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Sustainability Accounting
- 2. CONTENTS # DEFINITION # NEED& USERS # OBJECTIVES # PRINCIPLES # TRILPE BOTTOM LINE # TECHNIQUES
- 3. DEFINATION • Sustainability accountingis accounting for social , economic and environmental aspect of decision making. • Sustainability accounting is a sub category of financial accounting that focus on the disclosure of non financial information about the firm. • Sustainability accounting is also know as social accounting , social and environmental accounting , corporate social responsibility reporting etc. • Sustainability accounting in managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organizations performance at economic, ecological, and social (known as the triple bottom line or Triple-P's; People, Planet, Profit) level.
- 4. • Investors • Analysts •Auditors • Consultants • Customers • Companies
- 5. OBJECTIVES • To measureperformance towards sustainability • With conventional accounting information, potential internal users of sustainability information can be distinguished from external users
- 6. • To evaluatethe environmental, social, and governance performance of companies. • To inform development of an integrated business strategy for corporate management • It is intended as a complement to financial accounting
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- 8. Benefits of sustainability accounting •Collect information on environmental and socially related expenditure and link them to financial benefits • Show how environmental and social external costs can decline over time with commitment to sustainability • Compliance with laws and standards
- 9. • Highlight thesocial and environmental risks associated with current financial performance and aid risk management • Identify which stakeholder relationships present sustainability risks and benefits. • Encourage partnership between stakeholder organizations Benefits ….
- 10. • Efficient governanceand management • Potential cost savings • Comprehensive risk management • Brand management Benefits ….
- 11. PRINCIPLES FOR DEFINING THEREPORT CONTENT PRINCIPLES FOR DEFINING THE REPORT QUALITY PRINCIPLES
- 14. Triple Bottom Line TBL“or "3BL", Triple bottom line (abbreviated as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. These three divisions are also called the three Ps: people, planet and profit, or the "three pillars of sustainability".
- 15. • Triple bottomline accounting means expanding the traditional company reporting framework to take into account not just financial outcomes but also environmental and social performance. • Thus the triple bottom line is based on economic, environmental and social measures of performance.
- 16. Some key linksbetween sustainability and business performance are suggested by the International Finance Corporation (Focussing on the “triple bottom line” 2005):
- 17. 1. Save costsby making reductions to environmental impacts and treating employees well
- 18. 2. Increase revenuesby improving the environment and benefiting the local economy.
- 19. 3.Reduce risk byengaging stakeholders.
- 20. 4.Boost their public reputationby increasing environmental efficiency.
- 21. 5.Develop human capital throughbetter human resource management.
- 22. 6.Improve access tocapital via better governance.
- 23. 7.Create additional opportunities from communitydevelopment and environmental products
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- 27. TECHNIQUES OF SUSTAINABILITY ACCOUNTING •SHADOW PRICE/SHADOW COST APPROACH- Generate information on potential costs, benefits and price changes. Calculates financial impact if organization was sustainable. • OTHER NAMES:- Full cost accounting Or Data capture and measurement techniques Or Life cycle analysis
- 28. MULTI DIMENSIONAL ACCOUNTING •TIMING- It provides snapshot in time of the state of the stock or it does show the flow of goods and services rising from stock over a period. • LOCATION- It is within companies financial reporting boundaries(internal) or outside(external). • TYPE OF IMPACT- environmental/social/economic(TRIPLE BOTTOM LINE ACCOUNTING)
- 29. SUSTAINABILITY ACCOUNTING • Generalname to get the prices right. • Improved market based decision making • External dimension of accounting for an organization’s impact • Example: COSTS- petrol emissions from transport, acid rain, climate change, adverse health effects, reduced air quality etc. BENEFITS- wider benefits to society by a car run by petroleum,like, Ambulance; fire brigade; truck transporting recycling material.
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- 32. RESTATEMENT OF PROFITAND LOSS ACOUNT: • ECONOMIC VALUE ADDED- Restates the financial flows in the P&L to show which different shareholder groups benefitted from those flows. It shows the economic value added to different stakeholders by organization's activities. • ENVIRONMENTAL VALUE ADDED- environment related costs and benefits can be reflected by Environmental Financial Statement (EFS). EFS is an aggregated cost- benefit statement that attempts to collate and report, in a single statement, total environmental expenditure and any associated environmental savings. • SOCIAL VALUE ADDED- the presentation of organization wide socially related costs and benefits in Social Financial Statement.
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- 36. EXTERNAL FLOWS: EXTENDING THEPROFIT AND LOSS ACCOUNT. To prepare external accounts, an organization must collect new information on external environmental, economic, social impacts relating to organization’s activities. THERE ARE 4 STEPS IN PREPARATION OF EXTERNAL COST ACCOUNTS: 1.Scoping impacts 2.Determining boundaries 3.Monetary valuation of impacts 4.The triple bottom line: calculating sustainable profit
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- 38. EXTERNAL SOCIAL IMPACTS •Social costs and benefits related to employment • Social benefits of corporate tax • Social benefits of the product ALCOHOL: ESTIMATING EXTERNAL COSTS • Cost to industry (absence, unemployment, premature deaths) • Cost of material damage from accidents. • Costs of criminal activities. • A range of international studies indicate that alcohol misuse costs between 2% to 5% of a country’s Gross National Product. • The calculated alcohol misuse costs in England was between 10.8 billion – 27 billion euros per year.
- 39. EXTERNAL ECONOMIC IMPACTS • Sustainabilityaccounting includes detailed economic impact of a company’s activities, which may affect a range of stakeholders in both beneficial and adverse ways. • For example, positive impacts on local suppliers and service providers via the economic multiplier and negative economic impacts on the local community form a redundancy program.
- 40. ASSETS AND LIABILITIES:THE ROLE OF THE BALANCE SHEET Financial accounting recognizes following on the Balance Sheet : • Fixed Assets- assets which are held for long term. • Working Capital- the inventories, debtors, cash and creditors which are used in day- to- day operations. • Long Term Liabilities- liabilities which will fall due in the longer term, including debt which finances the business. In Sustainability Accounting we add additional information in assets and liabilities: • ASSETS- Intangible Assets. • LIABILITIES- Shadow liability Shadow provision