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1. Chapter 11
Sustainability and
Environmental
Accounting
PowerPointPresentation
byMatthew Tilling
©2012 John Wiley & Sons Australia Ltd

2. WHATIS SUSTAINABILITY?
• Sustainable Development is ‘development that
meets the needs of the present without
compromising the ability of future generations
to meet their own needs’(Brundtland
Commission)

3. WHATIS SUSTAINABILITY?
• Encompasses issues such as
– Intergenerational Equity
– Intergenerational Equity
Eco-Justice
– Eco-Efficiency
• These are important national questions but
also have siginficant corporate and individual
elements.

4. SUSTAINABILITYREPORTING
• Also known as
– Corporate Social Reporting
– Corporate Social Responsibility Reporting
– T
riple Bottom Line Reporting
– Sustainability Reporting
– Environmental Reporting
– SocialAudit
– Environmental,Social and Governance Reports
– Stakeholder Reports.

5. SUSTAINABILITYREPORTING
• A sustainability report refers to a report that
not only presents information about the
economic value of an entity, but provides
information upon which stakeholders can also
judge the environmental and social value of
an entity
.
• Useful not only for reporting purposes but
also performance measurement,accounting,
auditing and reporting.

6. Benefits of Sustainability Reporting for
Companies
• Embedding sound corporate governance and
ethics systems throughout all levels of an
organisation.
• Improved management of risk through
enhanced management systems and
performance monitoring.

7. Benefits of Sustainability Reporting for
Companies
• Formalising and enhancing communication
with key stakeholders such as the finance
sector
,suppliers,community and customers.
• Attracting and retaining competent staff by
demonstrating an organisation is focused on
values and its long-term existence.
• Ability to benchmark performance both within
industries and across industries.

8. Integrated Reporting
• An initiativeof the InternationalIntegrated
Reporting Committee with the aim of
– To create a globally accepted integrated reporting
framework which brings together financial,
environmental social and governance information in a
clear,concise, consistent and comparable format.
– To help with the development of more comprehensive
and comprehensible information about organizations,
prospective as well as retrospective, to meet the
needs of the emerging,more sustainable,global
economy.

9. Environmental Reporting
• Environmentalreporting is a subsetof
sustainability reporting.
• T
o date,research has notdrawn any clear
conclusions as to the relationship between
environmental performance and environmental
disclosure.
– Legitimacy theory would propose that entities with
poor environmental performance would more likely
produce greater levels,or higher quality
environmental information to address potential
legitimacy threats.

10. Environmental Reporting
• A number of studies however have found a
relationship between more extensive
quantifiable environmental disclosures and
– good environmental performance
– good economic performance

11. GUIDELINES FOR
SUSTAINABILITY REPORTING
• A range of guidelines which have emerged to
provide direction on appropriate sustainability
reporting.
• The United Nations (UN) has produced a number
of reporting initiatives.
• Other groups thathave provided guidelines
include:
– The Organisation for EconomicCooperation and
Development(OECD)
– The International Organisation for Standardisation
(ISO)

12. Overview of Selection Indicators

13. Global Reporting Initiative
• Launched in 1997 as an initiative to develop a
globally accepted reporting framework to
enhancethe quality of sustainability reporting
• A joint initiative of the Coalition of
Environmentally Responsible Economies (CERES)
and the United Nations Environment Program
(UNEP)
• The aim is to enhance transparency
,
comparability and clarity
,amongst other
principles.

14. Global Reporting Initiative
• Sustainability reports based on the GRI
Framework can be used to:
‘demonstrate organizational commitment to
sustainable development,to compare organizational
performance over time,and to measure
organizationalperformance with respect to laws,
norms,standards and voluntary initiatives’

15. Global Reporting Initiative
• THE GRI includes 55 core indicators and 29
additional indicators across environmental,
economic and social performance areas (see
T
able 11.2).
• In addition the GRI has anApplication Levels
system
– These indicate theextent to which The Guidelines
havebeen applied in sustainability reporting.
– They communicatewhich part of the reporting
framework has been addressed and reflect the degree
of transparency in reporting.

16. Mandatory Sustainability Reporting
Requirements
• Australia
– The Corporations Act 2001 requires directors to
outline the company’s performance in relation to
environmental regulations.
– The NationalGreenhouse and Energy Reporting
Act 2007 (NGERAct) introduced a national
framework for reporting and dissemination of
information about greenhouse gas (GHG)
emissions and energy use by certain corporations.

17. Mandatory Sustainability Reporting
Requirements
• Canada
– The Canadian securities regulators require public
companies to produce an Annual Information Form
that reports on the current and future financial and
operationaleffects of environmental protection
requirements.
• Denmark
– The DanishActof16 December2008 requires
Denmark’s largest companies to include their ESG
activities in their annual reports or justifythe absence
of this information.

18. Mandatory Sustainability Reporting
Requirements
• Norway
– The government has proposed that large companies
should report their social and environmental performance
to stakeholders.
• United States
– The US Environmental Protection Agency proposed a
mandatory greenhouse gas reporting rule, which became
effective on 29 December 2009.
– The Securities and Exchange Commission (SEC) requires
disclosure ofsome general information,including
disclosure ofcapital expenditure for environmental control
facilities, and about environmental claims.

19. STAKEHOLDER INFLUENCES
• Contemporary entities now consider a range of
stakeholders in their decision making.
• Entities following GRI are required to undertake
stakeholder assessment as part of their reporting
process.
• Many businesses identify and engage with
stakeholders as a means of reducing risk and
managing reputation.
• Stakeholders are increasingly concerned with
issues of sustainability
.

20. Stakeholder Interests in
Corporate Sustainability

21. Ethical Investment
• Ethical investment and ethical investment
funds are increasingly taking an interest in
corporate sustainability performance and
reporting
• More broadly many institutional investors are
concerned about the economic, financial and
regulatory risks of global warming.

22. ENVIRONMENTAL
MANAGEMENTSYSTEMS
• An EMS is a system that organisations
implement to measure,record and manage
their environmental performance.
• In addition to providing organisations with an
environmental management tool they also
facilitate the organisation’
s communication to
stakeholders.

23. ENVIRONMENTAL
MANAGEMENTSYSTEMS
• Internationalstandard ISO 14001 Environmental
managementgoverns EMSs.
• It covers the development and audit of EMSs, and
requires certifying companies to establish and
maintain communication, both internally and
externally.
• Italso requires companies to develop policies,
objectivesand targets,and assess environmental
performance against theserequirements.

24. CLIMATE CHANGE
AND ACCOUNTING
• The Kyoto Protocol is an agreementthat
commits signatories to achieve GHG or carbon
emissions reduction.
• Under the Kyoto Protocol countries were
allocated allowed emissions in the form of
assigned units that corresponded to their
agreed emission targets.

25. Emissions Reduction Schemes
• Many countries have (are) developing
emissions reduction schemes to mitigate,or
reduce climate change.
• T
wo approaches are used
– Emissions trading scheme (ETS) are designed to
control emissions by allowing participants to trade
excess emissions permits.
– Carbon taxes where a levy is paid based on the
amount of emissions or GHGs.

26. Emissions Reduction Schemes
• Australia has decided to implementa ETS.
• An ETS provides a mechanism by which economic
activities of an organisation can be linked to
climatechange benefits.
• These are expected to be significant costs
including:
– Reporting requirements such as compliance and
monitoring costs.
– Investmentsto mitigate and manageemissions.
– Re-evaluation of corporate strategies,operational and
controlsystems.

27. Accounting for Carbon Emissions
• There is currently no guidance on how to
account for carbon pollution permits or
emissions trading activities.
• In the short term, organisations are required
to account for both purchased and allocated
emissions allowances.
– How should they be valued?
– Are they intangible assets or financial
instruments?

28. Accounting for Carbon Emissions
• How should organisations account for their
obligation to deliver allowances to the
government at the end of the reporting period
to ‘pay’for their emissions.
• Should organisations be permitted to use
hedge accounting to reduce the risk
associated with their allowance asset and
emissions liability
.
• See T
able 11.4 forAccounting approaches for
the EU ETS