Sustainable accounting and sustainability Flashcards
(32 cards)
What does Sustainability Accounting and Management Control refer to?
Management Accounting and Control refers to accounting tools, practices, and methodologies
used inside an organization to assist management in strategic and operational decision-making.
What is Sustainability Accounting?
Gathering sustainability-related information for transparency and decision-making
purposes. Adequate information necessary to enable sustainability management.
What is Sustainability Management Control:
Use of management accounting tools to influence sustainability-related organizational
behavior. Aim is to integrate sustainability information into decision-making.
What is Sustainability Reporting?
Disclosure of sustainability-related information to internal and external stakeholders.
Which various levels does sustainable accounting have?
> Product level: Help inform customers about sustainable choices, sustainable
consumer behavior, help product designers improving sustainability
performance
Process level: Help companies include sustainability into daily business
Organizational level: Support sustainability management at company level and beyond
What is the LCSA?
Tool for information gathering in sustainability accounting. LCSA is about collecting and assessing information about environmental, economic, and social resources used during the life span of products
What is the Product Life Cycle?
Physical life cycle describing all stages through which a product passes
> Often starts with mining and extraction of raw materials, design and production,
shipping and transport, use process until end to the product life, last, disposal or reuse
What are the goals of the LCSA?
> Gain holistic understanding of entire system of supply, production, consumption, end of life
Recognizing and modeling trade-offs…
.. across different dimension of sustainability // … across different steps of the cycle
(improve one phase has consequences for other phase)
Assessing true cost of a product, including production costs and externalities in form of
environmental and social costs
Explain the Red Cotton T-Shirt example.
> Includes impacts from procurement of raw materials, their shipping to a textile company,
refinement into a fabric, shipment of T-Shirt, usage, disposal
Additionally, dyes, fabrics, threads and all other parts have to be factored in. All own life cycle.
Different life cycle steps cause different sustainability impacts:
Potential Environmental impacts: High water consumption, GHG emissions,
environmental hazard when using potentially chemicals for coloring or bleaching
Potential Social impacts: Poor working condition, child labor, health/safety issues
» Large scope of LCSA: nearly impossible to truly assess entire life cycle of a product
What are the Different elements of LCSA?
> Environmental Life Cycle assessment (ELCA or LCA): ENVIRONMENTAL
… Covers ecological aspects + Most common elements
Life Cycle Costing (LCC): ECONOMIC
… Evaluating costs occurring in the life cycle (production, transport, consumer costs)
Social Life Cycle Assessment (SLCA): SOCIAL
… Analysis of social and socioeconomic impacts. Much shorter history compared to
ELCA, partly because assessment of social impacts are more complex than environmental
» All can be used in combination or independently
What is the ELCA?
> ELCA is a method of compiling and assessing inputs, outputs, and potential environmental
impacts of a product system through its life cycle —> From Cradle to Grave (or, … to gate?)
(Cradle to Gate = as soon as it leaves the corporate facilities, the analysis stops… now you miss
the use phase and recycle/disposal phase)
Any product/service can be subject to ELCA. Method is standardized by standard
environmental management (ISO 14040 and ISO 14044)
ISO 14040 illustrates 7 principals of ELCA
What are the 7 Principles of ELCA?
- Life Cycle Perspective
> Covers all phases of product life cycle from cradle to grave
> Aim: to arrive at systematic and holistic perspective to identify environmental burdens
(and avoid postponement of shifting burdens from one life cycle stage to another) - Environmental Focus
- Relative Approach and Functional Unit
> To enable comparison of ELCA results of different products, the environmental impact is
evaluated relative to a functional unit
> Functional unit: Defines what is being studied // NOT the product itself, might be
different types of product available to reach desired outcome // Helps product comparable - Iterative Approach
> An ELCA follows various phases; later build upon the results of earlier phases and can be used
to adapt producing analytical steps
> Process of going back and forth within and between phases should improve quality of analysis
> If data cannot be obtained for a certain process in defined systems, approach need adjustment. - Transparency
> Process should be transparent with open, comprehensive, and understandable presentation of
information. Enabling critical reviews by internal or external experts (also stakeholders) - Comprehensiveness
> Process should consider all relevant aspects of natural environment (not social and economic)
-> Allow identifying and addressing potential trade-offs - Priority of Scientific Approach
> Procedures and decisions should be based on natural science. If respective findings aren’t
available, analyses should be based on social or economic science (or value choices)
What are the phases of ELCA according to ISO 14040 and ISO 14044:
> ELCA is carried out in 4 phases, interrelated steps, building on an iterative approach within and between phases to make sure data is comprehensible.
Phase 1: Goal Definition ans Scope
Phase 2. Inventory analysis
Phase 3. Impact assessment
Phase 4. Reporting on Results
What is The Vital role of water in human life?
> Importance of water for human life, wellbeing and health
UN recognition of water access as a human right (SDG 6)
Increasing demand for water due to population growth, economic development, and climate
change
» Alarming global statistics on water access and sanitation
Despite abundant on earth, only 3% is fresh water, and significant portion is inaccessible
Water scarcity affecting 1.1 billion people; two thirds of global population faces water
scarcity annually
What has water got to do with accounting and organizations?
> Impacts through water use and discharges.
Over-consumption —> Contribution to over consumption affecting general water access +
wide ranging impacts. Direct consequences on natural life,
ecosystems, economic impacts on local communities
Water discharges —> Discharges compromise water sources quality
Examples: Short term chemical spills. Long term leakages of toxic
Dependencies(water):
Sufficient and Secure water supply:
> Significance: Organization rely on stable water supply for various activities
> Limitations: Potential issues with water stress, water quality, economic viability
Risk Perspective:
> Encouraging organization to evaluate water dependencies from a risk management point
Water foot-printing:
> Water measurement practice. Calculate direct and indirect freshwater use for product/activities
Unilever: develop products that require less freshwater // Raisio: Water footprint label oat flakes
Biodiversity loss as key sustainability issue:
> Following calls from the parliament in January 2020 to address the main drivers of biodiversity
losses and set legally binding targets
Species Diversity: More diversities in species is often more stable and resilient.
Genetic Diversity: Within and between species. Larger population greater ability to recover
from negative impacts of droughts, floods, storms, etc. Less population
might lead to diseases, congenital defects
Ecosystem Diversity: Enables the maintenance of variety in biodiversity. Different types of
ecosystems globally include forests and deserts, or wetlands
What has Biodiversity got to do with organizations and Accounting?
Impacts:
> Organizational practices contribute to biodiversity losses, reinforcing key drivers like
habitat destruction, pollution, and overexploitation
> Physical footprint, location of buildings, supply chains all contribute to impact on land
Dependencies:
> Organization dependent on Biodiversity for their survival // Rely on ecosystems services
(water, food) and regulatory services provided by Biodiversity (flood control, etc.) //
Specific dependencies can exist (fishing company rely on fish populations, etc.)
Measuring Biodiversity: Two main Approaches
- Numerical Approach
> Simple count of biodiversity, e.g., count the number of species // Used by WWF for reporting
> Provides basis for understanding biodiversity but may lack relevance for decision-making - Valuation Approach
> Measures Biodiversity in Monetary terms // Focusing on value to the organization // Comparable
for decision making // Valuing pollination from the perspective of the organization’s cost, if they
were absent // Drives organization to protect ecosystems // Challenges in valuation
Climate Change: Milestones
> Kyoto Protocol is an international agreement linked to UN Framework Convention on Climate
Change (UNFCCC), which commits Parties by setting international emission reduction targets
Paris Agreement is an agreement within the UNFCCC, in 2020. Central aim: Strengthen the
global response to the threat of climate change by keeping temperature rise below 2 deg. celsius
above pre-industrial levels and to pursue efforts to limit the temperature to 1,5 degrees celsius
Carbon Accounting:
> Greenhouse Gas Emissions (GHG) of central concern for sustainability management
Companies around the world define targets for themselves to reduce GHG emissions
To set targets, relevant information need to be available —> Carbon Accounting as own area
Tools and procedures of Carbon Accounting focus on GHG in general
Typical first question in Carbon Accounting: Where did emissions take place?
Answer relevant: determine responsibilities, identify main emission sources and reduce
emissions, and avoid missing relevant emissions as well as double counting
Common distinction in Carbon Accounting between Scope 1, 2, and 3 emissions
What are the 3 scopes?
Scope 1 Emissions:
> Direct Emissions, from company owned or company controlled operations. Emissions from
production processes or equipment, for example.
Scope 2 Emissions:
> Indirect Emissions, that stem from electricity, steam, or other sources of energy used by but
produced outside the company. For example, if company buys electricity from utility company,
GHG emitted when producing the electricity are counted as Scope 2 emissions.
Scope 3 Emissions:
> All other types of Indirect emissions that occur upstream or downstream in supply chain.
> Consequences of operations of another company that is not owned or controlled by company in
focus. For example, emissions from productions of purchased or use of sold goods / leases
Challenges in Carbon Accounting:
Scope 1 Emissions are relatively easy to measure
> Adequate accounting information systems collection and assessing relevant data
necessary to be able to calculate emissions
> Setting up and maintaining such systems in itself is substantial task but can be done
largely independent of other actors
Data on Scope 2 emissions often relatively easy to obtain —> Mainly cover GHG emissions
from energy production, which is a well researched field
Calculating Scope 3 emissions requires extensive and often complex data from actors up and
downstream in supply chain —> Data difficult to obtain or inaccurate & Very informative info
