Accounting: Business Reporting for Decision Making 7th Edition by Jacqueline Birt Solution manual
1.16 What is meant by business sustainability?
Business sustainability is considering the long term (multi-generational) in business decisions. It is about thinking of solutions to the world’s problems and in trying to change business practices and processes to ensure a respect for the environment and people. It is about integrating sustainability into the business and about being transparent and accountable via business sustainability reporting.
1.17 Suggest ways in which suppliers and customers could work together to reduce their overall impact on the environment.
Working together is essential to maintaining an environmentally sustainable supply chain, with good communication leading to closer collaboration. By partnering and developing good working relationships, suppliers can be encouraged to adapt their products, packaging and services — to deliver improved environmental performance.
A number of case studies, many of which demonstrate cooperation between suppliers and customers, can be found at: http://www.environment.nsw.gov.au/sustainability advantage/casestudies.htm. For example, in 2011, Teys and Cargill Beef Australia got together to find ways to reduce their carbon footprint.
Teys took measures to slash its reliance on fossil fuel energy for refrigeration and heating, increase energy use from renewable sources and improve fresh water efficiency. As a result, Teys has:
- saved over 557 000 megajoules of energy per year (improvements to site boilers)
- provided the capacity for future generation of electricity and/or steam from captured methane on site (following $13m upgrade to effluent treatment)
- reduced its demand for natural gas by 10 per cent while reducing greenhouse gas emissions by 27 per cent from the previous year
- cut the company’s water use per unit of production by 20 per cent and natural gas use per unit of production by 10 per cent in the nine months to February 2011.
1.18 What are the three pillars of sustainability?
The three pillars of sustainability are: economic (profit), environmental (planet) and social (people) dimensions.
Economic performance is the traditional profit and return on capital performance. More recently, economic performance has been defined as the economic value created by the entity over a particular period of time. This is the profit minus the cost of the capital employed. All entities must turn a profit and deliver an adequate return on the capital employed to remain sustainable. It is this bottom line that captures the conventional concept of performance and the focus on the owners of the entity.
Environmental performance refers to an entity’s activities relating to natural capital and whether their activities are environmentally sustainable. Natural capital falls into two main areas: ‘critical natural capital and renewable, replaceable, or substitutable natural capital’ (Elkington, 1998, p. 79). The environmental bottom line captures the effect an entity’s operations have on the natural capital and whether this is sustainable.
Social performance refers to both the human capital (the employee/community’s health, skills and education) and society’s wealth creation potential (Elkington, 1998). Fukuyama (1995) describes social capital as ‘the ability of people to work together for common purposes in groups and organisations’. He argues that ‘trust’ in one another is a central element in social prosperity and that those organisations that trust one another and accept a common set of ethical norms will do business more efficiently and gather a greater variety of positive social relationships than those organisations that do not trust. The result being that doing business will be cheaper and the synergies from more positive social relations will help create sustained wealth. Examples of social capital are paying fair salaries to workers, not exploiting supplier relationships, providing safe working conditions and ensuring the product/service is safe for the consumer.
1.19 Growth areas for accountants in the future include sustainability reporting and, more specifically, carbon accounting. What are the costs and the benefits for entities in reporting their carbon greenhouse gas emissions?
There are several benefits for firms in disclosing information about carbon greenhouse gas emissions. Information of this nature can assist in determining how effective the company has been in reducing carbon emissions and other pollutants. It can also provide information to special interest groups to determine whether the entity has considered environmental, social or industrial aspects during its operations. Costs to the entities include information processing costs and the potential loss of business to the entity if the information sends a negative signal about the entity (e.g. increases in greenhouse gas emissions and other pollutants or increased water consumption levels).