom Line Business Ethics Quarterly, March 2003 Polland, M, Mills, S & Harrisson, W 2007, Principles of Accounting, Pearson/Prentice Hall, New Jersey. Productivity Commission. (2005) Trends in Australian Agriculture, Research Paper, Canberra. Rowbottom, N., Lymer, A. and Wilkins, B. (2006), “The demand for corporate sustainability reporting: Online evidence”, 29th Annual Congress of the European Accounting Association Conference 2006, Dublin URS Australia (2004) Benchmarking mixed farming systems in the Medium Rainfall Zone of Australia , Final Report. Land & Water Australia, Canberra Wesfarmers Australia Limited, Sustainability Report 2010. [Online], Available: http://www.wesfarmers.com.au/sustainability.html Read More