MScin Accountancy and Financial ManagementCorporateGovernance, Risk and Ethics Title:Social and Environmental Sustainability StudentNumber: 1611193Tutor: Mohammed SadiqDateof Submission: 15th December, 2017 Contents 1 Introduction. 2 2 The Concept of Sustainability. 3 2.
1 Approaches to Sustainability. 4 2.1.1 Weak Sustainability.
4 2.1.2 Strong Sustainability. 4 3 Effects of Economic Activities. 5 3.
1 Environmental Footprint. 6 3.2 Social Footprint. 6 4 Elements of Sustainability. 7 4.1 Social and Environmental Sustainability. 8 5 Environmental Accounting/Reporting.
8 5.1 Full cost. 9 5.
2 Triple Bottom Line (TBL). 9 6 Guidelines for Environmental Reporting. 10 6.1 Global Reporting Initiative (GRI). 10 6.2 International Integrated Reporting Council (IIRC). 10 6.
3 Integrated Report (IR). 11 8 Corporate Social Responsibility (CSR). 11 8.1 Ethics and Corporate Social Responsibility. 12 8.
2 Benefits of Corporate Social Responsibility. 12 8.3 Criticism of Corporate Social Responsibility. 13 9 Conclusion. 14 Appendix 1. 16 Appendix 2. 17 References. 18 1 Introduction The need for businesses to be sustainableis growing in importance than it has ever been.
This increased awareness hascome on the back of the apparent impact that economic activities have on ourenvironment and all the more as the world get more globalised. The traditionalview of corporate world is that investments in industrialisation drive economicgrowth that satisfy consumer wants. However, the processes deployed inactualising this have devastating effect on the people and the environment (Welfordand Starkey, 1996). While it is difficult for companies to dispute this needfor environmental protection, it seems that not much has been done to this end. As Christen and Schmidt (2012) succinctly stated,the issues that surround CSR are quite vast and complex, therefore, the purposeof this report is to critically evaluate this growing issue of social andenvironmental sustainability.
The early parts will be focused on explaining theconcept of sustainability, it various elements and the different approachesthat have adopted to the subject matter. Efforts will also be made to explorethe social-environmental impacts of economic activities and how they might bereported by an organisation. Importantly, the last sections willexamine corporate social responsibility (CSR), the relationship between it and ethics.Lastly, this paper will review the benefits and the various criticisms that havebeen advanced against CSR.
2 The Concept ofSustainability Traditionally, the term sustainabilityrefers to the ability of corporate organisations to survive over the long-term(Visser et al., 2010). However, the concept of sustainability has come to meanmuch more. Many authors (Visser et al., 2010, Aras and Crowther, 2012) considerit a derivative of the another concept; ‘sustainable development’ which wasfirst introduced by the United Nations(UN).
The Brundtland Report ‘Our Common Future'(WCED,1987) defined ‘sustainable development’ as a ‘development that meets theneeds of present generations without compromising the ability of the futuregenerations to meet their needs’. This definition suggests aninter-generational equity where future generations have equal chance as thepresent of having their needs met and possibly have their lot improved. Sustainability is limiting the use ofdepleting resources to the same rate at which they are being replenished(Goodland, 1995). It is an attempt to provide the best outcomes for both humanand the environments for both now and into the infinite future.
The overarchingidea of the sustainability drive is that businesses must be sustainable (Barbo,2007).Hegarty (2008) further noted that sustainabilityrelates not only to the environment, but to social and economic concerns as well. 2.1 Approaches to Sustainability Scholars have identified different degreesin approach to sustainability, but this paper will only consider weak and strongsustainability: 2.
1.1 Weak Sustainability Weak sustainability believes that focusshould be given to sustaining the human race while using the naturalenvironment as a resource (Hediger, 1999). This approach to sustainabilityrests on the assumption that natural capital is completely substitutable withother capitals and that there is no significant difference in the value theygenerate.
Furthermore, proponents of weak sustainability assert that it doesnot matter if the amount of non-renewable resources used by the currentgeneration or the extent of pollution caused by their CO2 emissions, as long asadequate machineries and amenities are given in compensation (Neumayer, 2003). 2.1.
2 Strong Sustainability Strong sustainability on the other handstresses the need for harmonising other capitals with the natural worldassuming that they are non-substitutable but complementary. The proponents of strong sustainability state thatnatural capital cannot be viewed as a mere stock of resources (GSDR, 2015).Rather, it is a set of limited, complex and irreversible resource thatcontributes uniquely to the preservation of the human species (Ekins, 2011).Consequently, it is important to preserve all capitals and not just the humanrace. 3 Effects of EconomicActivities Global warming and climate change beingthe most noticeable change in our environment which is partially traceable tothe emission of carbon dioxide and other greenhouse gases from the companies’economic activities (Aras and Crowther, 2012). Businesses produce goods andservices to meet needs and wants, however, these mechanised productionprocesses are in turn responsible for much of the degradation in ourenvironment and the well- being of our communities (Welford and Starkey, 1996).Herein is the argument of sustainability, if economic activities have suchsocial-environmental impacts, there is therefore a need for a change inbehaviour of people and organisations (Aras and Crowther, 2012).
The social-environmental impact ofbusiness activities is measured in terms of ‘footprint’. The same way humansand animals leave physical footprint of where they have been, organisationsalso leave evidence of their operations in the environment and society. Thenext section will explore the concepts of environmental and social footprints 3.1 Environmental Footprint Environmental footprint is an attempt toevaluate the size of the impact certain business activities have on theenvironment. This impact is measured on three levels: – Thecompany’s resource consumption- Anyharm brought to the environment by emissions- Ameasurement of the resources consumption and pollution emissions in terms ofharm to the environment in their qualitative, quantitative or replacementterms. In evaluating environmental footprint,organisations are deemed to operate at a net cost to the environment.
So wherethe resource use exceeds provision, the particular activity is seen asunsustainable. 3.2 Social Footprint Social footprint is a measure of anentity’s impact on people and the well-being of society. This impact can bepositive such as job creation, improved standard of living through communityamenities, and it can also be negative, in the case of a plant closure leadingto huge unemployment crisis in the community.Social footprint measures three majorareas termed ‘Anthro capitals’- Humancapital: This refers to resources that individuals have and use to takeeffective actions.
This includes personal health, knowledge, skills andexperience.- Socialcapital: Cohen and Prusak (2001) describe social capital as the stock ofdynamic connections among people, the trust, shared understanding andcollective values and demeanours that bind the members of human networks andcommunities and make cooperative action possible.- Constructedcapital: this consist of material things that people produce and use in orderto take effective action. This include things such as tools, technologies,roads, utilities, infrastructures Organisations must ensure that theiractivities are sustainable in each of these areas. Sustainability is achievedwhen the social capital need of the society is being met.
4 Elements of Sustainability Having defined the concept ofsustainability and also considered the two major approaches to it, an attemptwill now be made to discuss the key elements of sustainability. In 2005, the World Summit on SocialDevelopment identified three core areas that contribute to sustainabledevelopment, namely: environmental, social and economic. These fundamentaldimensions of sustainability have been brilliantly captured by (Elkington,1997)as the ‘pillars’ of sustainability. The idea of ‘pillar’ suggests that whereone element is weak, the society becomes ‘unstable’. Furthermore, they areoften illustrated by interlocking circles which suggests that they are co-dependentand will generally need each other to exist (appendix 1). However, for thepurpose of this report, emphasis will be on only social and environmentalsustainability. 4.1 Social and EnvironmentalSustainability In the light of its net footprint, abusiness is then required not only be work towards the achieving a positive netfootprint, but to aim at embedding measures in its practices and proceduresthat will promote sustainability.
It is essentially building anenvironmentally friendly business. This can be achieved by incorporatingsustainability in company’s strategy and decision making which then cascades intopractices such as paperless process, energy efficient production and lighting,responsible waste disposal and culture of recycling. According to The United NationsEnvironmental Management Group (2012), Social and Environmental Sustainabilityis “the adaption and integration of precautionary environmental and socialprinciples and considerations into decision making processes. This is toeliminate or mitigate any undue harm to the society and environment at theearly stage of planning. 5 EnvironmentalAccounting/Reporting The traditional belief is that businessesneed only report upon those things that can be measured and that are requiredunder laws, accounting standards or listing rules. However, in recent years,there has also been an increase in the belief that organisations are corporatecitizens that use the resources of the society and therefore owe a duty to theit to report on the impact of their economic activities on the environment.
Environmental reporting essentiallypresents environmental footprint of an organisation in form in numerical and narrativeform for a given accounting period. There are two methods of accounting forsustainability as presented below: 5.1 Full cost The full cost accounting methods includesthe costs of environmental, economic and social activities as part ofcompanies’ total cost. It seeks to capture both financial and non-financialcosts of all actions, decisions and manufacture of product in the cost system.Lastly, full cost internalises all external costs and make them visible andchargeable to the profit or loss account. 5.
2 Triple Bottom Line (TBL) TBL accounting expands the traditionalcompany reporting framework to take into account environmental and socialperformance in addition to economic performance. The objective of the triplebottom line is to incorporate the financial impact of social and environmentalactivities in organisational reporting (Elkington, 1999). This method is further illustrated by thetriple ‘P’ of People, Planet and Profit.
‘People’ referring to the need toreport to the wider stakeholders and not just shareholders. ‘Planet’underscores the that organisation’s attempt to reduce it ecological footprintwhile ‘Profit’ is the basic bottom line measured by every company.6 Guidelines for EnvironmentalReporting In most countries, environmental reportingis entirely voluntary. However, it is being embraced by most large companiespartly because of the growing public awareness, but more importantly because itis considered best practice. To help organisations with environmentalreporting, a number of voluntary reporting frameworks have been established: 6.1 Global ReportingInitiative (GRI) The Global Reporting Initiative (GRI) wasconceived in 1999 as a non-profit organisation to promotes economic,environmental and social sustainability reporting by providing organisationswith comprehensive reporting framework. The mission of the organisation is toensure that sustainability reporting is embedded as standard procedure inorganisation to enable them report their economic, environmental, social andgovernance performances.
GRI has been generally successful as it has seen awidespread adoption of its framework (GRI, 2017). 6.2 International IntegratedReporting Council (IIRC) The IIRC was established in 2010 to assistbusinesses with the adoption of Integrated Reporting. The organisation is aglobal coalition of regulators, investors, companies, standard setters, theaccounting profession and NGOs. The objective of the organisation is to promoteintegrated thinking and reporting to align capital allocation and corporate behaviourto wider goals of financial stability and sustainable development (IIRC,2017).
6.3 Integrated Report (IR) Companiesproduce a range of individual reports, such as financial report, sustainabilityreports, corporate responsibility report and even environmental, social andgovernance (ESG). Integrated reporting however, requires that these different isolatedreports should be pulled one concise report called the integrated report.Thepurpose of integrated report as set by The Integrated Report(IR) Framework isas follows:- Toexplain to providers of financial capital how an entity creates value over time- Toimprove the quality of information available to providers of financial capital- Toprovide a more cohesive and efficient approach to corporate reporting – Toenhance accountability for the broad base of capitalsIntegrated Reporting essentially highlightsthe connectivity between a company’s reports and demonstrates how each areaimpacts the organisation’s objectives in the immediate and long term (Lueg etal, 2016). 8 Corporate SocialResponsibility (CSR) Corporate social responsibility refers tothe belief that businesses have responsibilities to the larger society beyondtheir obligations to the shareholders (Visser et al.
, 2010) Cannon (2012) furtherexplains that “CSR is a way firms integrate social, environmental concerns intotheir strategy, values, culture, decision-making, and operations to createwealth and improve society. It is also important to note that even though CSRpolicies are determined at strategic level, its implementation is carried out atthe corporate, business and functional levels of the organisation (Aguinis andGlavas, 2012). 8.
1 Ethics and CorporateSocial Responsibility It has been argued that since businessethics creates the necessary foundation for good governance and good governanceresults in excellent organisational performance which then enhance businesssustainability, there is therefore a relationship between ethics and corporateresponsibility (Cooper, 2017) To further buttress the relationshipbetween business ethics and CSR, (Silveira et al., 2016) suggest threeperspectives:· Moralistic Perspective: Thisis the view that a ‘social player’ is convince to act in accordance withcertain principles which are considered ethically correct by shared values of group.· Sociological/historicalPerspective: This perspective is concerned with analysing the entrepreneurialapproach informed by ethical aspects which satisfies social interests.· Administrative Perspective: Thisis when a company engages in social responsibility with a view to gain a competitiveadvantage. Such a company seeks to create a value in the perception ofconsumers by projecting its ethics and being socially responsible as additionalcharacteristics of goods and services.
8.2 Benefits of CorporateSocial Responsibility This section is important in this reportas it highlights the business case for sustainability as demonstrated incorporate social responsibility. (Epstein-Reeves, 2012) capture the benefits ofCSR in six concise points as follows:1. Long-termthinking: CSR considers how present business decisions will impact thecompany’s future growth.
2. Innovation:The commitment to creating a more sustainable world results in the creationof new and environment-friendly products 3. Costsavings: Organisations can save cost from using less energy, responsiblerecycling borne out of consideration for the environment. Also, the trust itgenerates reduces the cost of compliance.4. BrandDifferentiation: It builds brand and reputation which in turn results inrevenue growth. This is the dominant driver for CEOs as research has shown(appendix 2).
5. CustomerEngagement: It encourages better customers’ engagement and can therefore beused as a tool for company communication.6.
Employeeengagement: Following from the point before, its provides an opportunity toinvolve employee’s company’s CSR initiatives. 8.3 Criticism of CorporateSocial Responsibility Bendell (2010) in his World Reviewquestions the progress made by CSR by suggesting that there are weaknesses inthe processes of assessing the environment. Ilies (2012) added that “allpositive aspects of CSR are counterbalanced by several counterarguments. The detail criticism of CSR advanced bythese authors have been summarised as follows:· The benefits of CSR are oftenexaggerated as its effects differ between organisations and jurisdictions. Forexample, the benefits of CSR in a developing country will differ from that in adeveloped country.
· There is overdependence byanalyst on information provided directly by companies rather than those fromindependent sources. · CSR may be able to address somesocial and environmental problems but certainly cannot solve all societal ills.· There is focus on policies andprocesses rather than contributions· Companies can only invest inCSR to the extent that it does not affect the company’s economic bottom line. 9 Conclusion It is evident from the foregoing thatbuilding a sustainable business by ensuring that every single economic activityis done in a sustainable way is not negotiable. This is because the negativeeffects of the irresponsible economic activities engaged in by virtually allorganisations in our world; the extreme weather, the earthquakes, thehurricanes and several health issues caused by polluted air, even the shortageof oxygen production due to deforestation are visible for all to see. Consequently, we are in an era where it isno longer business as usual. There is increased awareness on the need forsocial and environmental sustainability.
Moreover, it is also evident thatdespite the various criticisms levelled against CSR, it presents many benefits to all stakeholders;the public, government and companies. So while efforts are being made toresolve the setbacks by all concerned, we must certainly not jettison thebenefits and opportunities it presents. Furthermore, it is ethically consistentfor companies to give back to the society and protect it since they use itsresources in the creation of value. Alongside their obligation as corporate citizens, companies should alsobe accountable to the wider stakeholders in terms of their social andenvironmental sustainability efforts by taking advantage of the integratedreporting framework.
Lastly, it is important for organisationnot to approach sustainability merely as a box- ticking exercise or from aninstrumental perspective, but ensure it is embedded in their culture andpractices. Appendix 1 Appendix2 References