Lecture Cost management: Measuring, monitoring, and motivating performance (2e): Chapter 17 - Eldenburg, Wolcott’s

Chapter 17 - Sustainability accounting. The following will be discussed in this chapter: What are sustainability and sustainable management? What are sustainability accounting, sustainability management accounting, and sustainability reporting? What are the motivations and frameworks for external sustainability reporting?...

Cost Management

Measuring, Monitoring, and Motivating Performance

Chapter 17

Sustainability Accounting

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 2

Chapter 17: Sustainability Accounting

Learning objectives

• Q1 : What are sustainability and sustainable management?

• Q2 : What are sustainability accounting, sustainability

management accounting, and sustainability reporting?

• Q3 : What are the motivations and frameworks for external

sustainability reporting?

• Q4 : What management accounting tools are useful for

sustainability management and reporting?

Q1 :Sustainability and Sustainable Management

• Sustainability is defined as “activities and

approaches that maintain or increase added value without creating long-term threats to economic environment or social systems.”

• Sustainable management is “the ability to

direct an organization in ways that restore and enhance all forms of capital to generate shareholder value and contribute to the

well-being of current and future

generations.”

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 4

Q1 : Overview of Strategic Management Process

Organizational

Vision

Core Competencies

Operating Plans

Actual Operations

Organizational Strategies

Measure, Monitor, and Motivate

Q1 : Overview of Strategic Management Process

Organizational Vision Core Competencies

Operating Plans

Actual Operations

Organizational Strategies

Measure, Monitor, and Motivate

Sustainable Management involves

addressing sustainability issues in each

aspect of the strategic management process

Triple bottom line:

Economic, Environmental, and Social

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 6

Q1 : Sustainability and Levers of Control

Q2 :Sustainability Accounting

• Sustainability accounting is the systematic recording, reporting, and analysis of

quantitative and qualitative information

about sustainable management practices

and performance.

• Sustainability management accounting

involves activities to assist in the

sustainable management process including:

• designing business processes

• budgeting and forecasting

• implementing and monitoring internal controls

• Internal Reporting

• Provides information

for sustainability

management

decisions to support

the strategic

management process

– Some issued regularly (monthly worker

injuries or volumes of waste)

– Others issued for one time use

• External Reporting

• Distributed outside the company to

various stakeholder groups

• Reports may be required

– Compliance reports for laws such as minimum wage or pollution

levels

• May be voluntary and unregulated

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 8

Q2 : Sustainability Reporting

Q2 : Sustainability Reporting

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 10

Q3 : External Reporting Motivations

Q3 : Greenwashing?

• Greenwashing is when companies appear

to spend significant resources on publicity

about being environmentally friendly without making substantive changes in their

environmental impact.

• Misleading words, visuals, and graphics

• Vague and unproven green claims

• Overstated or exaggerated environmental claims

• Omitted or masked information to divert attention from environmentally damaging aspects

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 12

Q3 : Frameworks and Guidelines for Reporting

• Global Reporting Initiative (GRI)

• Framework for disclosure on economic, environmental, and social performance

• 77% of FIRMS in KPMG 2008 study uses GRI reporting guidelines

• ISO 26000 – Guidance for Social

Responsibility

• Will be released in 2010

• Provides principles for sustainability reporting, guidance for several major reporting areas, and recommendations for implementation

Q4 :  Sustainability Management Accounting Tools

sustainable management affects everything the organization does.

• Qualitative and quantitative information used in decision making must also include

environmental and social considerations

• Must recognize and measure the social and environmental costs in the accounting system

• More stakeholder groups need to be considered

• Sustainability is incorporated into all control

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 14

Q4 :  Relevant Costs for Decision Making

traditional management accounting systems

responsibility costs often lag the related

decision

• Conventional Costs

• Hidden Costs

• Contingent Costs

• Image and Relationship Costs

• Externalities

Q4 :  Material Flow Accounting

• Material Flow Accounting (input output

analysis) is the process of analyzing the

movement of all physical materials through

an organization’s operations

• Direct and indirect manufacturing materials

• All forms of energy

• Products

• Waste

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 16

Q4 :  Material Flow Cost Accounting

• Material Flow Cost Accounting is the

process of analyzing and tracking the

physical units and costs of materials and

energies through a manufacturing process

• Costs are assigned separately to waste and emissions (similar to abnormal spoilage)

• Practice avoids burying the costs of waste

product

Q4 :  Sustainability Life Cycle Costing

• Life cycle costing involves summing the costs of these activities throughout both internal and

external value chains

© John Wiley & Sons, Chapter 17: Sustainability Accounting Slide # 18

• Incremental Operating Cash flows are often

impacted by sustainable management initiatives

• These cash flows must be included in capital budgeting decisions

– Waste and Emission Treatment

– Prevention and Environmental Management

– Non-Product Output

• Material Purchase

• Processing Costs

– Environmental Revenues

– Image Benefits and Costs

• Assuming sustainable management is integrated into the strategic management process, then

sustainability should be implemented into the

balanced scorecard

• Three possible ways to integrate sustainability:

• Integrate into the traditional four perspectives

• Add a sustainability perspective to the scorecard

• Create a separate sustainability balanced

scorecard

• Integration with Annual Reports

• Stakeholder Dialogue

• Linked to Strategy, with Targets/Goals

• Process and Product Innovation

• Less Focus on Business Case

• Larger Audience

• Global Standards with Assurance

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Slide # 20

Chapter 17: Sustainability Accounting

Eldenburg & Wolcott’s Cost Management,

1e