Date: 24th November 2016
Last week we introduced Florence Micond, eco consultant and owner of Aim at Sustainability. She explained how cloud-based business tools and accounting are convenient, efficient and good for the environment. There are many more important ways accounting can support a business’ drive for sustainability and this week we take a look at some of these.
Green accounting integrates environmental costs and benefits in the financial results of a company. Green accounting depends on the business owner’s goodwill to promote sustainability and show how their business contributes to a sustainable future. Indicators, tools and calculations have been developed to report on the state and progress of business, social and environmental performance with varying reliability and consistency.
We are seeing the increase of corporate social responsibility and environmental awareness is increasing; and in addition, various international treaties, the rise of regulations, penalties and incentives are changing the game. Therefore, this type of accounting will rapidly become useful, if not compulsory, even for mainstream businesses.
For example, in 2014, new regulations in the UK required all listed companies to report their greenhouse gas emissions alongside their financial reporting. So far, carbon reporting is voluntary in New Zealand. The Ministry for the Environment has developed guidelines and many accountants are currently being trained to carry this task out.
Sustainability is likely to improve when a business starts measuring it. In fact, there are many advantages to this, including financial. Sustainable Business Network details them as:
There are various ways and levels to measure and report on a business sustainability. Here are some examples of green reporting, starting with a single product evaluation all the way to the entire company practices and values.
Full cost accounting brings a correction to the profits as it takes into account the real costs and benefits of production, including the long term impacts, hidden costs, externalities, and indirect social and environmental costs.
For example, the sustainability assessment of car production could include recyclable and non-recyclable materials, vehicle life cycle energy and water consumed, all the forms of air, water and soil pollution, safety, mobility, noise, vibration, vehicle interior air quality, human health impacts from the external air quality and employment.
Sustainable Business Network has developed a ‘value chain’ management guide that refers to the full life cycle of a product or process including material sourcing, production, consumption and disposal/recycling process. Supply chain exploration has the advantage of incentivising the providers to have a look at their supply chain too and has a ripple effect throughout the economy.
Developed by The Natural Step, this is a tool that assesses the impacts of a product through its whole life cycle. It uses a matrix that defines the ideal sustainable position to help identify the steps to get there.
For example, it’s not enough to reduce our energy consumption, we need to have sustainable energy use. This is a robust yet simple and visual framework that, if applied widely, would lead to strong sustainability.
Triple Bottom Line reporting encompasses “the three pillars of economic growth, environmental protection, and social progress”. The Sustainable Business Council in NZ has developed a Sustainable Development Reporting framework, which is slightly broader than the Triple Bottom Line.
ISO 14000 is the comprehensive internationally accepted standard for sustainability reporting. Being complex and expensive, it is mostly used by very large companies. New Zealand’s Enviro-Mark offers a programme for businesses with a 5-level certification covering health, safety and environmental performance. It can be used as a scaffold towards the international standard.
Future Fit Business goes beyond the certifications and current metrics which are based on progresses from an initial point or from a “least bad” practice which has no reason to be sufficient for the purpose. Instead, the Benchmark is designed to help business measure – and manage – the gap between what they are doing today and what science tells us they will need to do tomorrow. The set of conditions, tools and matrices enable to define the environmental and social break-even point for business – giving companies a clear destination to aim for, and a way to assess progress toward it.
Eventually, the economic rationale will lead businesses to consider sustainability, as much as compliance and environmental realisation. Embracing sustainability increases financial returns, enhances reputation and reduces risk for the organisation. While polluting and contributing to climate change will be considered as abnormal as illegal dumping, sustainable practice will become usual.
In the meantime, if it looks too complicated and you do not know where to start, ask Aim at Sustainability for help!