© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e Slide # 1
Cost ManagementMeasuring, Monitoring, and Motivating Performance
Chapter 17
Sustainability Accounting
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e 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?
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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, 2011Chapter 17: Sustainability Accounting
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Q1: Overview of Strategic Management Process
Organizational
Vision
Organizational
Vision
Core
Competencies
Core
Competencies
Operating
Plans
Operating
Plans
Actual
Operations
Actual
Operations
Organizational
Strategies
Organizational
Strategies
Measure, Monitor, and Motivate
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e Slide # 5
Q1: Overview of Strategic Management Process
Organizational
VisionOrganizational
Vision
Core
CompetenciesCore
Competencies
Operating
PlansOperating
Plans
Actual
OperationsActual
Operations
Organizational
StrategiesOrganizational
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, 2011Chapter 17: Sustainability Accounting
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Q1: Sustainability and Levers of Control
Belief Systems• Communicate vision for sustainable management
Boundary Systems• Prohibit specific activities
• Establish codes of conduct
Diagnostic Control Systems
• Motivate managers to engage in sustainable mgmt• Assign responsibility and reward sustainability goals
Interactive Control Systems• Reevaluate and revise sustainable management
strategies and operating plans
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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, 2011Chapter 17: Sustainability Accounting
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Q2: Sustainability Reporting
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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Q2: Sustainability Reporting
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e Slide # 10
Q3: External Reporting Motivations
Ethical considerations
Economic considerations
Reputation or brand
Innovation and learning
Employee motivation
Risk Management or risk reduction
Strengthened supplier
relationships
Access to capital or increased shareholder
value
Improved government relationship
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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.
• Watch for: • 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, 2011Chapter 17: Sustainability Accounting
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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
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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Q4: Sustainability Management Accounting Tools
• When fully integrated into an organization, sustainable management affects everything the organization does.
• Examples include:• 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
systems
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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Q4: Relevant Costs for Decision Making
• Sustainability costs are often overlooked by traditional management accounting systems
• Timing of environmental and social responsibility costs often lag the related decision
• Five levels of sustainability costs• Conventional Costs• Hidden Costs• Contingent Costs• Image and Relationship Costs• Externalities
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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
• Inputs include:• Direct and indirect manufacturing materials• All forms of energy
• Outputs include:• Products• Waste• Emissions
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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
• Similar to process costing (Chpt 6)• Costs are assigned separately to waste and
emissions (similar to abnormal spoilage)• Practice avoids burying the costs of waste
• All wasted materials are treated as negative product
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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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, 2011Chapter 17: Sustainability Accounting
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• 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
Q4: Sustainability and Capital Budgeting
© John Wiley & Sons, 2011Chapter 17: Sustainability Accounting
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• 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
Q4: Sustainability Balanced Scorecard
Future of Sustainability Reporting
• 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
Susan K. Wolcott, [email protected], AAA CPE Workshop, August 1, 2010 Slide # 20
Chapter 17: Sustainability AccountingEldenburg & Wolcott’s Cost Management, 1e
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