Disclosing Company's Social and Environmental Costs - Research Paper Example

Running Head: ACCOUNTING RESEARCH 394 Name: Institution: Course: Accounting Research Tutor: Date: ABSTRACT. The objective of this work is to investigate the measurement methods used by companies to disclose their social and environmental costs. The study also aims at evaluating the validity of these measurement methods used by each company in the light of current literature on the measurement of social and environmental cost. Different companies use different methods, which vary greatly. To achieve this, information available from five quoted companies on disclosures of social and environmental costs was analyzed. The study looked at how each of the five companies addressed these issues in their annual reports, directors’ report and in their sustainability reports. This research area has been prompted by the conclusion of the Parliamentary Joint Statutory Committee for Corporations and Securities concerning voluntary system of environmental disclosure that would encourage companies to achieve better practices. On 1 July 1998, s299 (1) (f) of the corporations act required companies to disclose their social and environmental details in the directors report. There was a lot of ambiguity on how the provision of this act could be interpreted although it is still effective. Therefore, this study investigated the social and environmental disclosures made in the period of voluntary disclosure requirements. INTRODUCTION. Published accounts are prepared on annual basis and addressed mainly to the shareholders (Buchholtz, 2009). There are however, other groups who have an interest in a company’s activities and have accessed and analyzed the data published in annual reports. The environmentally mindful citizens form part of this group. Enhanced awareness of the countrywide and worldwide effects of human race on the physical environment has led to increased demands on companies, through governments and non-governmental organizations, to explicitly disclose information about their environmental performance (Diermeier, 2007). There are a number of environmental laws that are in force hence the need to ensure that compliance and non-compliance with regulations are publicized (Diermeier, 2007). In the face of escalating environmental legislation industry, organizations are attempting to uphold control over the environmental issues facing their members. This is achieved by introducing self-regulating Codes of Environmental Practice and encouraging organisations to monitor and give a report of their environmental performance (Horrigan, 2010). The ratification of Section 299(1) (f) of the Corporations Act in July 1998 marked the beginning of the implementation of the mandatory requirement for Australian companies to report on environmental performance. However, the provision was faced by a turbulent history with the immediate recommendation upon ratification that it be referred to the Parliamentary Joint Statutory Committee of Corporations and Securities (PJSC) with the intention of abolishing the provision (Lenssen, Gasparski, & Lacy, 2006). The consequences of this were intense lobbying by firms and related bodies to remove the provision from the Act. Therefore, with effect from 1st July 1998, s299(1)(f) of the firms law required details of a firm’s performance on matters touching environmental law and this was to be incorporated in the directors’ report (Matten, 2007). STATEMENT OF THE PROBLEM. Most companies use different methods to measure social and environmental costs. However, many companies do not disclose the validity and applicability of the method they use. MAIN OBJECTIVES. This project is aimed at discussing the validity and applicability of measurements methods used by each company in the light of current literature on the measurement of social and environmental cost. LITERATURE REVIEW. Environmental Costs Accounting and Admission. Environmental accounting is important in assessing in-house and external costs of the environment from manufacturing and service processes, alongside providing environmental improvement and performance reporting for management resolutions on future production (Matten, 2007). It has been used as a production means to give monetary reports on environmental costs in running production performance. It is also a critical factor for supporting decision making processes in expenditure analysis and evaluation of environmental costs in production process (Oxelheim, 2006). It is comprised of environmental monetary accounting and environmental management accounting. Environmental monetary accounting reports give environmental revelations to outside bodies which includes investors, governments, shareholders etc. Moreover, environmental management accounting is important in providing information on environmental costs to shore up domestic decision making processes (Rayman-Bacchus, 2008). Environmental management accounting aims at reducing negative impacts or effects on the environment at the same time improving material effectiveness, key pillars that add value to the organization. Accounting for the Social Costs. This is largely comprised of financial and management accounting involving the social involvement of the firm, and its aim is to improve the firm’s approval and acceptance by the society (Rayman-Bacchus, 2008). It also provides organizations with information for company social responsibility reporting to perk up external reporting of social costs and give key information headed for the stakeholders. Social management accounting enables the company to measure and record all costs involving communal activities that help in in-house decision-making and enhance revelation of social performance (Matten, 2007). Nevertheless, these expenses have not been determined to a great degree since in many occasions many companies treat them as overheads or other expenditures instead of costs of production. Historically, social costs are disregarded by conventional management accounting; this led many companies not using them to perk up their social performance (Rayman-Bacchus, 2008). So, disclosures concerning social performance in the nature of company social responsibility reports are becoming further complicated as the expenses of social impacts are progressively more being captured. METHODOLOGY. Five companies based in Australia based on their published and quoted accounts since 2005 were studied. The resources for these were obtained from their websites. These study aspects included measurement methods environmental and social costs. The data was obtained from annual reports, director’s reports and in the company’s sustainability report. This data was evaluated and discussed based on the method of measurements adopted by the company. AGL ENERGY LTD. AGL is one of Australia leading amalgamated renewable energy source Corporation, that is in forefront in generating sustainable energy future (Diermeier, 2007). AGL Company does not only think about the environment, but also their responsibility to all its stakeholders (Horrigan, 2010). The key objective of the company is to build a sustainable potential for AGL, which will continue to thrive and be respected for doing the right thing to all the stakeholders. AGL is one of the listed companies on the Australian Securities or stock exchange and owns a market capitalization of over $5.5 billion. AGL has put in place overarching principles that describe management and measurement of the company’s impact on the environment. AGL Ltd Environmental Cost Disclosure Principles Conformity AGL meets or exceeds constitutional requirements and appropriate policy of conduct and corporation standards (Diermeier, 2007). Reporting, Monitoring as well as Communication principle AGL’s environmental work metrics and reporting is constant with recognized nationwide and universal exposure standards; AGL applies the assurance as well as authentication principles of materiality and wholeness and responsiveness while gauging, monitoring and delivering environmental outcome or performance (Oxelheim, 2006). Impact Minimization Principle AGL reduces peril towards the environment in addition to minimizing their environmental effects, by incorporating contemplations of environmental maintainability in all their actions (Matten, 2007). Important contemplations for AGL along with their stakeholder or interested parties in minimizing ecological effects that consist of endorsement of desecrate minimization, prevention, and the proper use of assets and resources like water and power reclaim as well as protecting their culture. AGL provides outcomes plus information that assist clienteles formulate well-versed energy alternatives to advantage their homes, commerce and the environment. All service providers are required to show regularity with AGL’s approach by satisfying their ecological responsibilities (Horrigan, 2010). Climatical alteration and Renewable principle Consistent or inline with company goals and AGL’s Greenhouse Gas guiding principle, AGL works in discussion with its interested parties to perk up greenhouse gas discharge products. Principles of Stakeholders Involvement AGL provides guidance and aggressively participates in the guiding principle debate on power and ecological matters. They also connect with regime, industry ,society and other interested parties on how to realize sustainability in the energy or power sector (Diermeier, 2007). AGL’s workers are motivated to make a contribution in perking up the Company’s environmental performance. AGL also builds knowledge, competence and appreciative of environmental management issues for their employees. The Amcor Limited Company It is a Multinational company and an international leader responsible in global packaging solutions, providing a broad variety of plastic (rigid & flexible), fiber, metal and glass packaging products to improve the products that consumers use in everyday life (Diermeier, 2007). It as well gives packaging related services that facilitate customers thrive through alliances and innovation driven by art and science. It is a quoted company with explicit disclosures of social and environmental costs. From Amcor’s 2008 sustainability report, we find out that they use the following methods to measure their social and environmental cost. They include: Global Environment Reporting Database They use this database to track and report energy, emissions, waste and water. Trend information analyzed from this is used to report to the Board, management, and stakeholders (Matten, 2007). The Carbon Disclosure Project This Carbon Disclosure Project (CDP) that provides a coordinating secretariat for institutional investors with collective assets of over $56 trillion under management. This Project seeks information on the business risks and prospect offered by climatical change and greenhouse gas discharges statistics from the world’s leading companies of which there were 3,000 in 2008. Amcor has taken part in the CDP since its inception in 2001. From 2007, Amcor makes its Submissions public, as a means of communicating its greenhouse gases accounting and climate change activity (Rayman-Bacchus, 2008). These submissions can be viewed on the CDP website at www.cdproject.net. Year 2008, Amcor responded in full to customer members of the CDP Supply Chain Leadership Collaboration (SCLC) pilot survey. Dow Jones Sustainability Index as measure of environmental and social cost Amcor is a member of the Dow Jones Sustainability World Index 2008/09 (Oxelheim, 2006). This Sustainability Index (DJSI) is among of the Dow Jones Global Indexes covering 60 industry groups in 34 countries. Amcor has actively participated in the DJSI since 2001. The 2008 DJSI corporate sustainability assessment awarded Amcor Ltd a total score of 64%. This compares to the average score within the Containers and Packaging Industry Segment average of 58.5 % (Lenssen, Gasparski, & Lacy, 2006). FTSE4Good Index as measurement tool. This Index Series was designed to measure the performance of companies that meet internationally known corporate responsibility standards, and to aid investment in those companies. Amcor remains a member of the FTSE4Good Index. The above methods of measurements are valid because the company has achieved, • In implementing a global program to diminish energy, waste and GHG emissions • In environmental reporting system to track energy, waste, GHG and water use implemented globally. • In waste Intensity (tones / unit of production) decline by 13.7%. • Australasian divisions improved their Water Intensity (KL/unit of production) by 20.3%. • In at least half of the new-fangled products released in the precedent year have lifecycle impact upgrading over existing packaging. The Ford Motor Company It is one of the quoted companies in Australia. Its information can be obtained from sustainability report 2010. Ford Motor Company based in Australia uses a lifecycle approach to assess and reduce the total environmental and social costs of their automobiles from a sustainability viewpoint. This ranges from raw material mining and shipping all the way through production of final product. This technique reflects on and works to minimize harmful impacts upfront in product design resolutions. This is referred to as Design for Sustainability (DfS). This method is incorporated and holistic, to guarantee that they attain an equilibrium between ecological, social and money-making aspects in their product development process (Diermeier, 2007). Ford Motor Company of Australia limited is continuing to advance the application of DfS ideology. For instance, they have come up with a Product Sustainability Index tool that is in use in their European product development actions from 2002 (Rayman-Bacchus, 2008). This means has helped them in assessing and finding prospects to minimize the impacts of their products over their total lifecycle. Amid their environmental and social maintainability efforts, they are escalating utilization of sustainable materials and get rid of unwanted materials (Matten, 2007). They are as well working or functioning to reduce greenhouse gases and other discharges from their amenities and automobiles by innovating cleaner and best energy-effective manufacturing processes, enhancing the effectiveness of their packaging and shipping logistics and commencing cleaner and more fuel-efficient automobiles. Downstream in their value series, they are enlightening their drivers on ways to enhance fuel economy as well as trimming down automobiles discharges from their eco-driving program. Upstream, they are connecting with their service providers to raise the sustainability of their products right through the supply chain (Diermeier, 2007). These methods of measurements are valid because they have take on a thorough and holistic approach to dropping the on the whole environmental and social impacts of their production facilities. They have also set a universal facility ecological targets which attend to their various ecological impacts, including power use, water utilization, emissions and desecrate production (Buchholtz, 2009). Each of their departments utilizes a detailed scorecard to account against environmental goals, in order for them to track and hasten improvements. Advancement headed for the targets is evaluated throughout the year by top administration at habitual Business Plan Review summits. More so, these goals occur to be component of the performance review measurements for each plant manager and regional production manager, along side others in the administration ladder up to the managerial Vice President of production and Labor Affairs. The year 2010 goals as well as year 2011 goals and progress are shown in the Year-over-Year Environmental Targets chart (Oxelheim, 2006). To assist performance trailing, they started the Global Emissions Manager database (GEM) in the year 2007. The launched database gives a worldwide steady approach for taking measurement and supervising ecological data that helps them trail and improve their hard work to diminish water utilization, power use, carbon dioxide discharge and the quantity of desecrate taken to landfill (Matten, 2007). GEM as well offers a library of environmental regulations related to each plant, considerably escalating the efficiency of trailing and achieving those set of laws. International Aluminum Institute ltd International Aluminum Institute ltd is a mining business; the aluminum manufacturing faces definite ecological and social challenges. Accepting these, the company has dedicated to good ecological stewardship by paying attention on (Matten, 2007): Plummeting every impact on the environment. Curtailing climate alteration impact. It also researches ways to raise energy effectiveness and lessen energy use and greenhouse gas discharges. supporting the accountable and safe discarding or reclaim of desecrate products exploiting the utilization of restored material Rehabilitating used land to its original status for sustainable agriculture.. To achieve this, the business has gone on board on a thorough life cycle analysis programme. The life cycle analysis measure method includes together the constructive contributions that aluminum makes to the environmental and economic comfort of the world's population. Life cycle assessment and its validity A life cycle assessment (LCA) is a comprehensive scientific examination of the environmental, social and economic effects of a product at every phase of its existence, from manufacture to disposal and beyond. It takes account of the impacts of the 'product system', including: mining of the raw materials; manufacture; the means or mode transportation; utilization; Discarding or re-using. Ancillary material supplies and Energy. A classic LCA exercise will normally comprise of: goal and scope definition that explain the application covered, the aims for the study, intended audience and a detailed technical accounting of the "product system” life cycle inventory analysis refers to the compilation and determination of the ecological inputs and outputs for the product system during its existence. life cycle impact assessment to appreciate and evaluate the size and importance of the probable environmental impacts of the product system And interpretation or the conclusions and recommendations from the results of the life cycle record analysis and impact evaluation in line with the set goal and scope. Life cycle assessment is used by the aluminum industry to review and stimulate environmental improvement in production processes and product development. The appraisal of life cycle assessment environmental aspects in production processes and development can also front to improvements in the production processes themselves (Rayman-Bacchus, 2008). BHP Billiton Company ltd The company is among the world’s top producers of major commodities which include: iron ore, energy coal, copper, aluminum, metallurgical coal, manganese, uranium, nickel, and silver and titanium minerals. The company has great interest in oil and gas exploitations. The company is devoted to the high level of control and endeavors to cultivate traditions that encourage and recognize excellent moral principles, individual and commercial reliability and esteem for all stakeholders. The company operates safely in an environmentally sustainable way to demonstrate incomparable devotion to work (Lenssen, Gasparski, & Lacy, 2006). BHP Billiton Limited is a multi-national company which consists of about 100,000 staff members and branches in over 25 states. The company has its major shares listed on the Australian Securities Exchange market and others in the London and the Johannesburg Stock Exchange. The directors’ report stands to be the major medium used by the firm to reveal their social responsibity performance. According to director’s report in the year 2005, BHP Billiton Limited, positioned their shared confessions after originally discussing their major business operations developments primarily in finishing, growing and building new infrastructures all over the world. In this report there were no clear disclosures of the repercussions that could have arisen as a result of the company’s operations (Lenssen, Gasparski, & Lacy, 2006). For instance, the closure of Boodarie iron firm in Western Australia, states the cause such as completion of contracts, lying out and other involved costs. It’s insinuation like sliming down are not well detailed even in the later component of the directors report. On the converse, director’s report indicated that the company had pending indemnity for the insurance of the top management and some subordinate staff (Diermeier, 2007). The company disclosed this report to its employees as way of supporting social responsibility by creating awareness and avoiding false information reaching the staff (Horrigan, 2010). According to the BHP Billiton sustainability report of 2009, they have disclosed that some of their workmates died as worked with them. In the report, the company declares to have put in place measures to advance the control of energy and greenhouse gas discharges and to set the regulatory, physical and reputation risks of climatically changes. The company uses the following measures to account for their social and environmental costs (Horrigan, 2010). The Greenhouse intensity index as a tool of measurement The company has defined efficiency goals for their greenhouse gas discharges and energy use to help better their performance. In 2009, the company encountered a 6% decrease in their overall greenhouse gas emissions. These intensity or concentration indices are calculated by dividing the yearly greenhouse gas discharges and energy utilization by the yearly parts of outcome for each asset, subsequently totaling the outcome for the group. The parts of fabrication are summarized in BHP Billiton’s publicity existing production reports. The base or foundation year for the indices was 2006 and had a worth of 100%. Less than 100% shows some progress. The company had greenhouse gas data gathering and authentication processes in place for several years to sustain their deliberate reporting. CONCLUSION AND THE RECOMMENDATIONS. It is imperative to note that different companies use various social and environmental costs measurement methods. This is aimed at disclosing different operations and capacity in the companies. Therefore any company has a liberty to use any method of determining the validity of measurements of the environmental and social costs such that the costs are sustainable and accountable. References Buchholtz A. B. 2009. Business & Society Ethics And Stakeholder Management. Mason: Nelson Education Ltd. Diermeier D. 2007. Global Corporate Citizenship. Kellog: Northwestern University Press. Horrigan P. B. 2010. Corporate Social Responsibity In The 21st Century. Cheltenham: Edward Elgar Publishing Limited. Lenssen G., Gasparski W., & Lacy B. R. 2006. Corporate Responsibility and Competitiveness. Corporate Governance - The International Journal Of Business In Society , 334-358, 401. Matten A. C. 2007. Business Ethics. New York: Oxford University Press. Oxelheim L. 2006. Corporate and Institutional Transparency For Economic Growth In Europe. Amsterdam: Elsevier Ltd. Rayman-Bacchus D. C. 2008. Perspectives On Corporate Social Responsibilty. Aldershot: Ashgate Publishing Limited. Read More