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ACCOUNTING INFORMATION SYSTEMS
The Crossroads of Accounting & IT
Chapter 8
Accounting &
Sustainability Intelligence
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2. What’s the Bottom Line? Meet the Triple Bottom Line.
The bottom line is often used to refer to profit.
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Triple Bottom Line
In 2010, a sea change in accounting occurred quietly in the United States. The state of Maryland passed legislation creating a new type of corporation.
This corporation doesn’t have one bottom line, but three bottom lines.
The new class of corporation will report on economic, social, and environmental performance, or profit, people, and planet.
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4. What’s the Triple Bottom Line?
The triple bottom line considers a company or organization’s impact on:
People
Profit
Planet
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5. What is Sustainability?
Sustainability focuses on the ability to sustain an action in the future on an ongoing basis.
Is the decision and resulting action sustainable in the long run?
Is the organization’s performance sustainable in the long run?
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7. What is Sustainability?
Focus shifts from:
How can we increase profits this year? To
Is our organization making decisions that are
Economically sustainable?
Socially sustainable?
Environmentally sustainable?
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8. What is Sustainability Accounting?
Sustainability accounting involves collecting, storing, organizing, and reporting economic, social, and environmental information for two general processes:
making decisions and
evaluating performance
The accounting system must be adapted to be able to collect and report the additional information needed to account for sustainability.
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9. Sustainability IDa Model
The sustainability IDa model uses a 7-step process:
Identify the opportunity or issue.
Identify options to address the opportunity or issue.
Analyze the costs and benefits using quantitative data, considering ESE (economic, societal, and environmental) impacts.
Analyze the advantages and disadvantages of qualitative factors, consider ESE impacts.
Make a decision: What will we do?
Implement or deploy the decision: How will we do it?
Evaluate performance: How did we do? Compare projected results of the decision to actual performance. Then, there are three basic choices: continue status quo, make changes in the decision, or change the implementation.
The accounting system must be adapted to be able to collect and report the additional information needed to account for sustainability.
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10. Sustainability IDa Model
Steps 1-5 relate to decision making.
Step 7 relates to performance evaluation.
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11. Sustainability IDa Model
The IDa model integrates sustainability into decision making by considering the following dimensions:
Dimension 1: Economic, social, and environmental (ESE) factors.
Dimension 2: Financial (quantitative) and nonfinancial (qualitative) factors
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12. Illustration: Sustainability IDa Model
The data for making sustainability decisions can be entered in a spreadsheet.
Two additional columns can be included. One column is for the 1st dimension of whether the item relates to economic, social, or environmental factors.
The second dimension of quantitative versus qualitative can be included in another column.
This makes it possible to sort on these columns to create pivot tables as shown on the next slide.
Sustainability Decision Data
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13. Illustration: Sustainability IDa Model
The pivot table created from the prior data list can be used to build a digital dashboard.
Sustainability IDa Model and Dashboard
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14. Illustration: Sustainability IDa Model
The status quo can be shown on the dashboard. As you can see, the environmental effects of the decision appear negative.
Sustainability IDa Model and Dashboard
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15. Quantitative & Qualitative Factors
Much of the information related to sustainability is qualitative data that is challenging or impossible to quantify, yet crucial to sound decisions.
The challenge for the accounting system is to organize, sort, and store the qualitative (nonfinancial) factors as well as the quantitative (financial).
When designing the database, this requires special design considerations to allow for storage, retrieval, and analysis.
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16. Qualitative Factors
Qualitative data must be stored in the database in such a way that it can be later retrieved.
Three ways to store qualitative data so it can be retrieved for decision making and performance evaluation purposes are:
Numerical ranking (such as Likert scale of 1 to 5 to identify the safety level)
Estimated dollar amounts indicative of risk level and value (estimating environmental and health effects of a proposed action)
Predefined labels (such as hazardous levels)
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17. Sustainability and Decision Making: Creating Value
Sustainability as a new approach to decision making shifts the decision focus from minimizing risk to creating value.
The questions that decision makers ask change from:
How does our firm minimize the risk of lawsuits from defective products? Toxic pollution? Groundwater contamination? to
How do we create value for our customers, society, and the global community?
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18. Sustainability Creating Value
Value creation approaches include:
Redesign the product to reduce social and environmental impacts. (Nike redesigned the Nike Air shoe to use nitrogen in the air pocket to reduce adverse environmental impact.)
Redesign the process to reduce adverse social and environmental impacts, such as reducing consumption, waste, or toxicity. (FedEx uses hybrid-powered delivery trucks to increase fuel efficiency by 50% and reduce maintenance and environmental emissions.)
Adopt a cradle-to-cradle or zero-waste model to strive for zero waste as opposed to reduced waste. (Ford Motor Company redesigned one of its Michigan facilities to use a green roof, replacing paved surfaces with green space to reduce stormwater run-off, capture harmful particulates, create a bird habitat, and provide additional insulation to reduce energy use and costs.)
Use life-cycle assessment to better understand the total impact of an organization’s activities, processes, and products and to improve decisions. (Sony’s Corporate Sustainability Report diagrams the life-cycle assessment of the environmental impact of its products by showing resources used, energy consumed, CO2 emissions, waste, and products recycled [See Epstein, 2008].)
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19. Sustainability and Decision Making: Creating Value
Integrating sustainability into decision making often involves:
Innovation
Looking at issues as opportunities
Envisioning new sustainable solutions
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20. How is Sustainability Accounting Use for Reporting Performance?
Some research is showing that companies focused on sustainability outperformed other companies.
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21. Sustainability Reporting Frameworks
ISO (International Standardization Organization) focuses on providing guidance to organizations in creating an environmental management system (EMS).
European Union Eco-Management and Audit Scheme (EMAS) requires ISO as the EMS. Only organizations operating in the European Union (EU) and the European Economic Area (EEA) are eligible to register.
SIGMA (Sustainability Integrated Guidelines for Management) offer guiding principles for sustainability and a framework that integrates sustainability into management decision making.
Global Reporting Initiative (GRI) used by approximately companies worldwide provides guidelines for disclosures related to strategy and profile, management approach, and performance indicators.
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22. Sustainability Reporting Frameworks
The Global Reporting Initiative (GRI) is currently the most widely used sustainability framework for performance evaluation.
A grade: a company must report on all indicators.
A+ grade: a company must report on all indicators and have external assurance.
B or C grade: a company chooses which indicators it will report with more indicators needed to receive a grade of B.
B+ or C+: the company can raise the grade, from B to B+ or C to C+ if assurance services are used to verify the reporting.
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23. Study Less. Learn More. Make Connections.
My Connection
Study Less. Learn More. Make Connections.
Exercise
Use the Internet to find a company sustainability report.
What reporting framework did the company use? GRI? ISO14000? Company-developed?
Evaluate how you think the company performed:
Economically
Socially
Environmentally
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