Called “Sustainability Accounting” in Europe and “Corporate Social Responsibility” (CSR) in the United States, it is today making inroads here. One of the reasons behind the interest in nonfinancial accounting is that it offers businesses a chance to self-regulate, instead of submitting to even more government regulation. Also, globalization, the information explosion and the search for new competitive advantage are elevating stakeholder expectations (including those of corporate-governance bodies). But CSR also makes good business sense.
It works because it can separate and identify significant environmental-related costs that might otherwise remain hidden. Although finance executives are generally not cast as environmental managers, they can leverage their cost-accounting expertise as it applies to these previously unidentified costs and factor them into the decision-making process.
CSR addresses the issue of corporate sustainability, a business approach to create long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. It involves four vital perspectives, which are organized and evaluated using a “balanced scorecard” tool:
* Business processes: What nonfinancial activities add value to the organization?
* Stakeholder: How will we satisfy our stakeholders’ needs?
* Organizational learning: How do we recognize and sustain innovation, change and continuous improvement?
* Financial: What are the fiscal benefits of our nonfinancial performance?
It should be noted that CSR accounting is still an emerging area, and uniform, generally accepted standards have not yet been developed. On the other hand, its growth cannot be ignored.
If we look at the pool of the Global Fortune 250 companies, as reflected in a survey our company recently published, 40 per cent of European companies have produced environmental reports while about 33 percent of U.S.-based multinational companies have produced some sort of environmental report.
Within the chemical and pharmaceutical sectors, the total rises to about 90 percent, while about 60 per cent of energy resource-related companies, like oil and gas producers/distributors, and 70 percent of automobile and consumer goods manufacturers, have commissioned similar reports.
Currently, corporate-responsibility accounting is in an emergent stage, but its future appears healthy. After all, while top executives may not yet be considered environmental officers, they are charged with being visionaries and should be taking the lead in implementing information systems that allow companies to assess their environmental costs and risks, and, as a result, to make better decisions.
Companies that understand and utilize environmental accounting practices have the chance to make great strategic gains.