Social and Environmental Accounting - Research Paper Example

Social and Environmental Costs Student’s Name Instructor’s Name Name of Institution Course Name Date Table of Contents Social and Environmental Costs 1 Table of Contents 2 Abstract The purpose of this report is to investigate the economic benefits and expenses on companies that have had explicit disclosure on social and environmental cost. It will also analyse the methodology employed by each company as far as social and environmental conservation is concerned. It will mainly centre on companies from different countries in the world that have shown considerable improvement in different areas with an intended aim of sustainable development. The paper will highlight the various methods that these companies used to implement their plans for maximum profit and at the same time take care of the environment. The paper will close with a discussion on how Australian companies can adopt strategies that were employed by companies already mentioned in the study. Introduction Following the current economic challenges professed not only in the developing nations but also globally, more vigilance is demanded during the establishment as well as running of companies. This follows the evident verity that companies should be launched with an intended aim of making profits as well as contributes to national development. Additionally, they ought to be environmental friendly especially now that issues pertaining to global warming have become so alarming (Page 2006). The companies should also show concern for the present and the future generations. Apart from some companies in Australia, there are other companies around the globe that pose excellent examples on how to deal with these issues through heightened efforts to prevail despite the numerous challenges. In order to achieve this, there is rigorous evaluation of whether a proposed project will be beneficial or not hence choosing between the most appropriate alternative (Martin, Lane, & Bowden 2001). Comparison of the expected cost to carry out the project is done against the potential benefits in order to establish whether the project will be beneficial or not. Integration of the triple bottom line has been reckoned as one of the most beneficial expression that can be embraced to ensure that corporations takes a special consideration of such critical fields including environmental, social and financial areas of all the business transactions (Butts & Steinig 2009). This intelligent expression helps in identifying the necessity of the financial as well as the non-market areas of the commercial presentation and responsibility. During formulation and carrying out projects, the managerial bodies should call upon investors and the other shareholders to come up with more policies that directly or indirectly support triple line reporting. Literature review and development of research questions Taking into consideration the fact that industrialization has become so pronounced around the globe, there is need to put some factors into consideration before carrying out any project as well as provide answers to some questions. The questions should be directed towards establishing whether a project will fulfil the intended goals of the company and whether its benefits outweigh its cost (Yokota 1999). Carrying out a cost-benefit analysis is one of the most effective decision-making approaches in doing this. After the onset of the industrialization era, the traditional perception of accounting shifted from being just a mere language of the business arena to the extent of covering other areas to transform the perception of people on the same. Accounting in running businesses is expected to cover all the other professions while focussing on people, planet and profit. The major objectives of the research will be focussing on the economic benefits and costs in many different areas in the business platform. Since ages, many businesses have been aware that cost-benefit analysis is concerned with the maximization profits (Martin, Lane, & Bowden 2001). Though the main aim is to gain more material resources, it also encourages improved relationships between the company and the society as well as the environment hence encouraging triple bottom line reporting. In any business activities, economic viability is one of the most crucial components that contribute to economic boom. The fact that many corporations aspire to succeed and consequently outshine their competitors obliges the respective managers to come up with special strategies that will enable the company realize its visions. John Ikerd in his book, Sustainable Capitalism: a matter of common sense, explains that social and intellectual integrity is crucial for the success of any business in order to make profits (Ikerd 2005). This has the implication that businesses that lack these entities will soon lose their economic viability which could lead to its downfall. One of the main recommendations that Ikerd suggests is finding ways to fix the challenges environmental pollution like by transforming wastes to assets that can be re-used to generate profit. He further explains the importance of maintaining better relations with the inhabitants of the area in which the business is operating in. This includes all the people who directly or indirectly get involved in the general operations of the business. It therefore includes people such as the employees, customers, stakeholders and the investors among others. This concept follows the eminent idea that such people determine the progress of the company (Weber 2006). Another book by Andrian Henrques and Julie Richadson, The triple bottom line, Does it all add up?, explains that sometimes triple bottom line companies are able to secure sales of their stocks to specific investors who commit themselves to social and economic integrity (Richardson & Henriques 2004). As such, the investors are obliged to accept low returns in case the net social and ecological returns are low to enhance long-term sustainability. It is for this reason that transactions can rarely take place between the triple bottom line investors and the single bottom line investors because the single bottom line investors are mainly concerned with exploiting the short term benefits, financial interests. Since this could be risky to the companies exercising triple bottom line, protection by the government from other competitors is important. The idea of accounting as being environmentally and socially responsible was basically introduced in classical Greek where all businesses were expected to be embracing high morality. There has however been longstanding belief that people running businesses should have high responsibility towards both the environment and the society. Typically, corporate social performance falls under four primary headings (Ikerd 2005). The first entails the community involvement which involves the day to day activities of individuals in such areas like health and education. The second includes human resource enclosing trainees and employees, ascertaining that the ambient working conditions are favourable. The third involves the physical resources and environmental contributions such as total adherence to environmental policies and the fourth is product contribution which lays special emphasis on the quality of products. Currently, attitudes in business are changing ensuring that individuals as well as companies are considering the environmental issues as well as the sustainability (Ikerd, 2005). This best explains the reason as to why many companies especially those related to energy have more interest on reporting on areas that pertain to finance, the society and the environment as well. Environmental issues are currently being viewed as an international issue that needs to be addressed urgently. At this point, the question arises as to whether the accountants have any role to play in the preservation of the environment and if there is, how thy can achieve it (Thomas 2007). In triple bottom line expression, companies are expected to present reports that manifest their efforts to sustainable development. Though Australia was initially reluctant to adopt this expression, it was influenced by reports disclosing environment concerns from other nations like Japan hence enforcing more responsibility on Australia ascertaining that it adheres to policies aligned with the environment. Methodology This research will mainly focus on companies in different nations that have been reporting progress in different areas but all with an intended aim of sustainable development. It will reveal the different methods that these companies enacted to ensure that their plans have been fully established that is, they gain profit and still take care of the environment and the society for future reference as well (Martin, Lane, & Bowden 2001). The research also offers a discussion on the efficacy of the methods embraced bringing into light all the hindrances and barriers that could contribute to the failure of some companies embracing the idea. Five companies will be discussed in this context giving the percentage of disclosing the social and environmental statements in their annual reports. Towards the end of the document, there will be a discussion of the various measures that Australian companies are taking to ensure that they also incorporate sustainable development in their final annual reports. Explaining matters in relation to the discussed companies, the document aims at enlightening individuals as well as companies on the importance of sustainable development especially a critical period like this when environment management has become one of the spiky issues around the globe. Biffa Plc Annual report and accounts 2007 In its report, the company opens by explaining the realization of its responsibility in preserving the environment. The report acknowledged the fact that the activities of the company could have very detrimental effects on the environment including the global atmosphere, water resources, quality of local air and the inhabitants within where it operates. As such, there is need to not only protect, but also nurture the environment ensuring that it remains competent to support the present generation satisfactorily without depriving it the capacity to support the future generations (Pigram 2006). It is for this reason that the company examines all its projects to ensure that they are directed towards this objective (The Institute of Chartered Accountants 2011). For this to be possible, the company has very powerful environmental management systems that propel the company towards the attainment of this aspiration. There is also a competent management team that ensures that all the employees work towards sustainable development. Additionally, the entire company is devoted towards meeting, and if possible exceed, all the appropriate environmental set standards (The Institute of Chartered Accountants 2011). The primary aspiration of the company is to attain a practical dialogue that integrates the regulators such as the Environmental Agency since it is of paramount importance in the running of the entire company. One of the efforts that the company takes to eliminate breaching of the environmental legislation is ensuring that its systems are well structured. Having more than 35 systems, the company has had an ample environment to operate effectively and still wishes to make other additional twenty sites. Breaching of the environment management policies refers to the awful conditions when the rules that govern people on how to work are not adhered to leading to subsequent disgusting conditions of defying the policies (The Institute of Chartered Accountants 2011). There are many reasons as to why the measures taken by the company would be considered sound one of them being the verity that they advocate for the integration of all the stakeholders in the company ensuring that they are all adherent to the proposed methods of dealing with environmental issues. This among other reasons makes the system to be honoured and the employees work hard towards meeting the expectations of the managers. Another strong point worth noting is that the company integrates the systems with the regulators such as the Environment Agency which assists it generates more income. The elimination of breaches is important in the sense that they ensure that the proper procedures are followed when launching an idea or carrying out a project. BP, Annual report and accounts 2007 This company utilizes the expenditures that relate to the current and future revenues implying that the expeditions within the company are used towards the security of the future. Expenditures associated with the current and past conditions but do not contribute to the future earnings are capitalized on and expensed. Liabilities for environmental costs are noticed when a clear-out is possible and the related costs can be comfortably estimated (Griggs 2011). Basically, the timing of the identification of these provisions matches with the devotion to a prescribed plan of action closure of the inactive sites. The recognized amount becomes the appropriate of the expected expenditure. When liability cannot be established for several years, then the recognized amount forms the value of the future expenditure (The Institute of Chartered Accountants 2011). Taking a close look at this company, there are numerous benefits that can be outlined in the adopted system. Usage of the available revenue for the future reference is a magnificent notion revealing that a priority is given to the forthcoming generations. When this is being done, it is obvious that even the current dwellers of place around the company will be catered for hence the triple bottom line methodology is automatically achieved. The fact that the liabilities require the company to give future the first priority becomes a source of motivation making the company to work hard in order to make more income and support its current projects. Volkswagen Group, Annual Report and accounts 2007 The company has illustrated some crucial provisions that have demonstrated their commitment to reduction of their environmental costs. This commitment is realized through obligation attached to the company in its sale of end-of-life vehicles and its legitimate spare parts. Basically, the risk constitutes warranty allegations which are measured based on the current losses as well as approximate future losses (Penacerrada & Cortez 2010). Projections made into the future concerning safety of Volkswagen vehicles, and their spare parts, is a clear indication of the company’s commitment to caring for the environment and future generations (The Institute of Chartered Accountants 2011). For instance, the company is committed to producing vehicles that emit low level of into the atmosphere emission. This will be achieved by improving on the efficiency of combustion engines, which allows proper burning of engine fuels. Additionally, production of vehicle parts that are environmental friendly is another strategic measure towards environmental cost reduction. The company uses Nickel metal- hydride batteries instead of lead-acid counterparts in the manufacture of its vehicles. Nickel metal-hydride batteries are environmental friendly even upon their disposal (Salzman 1997). The company is therefore committed to production of eco-friendly vehicles right from the planning process to recovery of end-of-life cars. Therefore, besides focusing on the whole life of a vehicle, the company still centers on ultimate recovery of such products. The design and development process of the vehicles is made in such a way that the products are as recyclable as possible. The constituent materials and parts are usually labeled to aid in identification and later recycling in the most efficient manner possible. The Scottish & Southern Plc, Annual report and account 2008 This company identifies carbon emissions liabilities as a liability whereas the carbon allowances purchases are verified as cost. It has embraced reduction of environmental and social costs through its eco-product portfolio. For instance, the company makes use of an energy saving device known as a Savasocket. It is an electrical appliance which has a unique characteristic of switching off a collection of four sockets at the source by the use of a remote control (Energy policies of IEA countries 2007). It helps to save a considerable amount of electric power and money by switching off electrical appliances that that do not have to be always on, instead of leaving them on standby (The Institute of Chartered Accountants 2011). The level of liability held by the company is calculated in proportion to the cost of acquired or contracted allowances. The company evaluates its carbon contracts at a fair value with variations in later calculations being featured in the income statement. The use of current environmental cost for future reference is a good illustration of the company’s commitment towards maintaining safety of the ecosystem (Byatt 1997). It has further encouraged people to use solar panels to provide electricity at home. It is a plan that is environmental friendly and at the same time, it helps people to save money and energy. Anglo American PLC, Annual report 2008 Anglo American PLC is a global leading producer of platinum and other minerals such as diamond and copper. It has demonstrated considerable commitment in reduction of environmental cost in its production operations. Although mining can result to high degradation of the environment, this company recognizes its obligation in minimizing environmental and financial costs. It aims at minimizing the environmental footprint and expanding a lasting benefit to the people surrounding their areas of operations (Armour 2000). It aims at harnessing its energy and at the same time, minimizes the effect on climate by clean-coal initiatives. Since water is required in almost all of the company’s operations, its efficient use is paramount. Anglo American PLC also ensures that the water that is returned back to the environment from its system meets the quality needed for consumption (The Institute of Chartered Accountants 2011). Information provided in the annual report for 2008 indicates some considerable reduction in cost for intangible assets as well as that of the environmental rehabilitation trust within a span of one year. In this case, intangible assets refer to the greenhouse gas discharge allowances. This is a good indicator of the company’s move to care for future generations besides meeting the current environmental needs. Discussion The above five examples of companies have shown sustainable development especially in line with putting measures that will safeguard the environmental (Guyer 1998). Attainment of sustainable development among these companies is a major step towards securing good care for future generations (Visser 't Hooft 1999). This study has shown that some companies have incurred an extra cost in the short-term, in ensuring that their products are eco-friendly. However, the long-term benefits are immense and thus they overrun the cost involved. This information will in no doubt be very helpful to the Australian companies which want to adopt these techniques for sustainable development. They will only be required to customize an idea that was implemented by another company to fit into their local setting in Australia. Adoption of cost-analysis measures will help these companies to maximize on profits and at the same time conserve the environment (Martin, Lane, & Bowden 2001). The study focused on companies from diverse fields and therefore, this will provide resourceful information from a large pool of alternatives. The studied examples contain some of the best strategies in cost reduction that were employed by companies from all over the globe. They will be very significant as they are emulated by companies in Australia towards their sustainable development. Conclusion Despite numerous challenges, the study has shown that there are companies all over the world that have set good examples on sustainable development. They have employed competitive approaches that allow them to maximize their profits and at the same time check on environmental conservation (CCH Australia Limited 2007). Before a product or a project is launched in to the market, these companies ensure that it is environmental friendly during the time of its use and even after its disposal (Miller & Spoolman 2011). Furthermore, such strategies ensure that social and environmental costs are reduced as much as possible. Adoption and implementation of these measures will safeguard the current as well as future generations from environmental degradation and other related hazards. Reference List Armour, M. (2000). Internal Control: Governance Framework and Business Risk Assessment at Reed Elsevier . Auditing: A Journal of Practice & Theory . Butts, D., & Steinig, S. (2009). Generations Going Green: Intergenerational Programs Connecting Young and Old to Improve Our Environment. Generations , 33. Byatt, I. (1997). Taking a View on Price Review. A Perspective on Economic Regulation in the Water Industry. National Institute Economic Review . CCH Australia Limited. (2007). Australian Master OHS and Environment Guide. North Ryde: CCH Australia Limited. Energy policies of IEA countries. (2007). Energy Policies of Iea Countries United Kingdom: 2006 Review. Washington: OECD Publishing. Griggs, J. (2011). 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