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Introduction to Sustainability Accounting
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Learning outcomes Understand the need for and scope of sustainability accounting Understand the limitations of conventional accounting concepts & protocols in furthering sustainability accounting Examine some initiatives and case studies in sustainability accounting Consider future changes.
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Sustainability Sustainability can be defined as relating to development which “meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Report 1987; Gro Harlem Brundtland was a Norwegian cabinet minister) social justice eco-efficiency eco-effectivenes “Sustainability is, thus, a direct challenge to the economic model of the world that runs through conventional accounting and finance.” (Gray, 2002:372) CERES principles 1989 (Coalition for Environmentally Responsible Economies) cover: protection of the biosphere sustainable use of natural resources reduction & disposal of waste energy conservation risk reduction safe products & services environmental restoration informing the public management commitment (at Board level) audit & reports (self-evaluation of progress in CERES adoption) Global Reporting Initiative framework for transparent reporting
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History of sustainability accounting
Lamberton (2005) “Sustainability accounting—a brief history and conceptual framework” in Accounting Forum Paper is available on Mole Reviews methodologies Sustainable cost Natural capital inventory accounting Input-output analysis Triple Bottom Line (Elkington 1994) GRI guidelines for sustainability accounting Provides a framework To measure the performance of an organisation toward the objective of sustainability
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Sustainable cost Sustainable Cost is the Hypothetical cost of restoring biosphere based on notion of capital maintenance Monetises environmental impact some natural capital is irreplaceable e.g. extractive minerals; specie loss indeterminate where no market or fiscal mechanism operates cap-and-trade & carbon markets are a narrowly-defined and hence limited in effect
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Natural capital inventory accounting
Natural capital categorised as critical non-renewable substitutable renewable As a quantitative, non-financial estimates stock, consumption, replenishment But difficult to categorise & express in unitary terms and difficult to collect data Gray suggests four categories of natural capital. 1. Critical, for example, the ozone layer, tropical hardwood, biodiversity. 2. Non-renewable/non-substitutable, for example, oil, petroleum and mineral products. 3. Non-renewable/substitutable, for example, waste disposal, energy usage. 4. Renewable, for example, plantation timber, fisheries.
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Eco-balance; mass-balance
INPUTS = WASTE OUTPUTS expressed in quantitative terms over a period of time PRODUCT PROCESS PACKAGING EMISSIONS NATURAL RESOURCES MATERIALS ENERGY process reduce waste & leakage raise productivity re-cycle re-use replace inefficient process
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The ‘triple bottom-line’
Triple Bottom Line (TBL) Term coined by John Elkington (1997) in his book “Cannibals with Forks”. Elkington is founder of SustainAbility consultancy TBL is a conceptual rather than quantitative notion of an organisation’s performance in terms of the economy, society, & environment TBL recognises inter-dependence, conflict, balance & constraint in pursuit of sustainability ref
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The TBL TBL But TBL is just an Economic Top-Line
Elkington is critical of traditional accounting’s concepts, internal focus, & narrow accountability He argues that a paradigm shift is necessary for Shift from shareholder to stakeholder More transparency An embrace of human & social capital (as well as economic) (n.b. remember a paradigm shift has less change than a change in episteme) But TBL is just an Economic Top-Line Society & environment sit only on the Bottom Line.
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The social bottom-line
Ethical business stakeholder engagement human & social capital, built by trust equitability & fairness as performance criteria Aspects of social responsibility Internal employee relations External supply chain relations Product responsibility Citizenship, volunteering & community relations Human rights
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The environmental bottom-line
Consumption of materials energy water Emissions of effluent & waste Transport supply chain logistics aspects Impacts of products & services As well as ecological aspects such as biodiversity & habitat loss
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But Sustainability really needs a Triple Top Line (TTL)
The Triple Top Line But Sustainability really needs a Triple Top Line (TTL) - where every act generates social and ecological as well as economic benefits. A TTL is the sine qua non (Latin for “without which nothing) of a “Sustainability-Driven” Enterprise A TTL does not cast society and environment in a negative way as additional costs (e.g. environmental taxes) or limits to growth A TTL requires that we discuss VALUES not COSTS
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Triple Top Line & Bill McDonough
The Triple Top Line Triple Top Line & Bill McDonough The conventional design criteria is a tripod: Can we profit from it? the company asks. Will the customer find it attractive? And will it work? Champions of "sustainable development" like to use a "triple bottom line" approach based on the tripod of Ecology, Equity, and Economy. ... But in practice we find that it often appears to center only on economic considerations… The real magic results when industry begins with all these questions, addressing them up front as "triple top line" questions rather than turning to them after the fact. ... In fact, often a project that begins with pronounced concerns of Ecology or Equity (How do I create habitat? How do I create jobs?) can turn out to be tremendously productive financially in ways that would never have been imagined if you'd started from a purely economic perspective.“ — from William McDonough, Cradle to Cradle: Remaking the Way We Make Things (2002, North Point Press)
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Global Reporting Initiative
The GRI voluntary corporate reporting standard Multi-stakeholder network of experts with a secretariat in Amsterdam See the Global Reporting Initiative webpage It is a Guiding Framework for reports on such as economic impacts labour practices human rights product responsibility community, anti-trust, & corrupt practices
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Global Reporting Initiative
The GRI is comprehensive & very detailed Hence is expensive to implement not for SMEs! GRI standard disclosures include such as strategy and profile management approach performance indicators Guiding framework economic impact by stakeholder environmental impact labour practices human rights product responsibility community, anti-trust, & corrupt practices
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Codelco sa Codelco Sa, a Chilean company ranked Global #1 copper producer, produced a Sustainability Report in 2007 that achieved GRI’s highest rating But is Codelco SA working towards a truly sustainable world when its operations look like this… Pages: 4 cover & endorsement 20 process 43 assurance 45 policies 56 strategy 59/60 stakeholders 67-88 environment performance 92 value added 100/1/8/9/10 social performance 114 human rights 117 community 120 TI system 126/7 divisional performance GRI checklist So what does GRI sustainability reporting actually mean & accomplish?
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Accounting for Sustainability
Other Accounting for Sustainability Initiatives
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The Prince’s Project Set up 2004
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The Prince’s Project: Cases
Some companies can benefit from sustainability. BT for example can improve communications and reduce the need for physical movement of people and information.
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The Prince’s Project: Cases
A view from BT’s Leadership Panel ‘Virtualising infrastructure’ can be a good thing. i.e. use telephones, Skype & other electronic communications instead of travelling to meetings….. or courses? i.e. this kind of sustainability is good for BT’s business. BT argues that “New ideas and technologies are needed to transform the way we live and work”. BT’s report has validator’s that I trust (to a degree) – i.e. claims etc are believable VERY IMPORTANT STEP IS TO GET SUPPORT OF INFORMED STAKEHOLDERS BT’s Sustainability Review is on Mole
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The Prince’s Project NB The Prince’s Greenhouse Gas Emissions
Is the Prince sustainable? Is the Prince a good role model for sustainability? - for resource use efficiency? - for social equity?
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CIMA: Corporate Sustainability
2010 Available Resource
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CIMA: Corporate Sustainability
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CIMA: Corporate Sustainability
Extracts from the report’s conclusion Leffin says that the ‘accounting mindset’ is well suited for sustainability programs because of the finance and accounting’s long-standing commitment to establishing structure, demanding accuracy and delivering credibility to organizational initiatives. The extent to which sustainability is integrated into the value creation process of the organization will depend on the skills and competencies of accountants to facilitate effective implementation, accurate measurement and credible reporting. To remain relevant the accounting profession must take ownership and embrace business sustainability.
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Global Sustainability Accounting
CIMA Report 2010 Sustainability in Emerging Markets (Available on Mole) India Many of India’s leading companies, such as Tata, which were built on industrial family dynasties, already had a deeply rooted sense of social responsibility, based on strong community and patriarchal traditions. China It can now be seen that China is moving from only just developing an understanding of the concepts towards implementation and evaluation of CSR initiatives.
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Global Sustainability Accounting
CIMA Report Sustainability in Emerging Markets (Available on Mole) Extracts from the report’s recommendations:
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Tomorrow’s Balance Sheet
CIMA & Tomorrow’s Company discussion paper, February 2011 available on Mole Two Points from their Conclusions Some of their Recommendations Sustainability issues must be embedded in business models, organisational strategy and decision making processes so they can be captured and reported on. Management accountants are encouraged to help ensure that businesses measure performance to an appropriate timescale to assist in the delivery of sustained and sustainable success, and to define and adopt new ways of enabling this.
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What Next? EU Energy Official
“2020 carbon dioxide reductions will be meet by industrial evolution; 2050 zero carbon dioxide emissions will require an industrial revolution.” Research Programme announcement, Brussels, 2010. Is a “Triple Top Line” the revolution we need? With the Triple Bottom Line, do social and environmental aspects appear only as costs? Can a “Triple Top Line” integrate incommensurable values? - i.e. personal, ecological and economic Management Accounting could develop a “Triple Top Line” Scorecard.
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Intrinsic Sustainable Development
ISD & Episteme Change It is happening - so much evidence of fundamental change such as WBCSD report & others cited in these lectures It may not be possible for the world to become sustainable if events are observed only through an economic or financial lens Change from Traditional business world to new Economic Ecology World (ISD Book) But the economic way of thinking is so embedded in Modern Life - more than that, it is Modern Life - We need the transition to the Primal Age It is a fundamental revolution that has happened in Natural Science – i.e. natural science is based on a new possibility of knowledge Human Sciences will adopt this new possibility of knowledge… or new episteme Intrinsic Sustainable Development Book (Birkin&Polesie 2011)
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Primal Accounting Primal Accounting – How we will do it?
ENDNOTE: ISD & Episteme Change Primal Accounting – How we will do it? Will we use a Sustainable Balanced Scorecard? …..in a Primal World with QC’s Morality, Greybeard’s Business Typologies and the Older Boy’s Diagrams and ISIS Concept? (Chapter 11 ISD Book, Birkin & Polesie 2011) Or will use something new such as Agent Based Modelling (ABM) that can represent individual agents in planning and performance appraisal tools using massive, many million agents in BIG NUMBER computer computations? e.g. Sheffield University has modelled the European Economy using an ABM – see Eurace Project Page on Flame Website My current research is to develop an ABM of Accounting for Sustainability
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Agent Based Modelling foundation for Primal Accounting?
ABM can replicates realistic relations between people, society and ecosystem… a realistic SIM write large… using millions of agents that develop autonomous behaviour just as in real life.
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World Leader’s Forum
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taken from a presentation prepared for the
LAST WORDS Last Words taken from a presentation prepared for the World Leader’s Summit Dubai 2015
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World Leader’s Forum
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World Leader’s Forum
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World Leader’s Forum
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World Leader’s Forum
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Revision Revision Questions What is ISD?
What sustainability accounting concepts does Lamberton identify? What is ISD? What may be used in Primal Accounting? Remember to do your own explorations of the material I have provided to improve your knowledge and understanding and to get a few good illustrative examples from companies, reports and other authors.
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