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The challenge of sustainability in contemporary societies is unprecedented. Company processes, product production supply chain, and service delivery costs are negatively affecting the environment. The environment and social impact pose a great danger to the survival of humanity and future businesses. In response, companies have invested intensively in sustainability initiatives. While the efforts of many companies towards sustainability today has been considered minimal in consideration to the consequence of their business activities, one area thought to influence company efforts in sustainability is sustainability accounting reporting. According to Bebbington, Unerman, and O’Dwyer (2014), it is a category in financial accounting that deals with disclosure of non financial information to the stakeholders. Sustainability accounting is concerned with the accounting of activities that directly affect the environment, the society, and other economic indicators of an organization. Sustainability accounting captures the company’s efforts towards sustainable business operations. With the increased global concern over carbon footprint and its impact on future generations, sustainability accounting has been highlighted as one of the most vital processes in businesses today. To delve deep in understanding the nature and concept of sustainability accounting, this paper examines the nature and impact of sustainability accounting reporting at Wesfarmers.
Discussion on Sustainability Accounting
In the traditional accounting systems, direct costs accounted for most of the organizational cost management concerns. Assignment of these costs related to products, services, organizational processes, and customer related costs. A cost could only be directly related to an item if the cost could be traceable (Klettner, 2007). However, the recent cost management literature has focused on the allotment of indirect costs. Activity based costing systems have been adopted in an attempt to reduce the cause effect relationship that is found in service and product provision. Klettner (2007) argues that sustainability accounting demands that companies account for the cost of the life cycle of a product. This means incorporating carbon allowance costs in the process of sustainability. The issue of transaction costing and opportunity costing usually arise when considering sustainability accounting, however, these differences do not change the basic considerations in a sustainability accounting. The first efforts towards sustainability accounting in Australia was documented by the power company; Origin Energy. The company began with changing its environmental practice by auditing the lifecycle of its products from production to consumption. Through these processes the company realized that this process contributed to 30 million tones of emission to the environment accounting for 8% of the total emission in Australia. In response, the company began investing in renewable energy and developing the existing power options into sustainable power option. Ratnatunga & Blachandran (2009) estimates the company invested $20 million in solar energy and spent at least $500000 for its use.
Sustainability Reporting in Wesfarmers
Wesfarmers is arguably one of the largest Australian conglomerates. The company is headquartered in Perth and has interests in the retail industry, coal mining, fertilizers, chemicals, and industrial safety products in the Australian and New Zealand markets. Adams and Frost (2008) reports that Wesfarmers is the largest company by revenue in Australia overtaking BHP Billiton and Woolworths. Founded in 1914, the company has continued to expand its roots to become one of the major retail conglomerates in Australia. The size and nature of business at Wesfarmers means that the company’s business activities have major impacts on the environment. For example, coal mining one of the activities that the company is involved is has been cited as one of the main contributors of greenhouse gases in the world. The processes involved in fertilizer production and other chemicals that the company is involved in contributing large amounts of carbon to the environment.
Wesfarmers understands that the future of its business is directly linked with the safety of the environment. Currently, Australia has the leading per capita emitter of carbon dioxide in the world accounting to 1.8% of the total emissions in the world (Slezk 2017). Interestingly, the country has only 0.3% of the world’s populations (Slezk 2017). The main contributors of carbon dioxide in the atmosphere is the energy industry, which accounts for 470%, the agriculture industry, which accounts for 15%, industrial processes that account for 5% and other forms of land use that account for 7% (Slezk 2017). These are the areas where Wesfarmers has direct business interest in. The company therefore recognizes the criticality of sustainability accounting as one of the main ways of reducing its carbon footprint in the environment. As part of its carbon accounting approach, the company has sought to reduce the environmental footprint of each of its businesses. In its accounting reports, the company provides for investments in product lifecycle costs. For example, the company has a comprehensive accounting plan for solid and liquid waste management, the management of water usage, emissions to the air, and land rehabilitation. These activities are all directed towards reducing its environmental footprint. As a way of protecting the environment and the communities where the company raw materials come from, the company has recently adopted an initiate that bun procurement of timber non-accredited sources. The company has also enhanced the recycling systems in it retain operations and other energy conserving activities such as the installation of night blinds on upright freezers.
In recognition to the urgent need to continually improve its services, the company has consistently improved its investment in sustainable development. The company sustainability report indicates that the company has focused on water use, energy use, and greenhouse gas emissions. Within a period of four years, the company reports that it saved up to 25million in greenhouse gas emission, 125 million in energy use and 44million in water use. Through these investments, Wesfarmers has continued to maximize its contribution to the economy by generating additional employment and paying taxes (Wesfarmers, 2011).
Increased calls for sustainable businesses are forcing companies to rethink the traditional model of cost accounting. Cost disruptions as a result of climate change are already having financial implications for local companies as they realize the importance of precautionary measures to reduce the impact of climate change. As demonstrated by the case of Wesfarmers, businesses are being forced to consider issues such as the cost of carbon regulation compliance, investment in low carbon emitting technologies and trading in carbon allowances in their budgets.
challenge to sustainable accounting is the voluntary nature of disclosure
enjoyed by companies. Most of the companies tend to report the numbers that are
most favorable to themselves and withhold any information that portrays the
organization negatively. Some researchers have argued that there is need to
exercise a level of skepticism when interpreting sustainability reports. There
are those who argue that there is a need for tougher laws to ensure the quality
of sustainability accounting. Either way, the importance of sustainability accounting
is gaining popularity among Australian companies.
Adams C. A. & Frost G. R. 2008. Integrating sustainability reporting into management practices. Accounting Forum, 32, 288-302.
Bebbington, J., Unerman, J., and O’Dwyer, B. 2014, Sustainable accounting, and accountability. New York: Routledge.
Klettner, A. 2007, The governance of sustainability: how companies manage their corporate responsibilities. Center for Corporate Governance, UTS Business School.
Lodhia, S. 2017. What about your qualitative cousins? Adapting the pitching template to qualitative research. Accounting & Finance.
Ratnatunga, J. T., & Blachandran, K. R. 2009, Carbon business accounting: the impact of global warming on the cost and management accounting profession. Journal of Accounting, Auditing, & Finance, 24(2), 333-355.
Slezak, M. 2017, Australia’s greenhouse gas emissions soar in latest figures. The Guardian. Retrieved from, https://www.theguardian.com/australia-news/2017/aug/04/australias-greenhouse-gas-emissions-soar-in-latest-figures
Wesfarmers, 2011, Wsfarmers Annual Report 2011. Retrieved from, https://www.csbp.com.au/docs/default-source/reports-publications/annual-reports/2011-annual-report—wesfarmers.pdf?sfvrsn=6