Sustainability in business
If we don’t protect our environment eventually there will be no resources, no employees, no customers and therefore, no business. This article details how you can make decisions that benefit your organisation and protect our environment
The United Nations (UN) has declared climate change as the defining issue of our time and we need to act now. With shifting weather patterns, rising sea levels, mass extinction of species and the destruction of natural environment, the impacts of climate change are global, unprecedented and becoming more difficult to reverse.
Environmental sustainability encompasses making decisions in two areas:
Taking action that protects our planet’s limited natural resources
Taking action which considers not only the quality and quantity of the business output but also quality and quantity of the outcomes on our customers and society
Accounting for the environmental costs of doing business and implementing environmentally sustainable business practices, such as offering products and services that benefit rather than harm the environment, will result in a sustainable business eco system.
To build a truly lasting business for yourself and future generations, the impact of your business on the environment and on society must be considered. Along with giving you a world in which to do business, you will attract a more discerning customer (and often a more loyal one), and you’ll be ahead of your competition as environmental regulations become enforced in the future.
The first task in moving to a sustainable environmental business system is to measure the businesses current impact on the environment. Currently reporting structures and financial statements do not measure the risk to the environment or the risk to society. But currently, most businesses don’t account for the cost of their decisions on the environment.
All businesses operate from the basic premise of endeavouring to minimize costs and risks and maximise prices. Where possible a business will push risk onto employees, suppliers, customers, the environment and society. Any business can account for their environmental impact by including the positive or negative effects on the environment of their business decisions in their reporting. Currently, as this risk is externalised, most businesses don’t consider the environmental impact and include nothing about it in their reporting.
As the business world stands, most for profit businesses do two things:
They endeavor to maximise profit by maximising price and minimising costs
They minimise the risk of carrying on business which in part means externalising risk
By implementing business practices and systems which externalise risks on to employees, suppliers, customers, the environment and society, businesses are simply taking advantage of the capitalist system. The current imperfect capitalist system financially rewards businesses which externalize risk. And while governments and legislators introduce laws to stop the worst examples of the risk externalisation, for example the setting of the government legislated minimum wage, they can’t compensate for every externalised risk.
With the growing impact of climate change and wealth inequality upon us we can’t wait for governments to act, organisation need to change now. This includes looking at the suppliers you work with, the products you produce and the day-to-day business choices you make and how you can make decisions that protect the economic and natural environment.
An example of capitalism and the (unaccounted for) environmental cost
British and American Tobacco (BAT) highlights this point. According to BAT current financial statements, the more cigarettes sold the greater the profit, the greater the net assets of BAT. What their financial statements ignore are the greater number of deaths from lung cancer in the future as more cigarettes are consumed. Current financial statements are based on the premise that the sale price of a good or service represents the value of the good or the service. Current economic and accounting recording and reporting does not differentiate between price and value, and the difference couldn’t be more obvious than with the sale of cigarettes. This fundamental reporting issue allows BAT to ignore the increase in lung cancer deaths which are a direct result of people buying their products.
The current BAT financial statements are not wrong or incorrect, they are just woefully incomplete.
Using Social Value Accounting to make the best choices for your business and the environment
Taking account of value outcomes in conjunction with your current business reporting can be beneficial for the environment and for your bottom line. Along with the positive environmental impact, sustainable business can lead to greater employee satisfaction and retention, customer growth and improved customer relationships, innovation, and long-term reduction in business costs.
Using Social Value Accounting takes your financial statements one step further by quantifying and qualifying the outcomes which result from the sale (provision) of goods and services. By placing a value on the outcomes of doing business you can begin to make better decisions for your; business, suppliers, employees, customers and the environment.
For example, if you produce cotton clothing and only take into account the cost of production, you are ignoring the cost to the environment of growing the cotton such as large water consumption and pesticide pollution. If you decide to account for these costs in your decision making you’ll look to find sustainably grown cotton that is still economical.
Because the current incomplete financial statements stop recording and reporting at the sale (output) stage, every risk that is pushed from the company onto others is ignored. Considering value outcomes will give you the tools to make environmentally positive decisions and for the first time have a complete financial picture of your organisation and its impact in all areas.
This is why young accountants can save the planet by providing management, customers, supplier, markets, government and society with the full picture so more informed decisions are made.