2. Cost Management, Second Canadian Edition

3. LO1 Explain sustainability and sustainable management LO2 Discuss sustainability accounting, sustainability management accounting, and sustainability reporting LO3 Identify and explain the motivations and frameworks for external sustainability reporting LO4 Explain the use of management accounting tools for sustainability management and reporting © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 3

5. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 5  Sustainable development is development that meets the needs of current generations without compromising the ability of future generations to meet their own needs.  Sustainable management is “the ability to direct an organization in ways that restore and enhance all forms of capital to generate shareholder value and contribute to the well-being of current and future generations.”

6. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 6 Organizational Vision Organizational Vision Core Competencies Core Competencies Operating Plans Operating Plans Actual Operations Actual Operations Organizational Strategies Organizational Strategies Measure, Monitor, and Motivate

7. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 7  Sustainable Management involves addressing sustainability issues in each aspect of the strategic management process.  Under sustainable management, organizations focus simultaneously on three value systems, often referred to as the triple bottom line:  Economic  Environmental  Social value systems

8.  Internal impacts are costs and benefits inside the organization that are recognized in the entity’s conventional accounting system (the cost and availability of raw materials).  External impacts are costs and benefits that are not generally accounted for in an entity’s conventional accounting system.  External impacts are also called externalities, or spillover effects of transactions on stakeholders who are not directly involved.  Strategies are plans that managers develop to take advantage of core competencies while working toward the organization’s vision. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 8

9.  The feedback loops help managers monitor their organizations’ progress toward long-term and short-term goals.  Three methods are used to evaluate organizational sustainability performance:  internal measurement for specific goals  benchmarking against the activities of other organizations  Feedback from stakeholders  A key principle of sustainable management is the incorporation of feedback from many stakeholder groups, to reflect upon and guide business conduct. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 9

10. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 10

12. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 12  Sustainability accounting is the systematic recording, reporting, and analysis of quantitative and qualitative information about sustainable management practices and performance.  Sustainability management accounting involves activities to assist in the sustainable management process including: designing business processes budgeting and forecasting implementing and monitoring internal controls

13. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 13

15. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 15 Ethical considerations Economic considerations Reputation or brand Innovation and learning Employee motivation Risk Management or risk reduction Strengthened supplier relationships Access to capital or increased shareholder value Market Share Improvement Cost Savings Improved government relationship

16. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 16  Greenwashing is when companies appear to spend significant resources on publicity about being environmentally friendly without making substantive changes in their environmental impact.  Watch for: Misleading words, visuals, and graphics Vague and unproven green claims Overstated or exaggerated environmental claims Omitted or masked information to divert attention from environmentally damaging aspects

17. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 17  Global Reporting Initiative (GRI) Framework for disclosure on economic, environmental, and social performance 77% of FIRMS in KPMG 2008 study uses GRI reporting guidelines  The GRI core indicators are designed to provide information to stakeholders and also to encourage improved sustainability.  Some of the GRI core indicators also encourage greater international conformity of laws.

18. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 18  ISO 26000 – Guidance for Social Responsibility Was released in 2010 Provides principles for sustainability reporting, guidance for several major reporting areas, and recommendations for implementation

20. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 20 When fully integrated into an organization, sustainable management affects everything the organization does.

21. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 21  Sustainability costs are often overlooked by traditional management accounting systems.  Timing of environmental and social responsibility costs often lag the related decision.  Five categories of sustainability costs Conventional Costs Hidden Costs Contingent Costs Image and Relationship Costs Externalities

22. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 22  Material Flow Accounting (input output analysis) is the process of analyzing the movement of all physical materials through an organization’s operations.  Inputs include: Direct and indirect manufacturing materials All forms of energy  Outputs include: Products Waste Emissions

23. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 23  Material Flow Cost Accounting is the process of analyzing and tracking the physical units and costs of materials and energies through a manufacturing process.  Similar to process costing Costs are assigned separately to waste and emissions (similar to abnormal spoilage) Practice avoids burying the costs of waste  All wasted materials are treated as negative product.

24. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 24 Life cycle costing involves summing the costs of these activities throughout both internal and external value chains.

25. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 25  Incremental Operating Cash flows are often impacted by sustainable management initiatives.  These cash flows must be included in capital budgeting decisions: Waste and Emission Treatment Prevention and Environmental Management Non-Product Output Material Purchase Processing Costs Environmental Revenues Image Benefits and Costs

26. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 26  Assuming sustainable management is integrated into the strategic management process, then sustainability should be implemented into the balanced scorecard.  Three possible ways to integrate sustainability: Integrate into the traditional four perspectives Add a sustainability perspective to the scorecard Create a separate sustainability balanced scorecard

27. Management of Environmental Systems:  Limiting loss of reputation and brand value from non- compliance with environmental standards  Avoiding unnecessary internal costs of handling and managing toxic materials, hazardous waste, and other supplies  Reducing employee health care costs associated with environmental conditions  Implementing quality initiatives to reduce waste levels (e.g., scrap, excessive by-products, and printing)  Increasing use of by-products and recycling to reduce internal and external disposal costs © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 27

28.  Reducing product liability risks  Investing in capital projects to reduce externalities from wastewater and power consumption  Improving site management to reduce remediation liabilities  Modifying work practices such as using technology instead of travel, using electronic instead of paper documents, and allowing employees to work from home  Reducing environmental impact through better facility management, such as passive heating and better space utilization © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 28

29. Management of Social Systems:  Complying with labour laws, regulations, and accepted standards  Providing education and training for employees, including safety  Meeting and exceeding regulations and recommendations for equal employment opportunities  Monitoring purchases from and investments in the local community  Developing approaches for non-discrimination, freedom of association, right to work, treatment of employee grievances and complaints, and respect for community rights  Ensuring compliance with anti-corruption practices and balancing power within the community  Monitoring the impact of operations, products, and services on the community © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 29

30. Copyright © 2012 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. © John Wiley & Sons, 2012 Eldenburg, Cost Management, 2ce, Chapter 18Slide 30