Cost Management
Measuring, Monitoring, and Motivating Performance
Chapter 17
Sustainability Accounting
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 1
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 2
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 3
Q1: Overview of Strategic Management Process
Organizational
Vision
Core
Organizational
Operating
Actual
Strategies
Plans
Operations
Competencies
Measure, Monitor, and Motivate
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 4
Q1: Overview of Strategic Management Process
Sustainable Management involves addressing
sustainability issues in each aspect of the
strategic management process.
Organizational
Vision
Core
Organizational
Operating
Actual
Strategies
Plans
Operations
Competencies
Measure, Monitor, and Motivate
Triple bottom line:
Economic, Environmental, and Social
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 5
Q1: Sustainability and Levers of Control
Belief Systems
• Communicate vision for
sustainable management
Interactive Control Systems
• Reevaluate and revise
sustainable management
strategies and operating plans
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
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 6
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
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 7
Q2: Sustainability Reporting
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
© John Wiley & Sons, 2011
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
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 1e
Slide # 8
Q2: Sustainability Reporting
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 1e
Slide # 9
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 10
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 11
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 12
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 13
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 14
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 15
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 16
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, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 17
Q4: Sustainability and Capital Budgeting
• 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
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 1e
Slide # 18
Q4: Sustainability Balanced Scorecard
• 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
© John Wiley & Sons, 2011
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 1e
Slide # 19
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
Chapter 17: Sustainability Accounting
Eldenburg & Wolcott’s Cost Management, 1e
Slide # 20