Chapter 17 Environmental and social management accounting Copyright ª 2006 McGraw­Hill Australia Pty Ltd 17­ 1 Corporate social responsibility and external reporting • Involves taking into account the social and environmental impact of corporate activity when making decisions – May increase profitability – Determine long-term survival • Communicated to stakeholders in annual reports, environment reports, stakeholder impact reports, social impact reports and social audit reports continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-2 Corporate social responsibility and external reporting • Triple bottom line reporting – Focus on financial (economic), social and environmental aspects of performance – Aimed at a broader range of stakeholders • Social performance – Impact of an organisation's behaviour on society, including the broader community, employees, customers and suppliers • Environmental performance – Impact of an organisation's behaviour on the environment, including natural systems of land, air and water, people and other living organisms Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-3 Environmental management accounting (EMA) • Consists of environmentally-related management accounting systems and practices • Life cycle costing, environmental cost accounting, environmental performance measures, assessment of environmental benefits, strategic planning for environmental management • EMAtechniques – Financially-oriented EMA – Physically-oriented EMA Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-4 Financially-oriented EMA • Environmental costs – Incurred to prevent, monitor and report environmental impacts – Cost of waste management systems, environmental training, legal activities and fines, record keeping and reporting, cost of remediation of environmental impacts • Environmental product costing – Involves tracing direct and indirect environmental costs to products – The cost of waste management, permits and fees, recycling continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-5 Financially-oriented EMA • Environmentally-linked capital expenditure – Driven by the desire to improve the organisation's environmental impact, or by the need to comply with environmental regulations • Environmentally-induced revenues – Arise from positive environmental actions of the organisation – Increased revenue from the sale of recycled materials, from higher selling prices for greener products – Increased customer satisfaction, improved employee morale, increase in future profits Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-6 Physically-oriented EMA • Physically-oriented EMA – Mechanisms that focus on supplying information that accounts for the organisation’s impact on the natural environment – Kilograms of noxious waste emissions, kilowatt hours of electricity used, decibels of noise – Used for tactical decisions and capital expenditure decisions Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-7 Environmental management systems (EMS) and EMA • Systems that organisations put in place to manage their environmental performance • Recycling systems, systems to monitor and control levels of liquids, material and atmospheric discharge and waste • ISO 14001 is an international standard for EMA and its audit • EMS and adoption of ISO 14001 requires that environmental performance be measured against policies, objectives and targets Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-8 The benefits of recognising environmental and social impacts • There is an increasing awareness that recognising environmental and societal impacts can have broad implications for an organisation • Attracting highly skilled employees who wish to work for an environmentally-responsible organisation • Enhancement of the organisation’s reputation as a responsible and caring organisation • Identification of potential cost savings continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-9 The benefits of recognising environmental and social impacts • Reduction of risk of current and future activities • More effective management of resources • Improvements in competitiveness – Greater attractiveness to customers – Positive reputation Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-10 Difficulties in recognising and measuring environmental and social impacts • Costs of environmental impacts are often hidden or forgotten, even though they may be substantial • They may be difficult to recognise • Future ecological and social issues are not yet known – Current work practices and operations may have future environmental and social consequences which we cannot predict • Many costs and benefits are external to the organisation – Difficult to detect and assess continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-11 Difficulties in recognising and measuring environmental and social impacts • Many costs and benefits are difficult to measure in financial terms – They relate to the future, and the size of the impact may be unknown • Defining environmental costs – The costs that an organisation incurs to prevent, monitor and report environmental impacts – US EPAdefines 5 tiers of environmental costs – Private costs (tiers 1 to 4) and societal costs Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-12 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 17-13