Accounting for Sustainability

Question 1

What is an ‘External Cost’?

Answer 1

An external cost is a cost that is not borne by the company. It is not measured in the company’s financial statements. An example is pollution caused by a company. The government, or society at large have to pay the cost to rehabilitate the environment.

Question 2

What is ‘Triple Bottom Line Reporting’?

Answer 2

Triple bottom line reporting refers to reporting on the Profit, People and Planet perspective. Companies will report their profits & losses as normal, in addition they will report on how their operations influence society, such as employee health and safety, training outcomes and social inclusion policies. They will also report on their environmental impact such as carbon emissions, water usage, electricity usage and other environmental issues.

Question 3

What is the purpose of the Global Reporting Initiative (GRI)?

Answer 3

Broadly, the Global Reporting Initiative aims to improve transparency surrounding the impact business has on the environment and society. They have done this by creating industry specific standards on how to create sustainability reports. This encourages business to further consider their external costs.

Question 4

What are the ‘Value Creation Levers’?

Answer 4

Value creation levers are aspects of a business that can be used to increase a firm’s profitability and shareholder value.

Question 5

How can sustainability create value in organisations??

Answer 5

Sustainability can create value in organisations by

1. reducing waste and increasing profit margins.
2. improving pricing power due to marketing campaigns surrounding sustainability issues.
3. improve employee retention and motivation, reducing employee expenses.
4. sustainability may reduce the risk profile of a business, as there is a reduced likelihood that governments will need to create costly regulation that impacts their operations.