Chapter 5 Flashcards
environmental, social and governance
define corporate social responsibility
a concept that considers all stakeholders when making decisions and goes beyond making profit while complying with laws + regulations - companies give back tot he communities they operate in and consider social and environmental issues while doing business
- the extent to which a business addresses the concerns and obligations to its wider stakeholders
- the actions a business takes over and above the minimum required by law in addressing societal needs + wants
what are the 4 responsibilities of Carroll’s CSR pyramid
economic - responsibility of business to be profitable
legal - responsibility to obey laws + regulations
ethical - responsibility to act morally and ethically
philanthropic - responsibility to give back to society
pros vs cons of CSR pyramid
pros: easy to understand, simple message (CSR has more than 1 element) emphasizes importance of profit
cons: should ethics be at the top? businesses don’t always do what they claim when it comes to CSR
what’s the triple bottom line
model that outlines how companies should commit to focusing as much on social and environmental concerns as they do on profits and instead of 1 bottom line (profit or net income), there should be 3 (people, planet, profit)
- aims to measure financial, social and environmental performance of a business over time
pros of triple bottom line
encourages business to think beyond narrow measure of performance
- encourages CSR reporting
- supports measurement of environmental impact and extent of sustainability
cons of triple bottom line
- not very useful as an overall measure of business performance
- hard to be reliably and consistently measure people & planet bottom-lines
- no legal requirement to report it - so take-up has been poor
why is ESG an important for businesses to respond to climate change + build sustainable operations
climate change is real world-wide problem that must be addressed - governments and businesses are making commitments to reduce negative impacts on the environment
- shareholders + corporate investors expect companies to achieve long-term sustainability and expect transparent reporting relating to ESG performance
- customers are demanding sustainable products + services
- talented employees are seeking employment from purpose-driven companies
- sustainability reporting will be a requirement for public companies in the future
why should companies adopt ESG
- businesses need to comply with rules, regulations + laws,
- businesses need financing through debt - equity to grow into the future - more lenders, corporate investors and shareholders are considering a company’s ESG strategy and performance before making investing decisions
- business need customers to generate revenue - more customers are making informed purchasing decision and demanding sustainable and ethically sourced produce + services - in additional customers expect great customer service to continue doing business with a company
- business need to attract + retain talented employees, who are seeking employment from purpose-driven companies that care about social + environmental issues
- businesses need to work with suppliers which requires social relationship building and fair trade
how does ESG create value for a company
- achieves stronger revenue growth by offering customers more sustainable products and services and achieving better access to resources
- drives cost reduction through lower energy consumption, reduction in waste, and resources required within a company’s value chain
- earns subsidies and support form the government
- increases employee productivity and attracts top talent
- enhances returns by allocating capital to investments that will be more sustainable in the long-term
what does net zero mean
a state in which greenhouse gases going into the atmosphere are balanced by equal amounts of emission removals from the atmosphere
what’s the paris agreement
international treaty on climate change to go net zero by 2050
define greenwashing
company spends resources to market themselves as environmentally friends rather than actually minimizing their environmental impact - misleads customers + ruins their reputation, brand, customer loyalty and company value
define a provision under IFRS
a liability with uncertainty about the timing of amount of future expenditure requrired - if a reliable estimate can be made, then provision should be recognized as liability on the company’s financial statments
when must a provision be recognized?
- an entity has a present obligation as a result of a past event
- it is probable that an outflow of resources will be required to settle the obligation
- a reliable estimate can be made to understand the amount of the obligation
if none of these conditions are met, then no provision is recognized and instead a contingent liability is disclosed in the notes to the financial statements
define contingent liabilities under IFRS
a possible obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events - which are outside of management’s control - they are disclosed but not recognized in the company’s financial statements
what happens if a provision or contingent liability are estimated to occur in the near future?
what if they are estimated to be incurred in the future?
- discounting the amount is not necessary
- necessary to discount the amount to consider the time value of money
define decommissioning provision
present value of future cash outflows that will be incurred
what’s the s in ESG
social - considers the impact on the society good + bad
- creating long-term net positive social impact, ensure working conditions, supporting staff mental health, boosting diversity - leading to more innovation and commercial benefits
define organizational culture
collection of values, expectations, and practices that guide and inform the actions of all team members - culture is key way many companies use to differentiate themselves from their competitors - cultures is difficult to change but it’s important to ensure management teams develop a culture that attracts different perspectives
what makes people happy and work and why companies should care about creating an organizational culture that results in happy employees
- better retention, productivity, innovation, and attracts top talent
define diversity
celebrating differences, diverse perspectives, see the person and not the label
define inclusivity + importance
celebration of authentic selves, everybody’s opinion matters
inclusivity is important to create more impactful product/service
why should companies prioritize their employees mental health
better retention + productivity
humans aren’t robots - better support allows for better recovery and overall better solution in the future
what’s the “G” in ESG? why is it important?
governance - the operational regulations + decision-making process of a business
provides structure, accountability and transparency ensuring that your business ethics are sound
governance is the most influential factor in ESG
