Future of environmental and social accounting vf
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Transcript of Future of environmental and social accounting vf
Agenda
• Setting priorities: Accounting is needed
• From physical to universal accounting
• Universal accounting is the future
4Titre de la présentation - Date
How efficient is the company on each and every Area of Actions?How efficient is the company on each and every Area of Actions?
How strategic are the AA ?How strategic are the AA ?
Who are the stakeholders involved in each of the Areas of Actions?Who are the stakeholders involved in each of the Areas of Actions?
•Self-assessment questionnaire•Comparison with the state of the art sector and global
•Which are the expectations / needs of my stakeholders?•How important are these stakeholders on that particular Are of Actions ?
Imp
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Performance
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5 Key areas of action
AA to watch
Long-term AA
AA short-
medium terms
Priorisations of the areas of action
Setting priorities is at the core of a CSR policy
•How important is our impact?•How critical are the risks?•What are the economic opportunities associated?•How strong are the stakeholders expectations ?
Improving the footprint is a Must for the corporate performance of the company along its value chain
Input and supply Internal supply chain
Upstream freight
Downstream supply
Workers activities
internal Freight
Usage
Responsabilité directe
Responsabilité indirecteResponsabilité indirecte
Minimal
Maximal footprint
Waste
Energy Efficiency
Goods life cycle
Water efficiency
Social equity
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3 6
5
7aWarehouse operations
4Retail shop operations
Products and
packaging
7cFnac.com
CSR monitoring
End of life Take-back 9
Dispatch points7b
Repair Reverse logistics
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x CSR indirect impacts x CSR direct Impact x CSR impacts downstream
Biodiversity
Identification of impacts gives way to their materiality evaluation
Upstream freight
Staff activities
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2
3
5
4
Products and packaging
Warehouse Operations
Internal freight
After-sales8
EnergyEfficiency
Resource depletion
Water footprint
Social Equity
Biodiversity
Home delivery7
End-of-life9
Materiality of the impacts
Pollution(Air, soli, water)
Setting priorities results from a mix of criteria
Accounting can help make decision based on valued criteria
Priorities must be set to establish a roadmap
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Economic dvpt.Economic dvpt. EnvironmentEnvironment
20132013
20142014
20152015
20162016
Définir le projet d’action sociétale
Définir le projet d’action sociétale
Tisser liens avec parties prenantes
Tisser liens avec parties prenantes
Création fondationCréation fondation
Maintien des séniors dans l’emploi
Maintien des séniors dans l’emploi
Charte diversitéCharte diversité
Charte éthique, charte d’achat, prise de parole
Charte éthique, charte d’achat, prise de parole
Bilan carbone produits
Bilan carbone produits
Socia
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Analyse du cycle de vie de produits
Analyse du cycle de vie de produits
Aménagement bâtiment (BBC)
Aménagement bâtiment (BBC)
Etablir des indicateurs et système de pilotage
Etablir des indicateurs et système de pilotage
Continuous
improvement
Continuous
improvement
Uniformiser pratiques sociales dans les filiales
Uniformiser pratiques sociales dans les filiales
Veille concurrentielle
Veille concurrentielle
Refonte schéma directeur Offres
Refonte schéma directeur Offres
Extension offresExtension offres
Bilan carboneBilan carbone
Bilans environne-mentaux
Bilans environne-mentaux
Lancement offres DD pilote
Lancement offres DD pilote
Dispositif de recrutement et intégration handicapés
Dispositif de recrutement et intégration handicapés
Sustainable future
Sustainable future
Appel à projetsAppel à projets
Offres d’usage en substitution de produits
Offres d’usage en substitution de produits
Dispositif gestion du stress
Dispositif gestion du stress
GPEC DDGPEC DD
Bâtir la fonction DD
Bâtir la fonction DD
Piloter par les objectifs
Piloter par les objectifs
Conduite de projets
Conduite de projets
Professionnaliser les fonctions
Professionnaliser les fonctions
Physical accounting provides factual data, but remains hard to use for objective decision making purpose
• The various impacts are accounted in physical values separately
– GHG accounting
– Water footprint accounting
– Biodiversity impact assessments…
• Values cannot be compared because they do not share a common metric, unless they are converted in monetary terms
Physical Value of the environmental impacts
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Social data are hard to use in a decision making process
• a) Occupation:
– The total number and distribution of employees by sex and geographic area
– The hiring and firing figures
– The remuneration
• b) Organization of work:
– The organization of working time
• c) Social relations:
– The organization of social dialogue - may be especially indicated as such rules and procedures involving information, consultation and negotiation with employees
– The collective bargaining agreements
• b) Organisation of work:
– Absenteeism
Titre de la présentation - Date
Pour toutes les entreprises non-cotées En plus, pour les entreprises cotées
Mandatory social items for public reporting in France
Monetary conversion shows the discrepancies in impacts materiality and helps decision making
Environmental cost for 100 grams
Ham
Chicken
Mussel
Salmon
Beef
Eggs
GHG
Acidification
Eutrophication
Financial evaluation of impacts must be aggregated at the corporate level in accounting statementsFinancial evaluation of impacts must be aggregated at the corporate level in accounting statements
Monetary values
Monetary values help take externalities into account
• Surveys confirm the importance for companies to take into account externalities to consolidate their business models
• To make the link between the economic and financial sphere and societal issues, the logical principle is to assign a monetary value to various issues (environmental, social and societal)
• The unification of financial and non-financial criteria in the same monetary unit is an opportunity to support decision making and investment
A common monetary unit helps decision making
• It allows decision makers to build a business strategy in a double horizon: short-term efficiency by reducing costs and resilience of the business model by setting the medium-term
• And monetization, while being a way to have an environmental single indicator allows top executives have a decision support investment by answering the questions: What about investing, When, How, What risks to do or not do
Why put a monetary value on environmental impacts? (1/2)
• Through placing a monetary value on environmental impacts one aims at answering important questions:
– How can we help employees, shareholders and suppliers understand the magnitude and importance of impacts on the environment?
– How can everyone in the business grasp the significance of the amount of CO2 released, the impacts of land conversion required to provide raw materials, or the volume of water consumed and factor this into day to day decision making?
Why put a monetary value on environmental impacts? (2/2)
• Through placing a monetary value on environmental impacts one aims at answering important questions:
– Relative to one another, which are the most significant environmental impacts?
– Where in our supply chain should one focus the resources to reduce environmental impacts?
– How can we help others understand the challenge of reducing our environmental impacts, and the work done to manage them?
Agenda
• Setting priorities: Accounting is needed
• From physical to monetary accounting
• Universal accounting is the future
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One of the first Environmental accounting by a Dutch Cie in 1990 (1/2)
Former Dutch currency
Monetary values on impacts account for the cost of nature in the business decisions
• Most people in the business are NOT familiar with the language of sustainability such as tons of GHG emissions
• Converting impacts into monetary terms make them digestible and meaningful to a wide audience
• It sheds light on the true scale of the impacts, and enables simpler communication of their implications
By enabling comparison, it helps lay the priorities and focus attention on managing the environmental impacts
• Comparing different environmental impacts is difficult as traditional ways of measuring them do not use a common metric
• By assessing all environmental impacts using a common metric – the value to society, measured in monetary terms – the Environmental Accounting enables a far greater degree of comparability between very different types of impact.
The Environmental P&L provides benefits to the business (1/2)
• Strategic tool
– It makes transparent where to direct the sustainability initiatives in order to make real improvements in reducing the impacts
– As a result, it helps look into solutions to identify more sustainable materials and products
• Risk management tool
– It provides an early view of emerging risks, enabling to respond strategically to protect and enhance shareholder value. This is particularly relevant in industries facing increasing input costs as a result of a changing climate
The Environmental P&L provides benefits to the business (2/2)
• Transparency tool
– Reporting the results of the E P&L makes transparent about the extent of the environmental impacts
– It provides a basis for more meaningful, evidence-based engagement with the stakeholders and enable to demonstrate clearly the impact of the activities to reduce the impacts
– Ultimately, the E P&L enables to make better, more informed business decisions that take account of environmental impacts as well as more traditional financial and operational considerations
Puma Environmental P&L is exemplary
• The E P&L aims to cover all significant environmental impacts from the production of raw materials through to the point of sale
Accounting has a central role in the economic decisions and activity
• Accounting is the unique common language for all stakeholders
– It enables managers to communicate with their investors, their executives and staff
– Decision-making is biased by accounting tenets
• It is based on a body of rules, which are not neutral
– IFRS (International Financial Reporting Standards) rules aims at providing to investors a fair view on the use of their capital supply
– Accounting reflects the creed of profit maximization and the moral statement that profit and continuous growth are good
– It reflects the value of things with a market value and thus hides many aspects
– Only economic events are taken into account
– It says the profit at the end of a period
• Let the rules evolve can have an impact on the whole business and economic activity
Reminder of the accounting role
• It records comprehensively and faithfully ECONOMIC events that mark the relationship between a company and its environment
• Its objective is to:
– determine the overall result of the company with a tax perspective
– encrypt each year end the financial situation of the company
– act as memory
• General accounting look at financial events meets a strict legal framework, but it is not interested in what happens inside the company
Economic Event
Balance sheetRecording /
accounting
(journal, ledger, balance)
Income statement
Reminder: Balance sheet, Income and cash-flow statements
Une photographie des biens et financement à une date donnée
Les charges et produits sur une période donnée
Economic performance of the company can be
read under different lighting
Economic performance of the company can be
read under different lighting
Balance Sheet
A periodic snapshot
Income Statement
A movie on the yearly activity
Cash-flow Statement
A movie on the flow of cash
Also called Profit and Loss (P&L)
The financial analysis is based on three financial statements
Balance sheetBalance sheet
Cash flowCash flow
It shows at a given time the state of "stocks" of business flows, classified as assets and liabilitiesIt shows at a given time the state of "stocks" of
business flows, classified as assets and liabilities
It shows over a period of financial flows of the company (incoming and outgoing)
It shows over a period of financial flows of the company (incoming and outgoing)
It summarizes revenues and expenses during the year. It shows, by difference after deducting depreciation and provisions, the profit or loss
It summarizes revenues and expenses during the year. It shows, by difference after deducting depreciation and provisions, the profit or loss
Income StatementIncome Statement
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Reminder: The Balance Sheet
• To achieve its activity, the company necessarily has a number of properties and must be financed by appropriate means
ASSETS LIABILITIES=
Belongings
What the company owns What the company owes
Debts
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LONG TERM /
PERMANENT
ASSETS
ASSETS•Intangible- Patents…
•Tangible - Facilities,- Grounds…
•Financial- Stocks, - Shares…
OPERATING ASSETS•Inventories
•Customers and other receivables
LIABILITIES
PERMANENT CAPITAL
•Capital
•Reserves
•Net Profit
•Debts > 1 year
=
Reminder: The Balance Sheet
LONG TERM /
PERMANENT
SHORT TERM /
IMMEDIAT
SHORT TERM /
IMMEDIAT
OPERATING LIABILITIES•Suppliers
•State
•Other payables
Growing liquidity
Growing exigibility
Reminder: Key points on balance sheet
• Each property stands on the balance sheet at their market value, with the new reporting standards (IFRS: International Financial Reporting Standards)
– Previously, they were valued at their acquisition cost, less accumulated depreciation and provisions practiced since its acquisition
– End of the historical value of the benefit of the future value assessed by the methods of DCF (Discounted Cash Flow)
– Amortization reflected depreciation by wear or obsolescence of an asset on the balance sheet. This is an annual charge in the income statement
• A provision is the recognition of a potential impairment of an asset item: financial investments, receivables... You can also make a provision for a future risk: major repairs, environmental recovery
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Tenets and moral statement of Accounting as it is
ASSETS
ASSETS•Intangible- Patents- Goodwill…
•Tangible - Facilities,- Grounds…
•Financial- Stocks, - Shares…
OPERATING ASSETS
•Inventories
•Customers and other receivables
LIABILITIES
PERMANENT CAPITAL
•Capital
•Reserves
•Net Profit
•Debts > 1 year
OPERATING LIABILITIES•Suppliers
•State
•Other payables
•Accounting must show at first glance whether a company is profitable or not
•Accounting must show that the man-brought capital is preserved or not
•Making profit is good, whatever happens
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CSR issues can emerge in the existing accounting
ASSETS
ASSETS•Intangible- Patents- Goodwill…
•Tangible - Facilities,- Grounds…
•Financial- Stocks, - Shares…
OPERATING ASSETS
•Inventories
•Customers and other receivables
LIABILITIES
PERMANENT CAPITAL
•Capital
•Reserves
•Net Profit
•Debts > 1 year
OPERATING LIABILITIES•Suppliers
•State
•Other payables
•CSR recognition can increase the goodwill
•Green innovation can lead to patents
•Environmental fines / taxes
The income statement lists all the flows that determine the activity of the company over a given period
Retained for ReservesRetained for Reserves
- Dividends- Dividends
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Reminder: Key points on Income Statement
= Non operating income
• Turnover
•Purchase•Raw material, machines,•transport ...
•Other purchase
•General and administrative expenses
•Taxes
•Amortization / Depreciation
•Financial Income•Financial expenses
•Non-operatingrevenues
Non-operating expenses
ExpensesRevenues -
= Operating Profit
= Net financial Income Income before tax
Corporate tax
Net Profit
+ +
-
=
Reminder: Key points on Income Statement
• The income statement is a "film" of a period
• It finds all receipts and all expenses for a period
• The net income obtained can be positive (profit) or negative (loss)
• At the end of each financial year, the result certified by the Statutory Auditors, is presented to the General Meeting of Shareholders decides on the assignment , after deducting legal reserves or statutory corporate tax and participation due to employees
• Shareholders may decide to collect all or part of the balance: they are dividends
The income statement lists all the flows that determine the activity of the company over a given period (2)
•Sales Cash salesCredit sales
•Cost of Goods Sold
Raw materialsDirect labor Factory overhead (including production depreciation)Freight-in
•Selling, General,and Administrative
Non-production salaries (marketing, accounting, etc.)AmortizationFreight-outAdvertising/marketing expensesNon-production depreciation
•Non-operating Income/Expense
Gain/loss with sale of assets other than inventoryGains/losses associated with non-operating activities
•Interest Expense
Interest on debt payableInterest on capital lease obligations
•Income Tax Expense
Deferred tax expenseIncome tax expense
Mapping the income statement
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CSR policies impact on the Income statement
Create valueCreate value
Increase the operating incomeIncrease the operating income
Improve the cost of capital and its allocation
Improve the cost of capital and its allocation
Diminish the cost of capitalDiminish the cost of capital
Optimise the use of capitalOptimise the use of capital
Reduce the operating costsReduce the operating costs
Increase the gross marginIncrease the gross margin
Costs of productionCosts of production
SalesSales
Costs of dispatchingCosts of dispatching
Costs of R&DCosts of R&D
Costs of sellingCosts of selling
Overhead costsOverhead costs
AssetsAssets
Working capitalWorking capital
Cost of debt interestsCost of debt interests
Coûts des fonds propresCoûts des fonds propres
PriceVolumeMix
Salaries directsInputs (Raw mat…) Indirects intrants : Energy, water
Transportindirect salariesWarehouse OperationsAlternative Retail Channels
R&D Costs
Costs of customer serviceOverheadCosts of purchaseIT CostsAccounting costsHR management costs
Saleforce staff
Finished products InventorySemi-finished goods InventoryGoods Inventory
EquipmentReal estate
Areas with CSR impacts
Financial accounting can be oriented to better reflect social and environmental impacts
• Negative / social environmental impacts can mean a liability in the future, that companies ought to report in their balance sheet
– Companies are reluctant to report bad news, unless they are force to
– New rules could force transparency
• The Goodwill enables to reflect into the Intangible Assets the responsibility of a given company, but it falls short of expressing a global move to Responsibility
• It can highlight environmental costs in the balance sheet or income statement, such as purchasing carbon allowances, the cost of any fines, costs of environmental functions of the company
Financial vs. environmental materiality
• Events with small financial size can have a tremendous significance for the environment or local stakeholders
• In this way, they deserve to be reported on with attention
http://www.youtube.com/watch?v=Lo_7o3A8ofE&list=PLC5C737CF71B63798
Current accounting is not able to meet the sustainability goal
• The economic assessment of an organization reflects only partially the impact on the company or environment
– International financial standards only allow accounting information with a financial impact
– Many themes orphaned by accounting myopia
• To reach a sustainable development, universal accounting is necessary to assess the company's ability to live in harmony with the environment and social environment
– The purpose of accounting is to build universal social accounting, social, environmental and governance that complements conventional economic accounting
• This approach is to use accounting techniques to assemble different indicators in each domain (social, environmental, economic, governance mode ...) in order to achieve an overview of the positive or negative impact of business on each these areas
Agenda
• Setting priorities: Accounting is needed
• From physical to monetary accounting
• Universal accounting belongs to the future
What aims Universal Accounting at ?
• Universal Accounting aims at a wide objective: The economic value must serve the global value creation and not the reverse
• Universal accounting means that it accounts not only for economic and financial facts but also for environmental and social impacts and for governance
• Universal accounting means that it applies to all types of organisations
• Universal Accounting entices to develop one’s own indicators in complement with the GRI indicators
Universal accounting: a promising field, but still in progress
• Significant progress in the academic field of environmental economics and ecosystem valuation
– many applications in the public sector,
– and some promising work in the private sector
• However, no single methodology can be found to deliver the enterprise and supply chain-wide view of environmental externalities
• Universal Accounting is NOT an established science or intellectual artefact, but an ongoing major evolution of Accounting
Redefining the value
• End of description of society based only on financial and economic figures
• The balance sheet gives back a poor account on the corporate impact on Society and the Environment
• The IFRS allows the accounting information with financial impact only and many subjects are orphan due to this short-sightedness
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Support
Good social relations
Health
Security
ProvisioningRegulating
Freedom of choice and action
Basic material for good life
Ecosystem
Services
Well being compontents
Restoration of the depleting nature services is the basis for costs evaluation
Culture
60% of ecosystem services are in decline at the global, regional and local levels
Nature depletion has been evaluated by a major UN suvey, the TEEB
• The Economics of Ecosystems and Biodiversity (TEEB), to put an economic value on these losses and to recommend actions for a range of user groups.
• That study estimated annual economic impacts due to biodiversity loss and ecosystem
degradation at between USD 2 and USD 4.5 trillion annually
• Businesses are called on to evaluate and report on their interactions with ecosystems and to quantify their environmental externalities
•http://www.youtube.com/watch?v=iN_BuEjUppw•http://www.youtube.com/watch?v=98fB7q8Yo50
Historical cost accounting as a principle for restoring the Nature services
• The single accounting to enable the conservation of natural capital is based on a principle of strong sustainability, which allots the growth of financial capital to the preservation of natural capital
• To build it, it is based on a historical cost accounting like in agricultural accounting
• Based on a concept of systematic amortization, it goes against the IFRS accounting model based on discounted future profits and therefore measures the fluctuation of values
Accountability requires an adequate accounting
• UA is creating new lines of assets and liabilities for all themes of sustainable development:
– social relations, in relation to water, energy, biodiversity, employment, health, stress, nutrition, pollution sound ...
• Universal Accounting must show, by a direct reading, if the company lives in “parasite” of its environment or “contributor”
• The valuation is not easy as it is to value the living
Universal Accounting intends to help companies go beyond financial thinking on sustainable development
• Not a subset of conventional “financial” accounting, it proves useful to imagine that there is a universe of all possible accountings of which conventional accounting is a minor subset
• Unlike current financial accounting, which aims to preserve man-made capital, universal accounting should normally allow to preserve social and natural capital
• Universal Accounting could in the future cap the profit to fund the renewal of human and natural resources
