In business there is a famous saying that what gets measured gets managed… and what gets managed gets done. The challenge for business in regard to sustainability is that the departments charged with measuring and tracking companies assets, costs and finances is that it usually focuses on economic profit as the important factor. The problem is that this ignores other pillars of sustainability such as people and planet. Triple P’s people, planet and profit also referred as the three E’s. Economic, Environment and Social Equity. Recently there has been an increase in large corporations publishing sustainability or corporate social responsibility reports. A recent 2013 report by KPMG did an international survey finding that over 70% of Global 250 companies published some kind of sustainability report. KPMG also stated that Asia Pacific has seen dramatic increase in reporting almost 3 quarters increase or 71% publishing Corporate Responsibility reports. (KPMG Corporate Responsibility 2013)
The challenge for companies today relating to accounting methods is that there are no accepted standards or regulations for how companies should value natural assets. Often natural capital is undervalued or missing from the ledger. (Hitchcock and Willard 2009) wrote about fishing industry. A fishing fleet counts the cost of the vessel, the fuel, people, rigging and transportation but treats fish, the primary raw material as free. This leads to a “tragedy of the commons” as fish become scarce; they become more valuable, which encourages overfishing.
2.1. Costing Methods
There are measures providing basic costing methods that accountants can use to increase their sustainability. They are Activity Based Costing ABC, Life Cycle Costing LCC and Life Cycle Assessment LCA. ABC costing assigns costs that are hidden in overhead or other departments to products or relative units. LCC considers the longevity and useful expected life of certain products and financial decisions. Finally LCA assesses impact decisions along the entire life cycle from resource extraction, transportation and manufacture to use and end of life disposal.
The Sustainability guide lists specific metrics that are based on triple bottom line. One strategy could involve an internal and external view. Internally for environment you might reduce energy and waste while externally cutting CO2 emissions. For social you internally work on
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improving employee satisfaction and reduce turnover. Externally customers increase satisfaction with the company. Finance internally net operating dollars and net margin percentage while externally you might provide scholarships to local students. (Hitchcock &
Willard 2009)
2.2. Global Reporting Initiative
Today there are many organizations devoted to providing tools for improved metrics related to sustainability for companies and accounting departments to track impact on environment, social equity and economic profit. The Global Reporting Initiative is one example. GRI disseminates globally applicable sustainability guidelines for use by organizations and companies. GRI provides guidelines, frameworks, specific sector and industry guidance for reporting services for all major companies and SME’s. They provide a reporting starter kit with software access and videos that guide people though the process. They also feature sustainability reports from companies to help you design your own report.
Figure 2. GRI Disclosure topics for Reporting
Source: (Global Reporting Initiative. 2015)
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The image from GRI software provides a broad list of areas that can be reported on and disclosed in a Sustainability report such as emissions, effluents and waste, market presence, transport, customer health and safety. (Global Reporting Initiative 2015)
The important concepts for accounting are identifying full or true cost of products and services and determining which issues are important and how to measure those KPI’s. Assurances as well as social impact are also relevant factors that provide a quality-reporting program.
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Worldwide, consumers use an estimated 1 trillion plastic bags each year—nearly 2 million a minute—with the use time of a typical bag just 12 minutes. California became the first state to pass a bill banning the ubiquitous disposable plastic bag. If signed into law, starting in July 2015 the measure will prohibit grocery and retail stores to use plastic bags and would institute a charge of 10 cents for paper bags, compostable bags, and reusable plastic bags. (Quandt 2014) Putting a price on waste such as plastic bags is one method that governments can take to create economic incentives that can be more sustainable for the planet and society. Economics is key in helping us to explain how societies current practices in supply and demand increase unsustainable incentives and how we can reverse that to a more sustainable behavior for future generations. The rise in population is expected to reach 9 billion in 2050. Along with that an average of about 60% of GDP is accounted for by consumer spending on goods and services.
This means that the earth cannot handle this continued global consumption of rising economies combined with existing carbon-use intensive countries like the United States. (Weybrecht 2010) To address this problem societies, governments and business can now look at how much Carbon /CO2 they are contributing and find ways to reduce pollution. One of these tools is the Marrakech Process. The Marrakech Process is a global process to support the elaboration of a 10 year plan on sustainable consumption and production. The Marrakech Process assists countries in efforts to green their economies and help corporations develop greener business models. Finally encourage consumers to become more sustainable in daily life. (Marrakech Process 2008)
3.1. Externalities
Externalities are costs or benefits that are received by a person/ society who did not choose to receive them. Oftentimes externalities in relation to corporations are caused by organizational boundaries. Meaning that there is a limit to what a company or organization feels they are responsible for. Anything that falls outside that boundary can be considered an externality when it effects environment or society. An example of positive externality might be college