Several companies today have committed themselves into going sustainable endeavors. They have discovered that by switching their corporate scheme towards sustainable believing this could reap possible benefits. Yet one of the cardinal challenges they face is that of tracking and mensurating their advancement towards Sustainability and pass oning it to both internal and external stakeholders ( Fiksel et al, 1999 ) . To ease this action, organisations have sought to incorporate Sustainability steps into their day-to-day operations and systems thereby turn toing both fiscal and non-financial facets of public presentation. This has been done through the creative activity of policies, Sustainability direction systems and in some cases, Sustainability or environmental studies to stakeholders ( Searcy, 2009 ) .
In their effort to seek to implant this construct into the daily operations of their company, directors have adopted a Sustainability Accounting attack. This is a utile tool that enables companies to place cost nest eggs and efficient resources, and integrates societal and environmental betterments with fiscal chances. It besides helps to place certain hazards and allows companies to benchmark their public presentation with best pattern ( Stanger, 2004 ) . Sustainability Accounting must integrate societal and environmental revelations to increase stakeholder value and better internal decision-making ( Gray, 2006 ) . In making so, it supports the ternary underside line ( TBL ) model, which, harmonizing to Savitz ( 2006 ) , ‘captures the kernel of sustainability by mensurating the impact of an organisation ‘s activities on the worldaˆ¦including both its profitableness and stockholder values, and its societal, human and environmental capital. ‘
The TBL therefore is an accounting model that goes beyond the traditional manner of utilizing net income and stockholder value or return on investing as public presentation steps, but besides encompasses environmental and societal facets ( Slaper and Hall, 2011 ) . All these attacks, which in rule argue the same thing, have laid the foundations for the design of a Sustainability Management Accounting System ( SMAS ) which is aimed at bettering the designation, cost allotment and analysis of societal and environmental impact costs. This leads to better direction determinations and better environmental and societal revelations ( Petcharat et al, 2010 ) . In position of this, Sustainability Accounting has been recognized as a outstanding tool to accomplish Sustainability ends across assorted types of organisations, whether or non they aim for net income.
2.2 SUSTAINABILITY MANAGEMENT ACCOUNTING SYSTEM
2.2.1 OVERVIEW OF SUSTAINABILITY MEASUREMENT
Back in 1997, Elkington developed the Triple Bottom Line construct in effort to step Sustainability. Yet it has been argued that there is no individual harmonized unit of measuring for economic, environmental and societal public presentation. Economic public presentation is the easiest to mensurate since net incomes are used as a measurement footing but how do companies mensurate the societal capital or environmental wellness of a concern? Harmonizing to Slaper and Hall ( 2011 ) , some have argued that all the dimensions of the ternary bottom line should be translated into money as a common step, including the societal and environmental impacts. Yet this leads to value mutual exclusiveness. Another step they proposed is the usage of an index that would be universally accepted and allows good comparings between companies. However an component of subjectiveness still remains when it comes to burdening the index constituents. One other suggested attack is to let each Sustainability step to stand entirely instead than utilize pecuniary steps or indices. Yet Slaper and Hall argued that this could take to ‘proliferation of prosodies ‘ . Despite the deficiency of a cosmopolitan standard step for the three dimensions of the TBL this can still be good because the chosen steps will reflect the different demands of the entity.
A series of indexs have been used for measuring. Practical illustrations of economic indexs used are income and outgo, occupation growing and company size while environmental indexs measure the influences of natural resources for illustration electricity and dodo fuel ingestion or the C footmark. Social indexs normally used include instruction measurings, quality of life and wellbeing, poorness degrees and client keeping rates ( Slaper and Hall, 2011 ) . These are translated into utile environmental and societal Key Performance Indicators ( KPIs ) maintaining in head the thought that ‘what you can non mensurate you can non pull off ‘ ( Rath, 2011 ) . Furthermore, to ease environmental and societal cost measuring for decision-making, it is clear that an effectual Management Accounting model is needed ( Petcharat et al, 2010 ) .
2.2.2 ENVIRONMENTAL MANAGEMENT ACCOUNTING
Environmental Management Accounting ( EMA ) is a sub-category of Environmental Accounting which provides information that is utile for internal decision-making whilst back uping external environmental revelations provided through Environmental Financial Accounting ( EFA ) ( Petcharat et al, 2010 ) . It besides considers issues such as taking environmentally-aware providers and the consequence of non-compliance with environmental ordinances ( Ironss, 2010 ) . Harmonizing to UNDSD ( 2001 ) , EMA measures both physical measures such as energy, H2O and wastes, and pecuniary sums such as environmental costs or nest eggs. Identifying such costs could be a boring procedure since historically they have been ‘hidden off ‘ as operating expenses doing it hard to accurately mensurate them ( IFAC, 2005 ) . EMA aids with apportioning environmental costs to the single merchandises, and the UNDSD ( 2003 ) advocates the usage of four direction accounting techniques for making so, viz. Activity Based Costing ( ABC ) , Life-Cycle costing, input/output flow analysis and flow cost accounting ( Irons, 2010 ) . The most popular techniques are ABC, which translates environmental costs into cost drivers after apportioning them to be centres, and Life-cycle costing which outlines the environmental costs from the initial phase of merchandise development to the completion and bringing phase of the merchandise. The constructs and patterns in EMA hence allow more accurate direction of environmental costs.
2.2.3 SOCIAL MANAGEMENT ACCOUNTING
Similar to EMA, Social Management Accounting ( SMA ) is a sub-category of Social Accounting which is concerned with the designation and measuring of societal costs for internal decision-making, thereby back uping external societal public presentation revelations ( Petcharat et al, 2010 ) . Most concerns today claim that their most valuable plus is their people. Therefore they are continuously seeking ways of how to ‘put the client foremost ‘ without compromising employees working conditions ( CGMA, 2012 ) . In making so, they have attempted to enter societal costs like employee turnover or client dissatisfaction, as operating expenses instead than merchandise costs, to incorporate them into decision-making ( Hazilla and Kopp, 1990 ) . However, non much has been done about mensurating societal costs given the complexness of the procedure in capturing them. Therefore Social Accounting has non been successfully implemented. Nevertheless, human capital, cognition, engineering, rational belongings and client relationships are regarded as possible drivers of value and steps of such drivers are required ( CGMA, 2012 ) .
2.2.4 FULL COST ACCOUNTING APPROACH
Past pattern has shown that handling societal and environmental costs as operating expenses has made such costs less governable and removed the merchandise directors ‘ duty over them. In response to this a Full Cost Accounting option has been promoted thereby factoring in societal, environmental and other costs as merchandise costs.
Environmental costs can be private costs for which the house is straight responsible and affect net incomes straight, or societal costs which affect the remainder of society but for which the house is non needfully held apt. In a survey carried out by the U.S Environmental Protection Agency ( 1995 ) , environmental costs were classified as shown in Figure 2.1 overleaf.
Figure 2.1: Environmental costs and measurement categorization
Agency U.S.E.P.A. ( 1995 ) . An Introduction to Environmental Accounting as a Business Management Tool: Cardinal constructs and footings. [ Online ] Available from: hypertext transfer protocol: //onlinelibrary.wiley.com/doi/10.1002/cbdv.200490137/abstract [ Accessed: 4 November 2012 ] . Remove URL and make it the proper manner!
Conventional costs are the normal natural stuff, labor and capital equipment costs used which are of import for decision-making. Hidden costs are those that can non truly be accounted for straight for illustration voluntary or regulative costs which include preparation, R & A ; D and feasibleness surveies. Contingent costs are those that are expected to be incurred at some point in the hereafter for illustration future conformity costs, economic loss amendss and redress costs. Relationship/image costs are certain intangible costs that tend to impact the perceptual experiences of employees, clients, direction and the community. They may impact advanced determinations. Last, social costs are outwardnesss that can include environmental debasement or inauspicious effects on human existences.
Given this dislocation of environmental costs ( including societal costs ) , one inquiry still remains, viz. that of how costs are assigned from the intangible societal and environmental properties. In his survey, Conway-Schempf ( online ) outlines four chief methods of making this. These are:
Direct Method: Here the market monetary value of resources is used straight for measuring.
Hedonic Price Approach: here one seeks to tie in alterations in the monetary value of a resource to differences in environmental quality and detect the monetary value consumers are willing to pay.
Contingent Evaluation: this involves straight inquiring people the monetary value they are willing to pay for an environmental benefit and how much they would be compensated if such benefit is lost. This would so assist get at the monetary value.
User Cost Approach: this method attempts to analyse the entire costs of an activity including chance costs.
The above methods allow for societal and environmental costs to be incorporated in the monetary value of a peculiar activity. As a consequence, ‘Full cost pricing efforts to guarantee that the costs are paid by the users instead than by society at big ‘ ( Conway-Schempf, online ) .
Despite all this there might still be trouble in gauging the environmental and societal costs since it involves subjectiveness. Besides it is difficult to accomplish consistence in measurement methods among companies and it is non so easy to put monetary values which include societal and environmental cost elements in a competitory market. Companies need to be motivated in using full cost accounting since in the presence of budgetary restraints they usually attempt to cut down costs instead than increase them.
2.2.5 Putt IT ALL TOGETHER
In their survey, Petcharat et Al ( 2010 ) developed a holistic theoretical account that combined the constructs of Environmental Management Accounting and Social Management Accounting to assist mensurate societal and environmental costs within a Sustainability Management Accounting System ( SMAS ) . This aided in identifying and mensurating both types of costs doing it easier to apportion them to single merchandises. By following these constructs, companies could portray themselves as sustainable endeavors thereby heightening their repute. Figure 2.2 depicts how these three major constructs in a SMAS are interlinked within a theoretical model. The more these constructs are expeditiously applied, the stronger the SMAS therefore the in-between circle would be larger. Correct application of the SMAS so drives the company to unwrap environmental and societal issues in the signifier of a ternary bottom line study which will add value in the eyes of the stakeholder ( Berkel, 2003 ) .
Figure 2.2: Sustainability Management Accounting System constructs
Petcharat, N. & A ; Mula, J.M. ( 2009 ) Identifying System Characteristics for Development of a Sustainability Management Accounting Information System: Towards a Conceptual Design for the Manufacturing Industry. 2009 Fourth International Conference on Cooperation and Promotion of Information Resources in Science and Technology. [ Online ] 56-64. Available from: hypertext transfer protocol: //ieeexplore.ieee.org/lpdocs/epic03/wrapper.htm? arnumber=5361815. [ Accessed: 4 November
2.3 SUSTAINABILITY DISCLOSURE & A ; ASSURANCE
We presently live in a universe of permeable boundaries between concerns, persons and the outside universe, where ‘it seems that nil is private ‘ ( CGMA, 2012 ) . Most companies are hence being required by stakeholders to increase their transparence on Sustainability actions. Investors are coercing companies to unwrap mensurable and dependable non-financial information to help them in their investing determinations. It has been realized that the absence of believable and dependable coverage on environmental and societal public presentation mitigates the opportunity for companies to increase competitory advantage and hazard losing major clients every bit good as the trust of the populace ( Nieland, 2011 ) . This explains why over the last few old ages, Sustainability describing enterprises have increased at a dramatic rate. In fact, harmonizing to CorporateRegister.com, the figure of planetary companies publishing Sustainability studies escalated from around eight-hundred in 2000 to over four-thousand five-hundred in 2010 ( Nieland, 2011 ) .
2.3.1 Coverage GUIDELINES AND REGULATION
Sustainability describing worldwide is mostly considered to be a voluntary enterprise ( Boynton, 2010 ) . Yet in some instances, such coverage has been promoted further by following certain ordinances. An illustration is the EU Fourth Company Law Directive that requires companies to unwrap information on societal and environmental facets of their operations in order to ‘provide an apprehension of their development, public presentation or place ‘ ( European Commission, 2011 ) . It has besides become common pattern for certain companies to go certified with International Organization for Standardization ( ISO ) to better the efficiency of their operations by incorporating ‘environmental ordinances into the direction system ‘ ( Bugelli, 2011 ) . The most normally used Environmental Management System ( EMS ) is ISO 14000 and the European Union ‘s Eco-Management and Audit Scheme ( EMAS ) . For more item about these, refer to Appendix 1.
In a survey carried out by Ioannu and Serafeim ( 2012 ) in which they explored the effects of compulsory Corporate Sustainability coverage, it was discovered that the societal duty of concern leaders tends to increase following the acceptance of compulsory Sustainability ordinances. They besides proved that companies in this scenario give more precedence to Sustainability patterns and better their managerial credibleness. Besides, states with stronger ordinance enforcement tend to see more of these effects. However, it is a fact that if ordinance is non in any manner synchronized with a figure of metric models, this poses a major challenge ( Boynton, 2010 ) . Voluntary or regulative coverage demands can hence be synchronized within a model and triggered by enterprises like the Global Reporting Initiative ( GRI ) .
The GRI, which is a non-profit devising organisation, set up a figure of guidelines that served as the universe ‘s most widely-used coverage model and can be applied by companies in assorted sectors. Its mission is to change over Sustainability describing into a ‘mainstream concern activity ‘ . The GRI model outlines a set of rules which guarantee that reported information is of good quality. It besides includes revelations about public presentation indexs and counsel on proficient subjects while leting companies to put the degree at which they have applied the GRI coverage model, to guarantee that the demands of all stakeholders are met ( GRI, 2011 ) . It emphasizes that ‘Sustainability coverage is a populating processaˆ¦ ‘ and ‘aˆ¦should suit into a broader procedure for puting organisational scheme, implementing action programs and measuring outcomes. ‘
2.3.2 THE LOCAL SCENARIO
In a recent survey by Voghel and Thompson ( 2012 ) it was discovered that Small and Medium Sized Enterprises ( SMEs ) are easy shifting towards a Sustainability scheme due to its ties to concern public presentation. Yet, despite the turning consciousness about Sustainability, literature on what Maltese companies really do in pattern is really much lacking. Surveies outline the general perceptual experience that such patterns should be restricted to big and listed companies and little concern should be exempt. This is possibly why Maltese companies do non give Sustainability much importance. In a public audience on non-financial information revelation between the European Commission and organisations from member provinces in 2011, respondents by and large stated that describing demands should be restricted merely to big companies since they ‘have a bigger consequence on the economic system ‘ and despite their corporate big impact, SMEs should non be capable to compulsory revelations. However, this contrasts with the position of Voghel and Thompson in their article on The Accountant ( MIA Malta ) ( 2012 ) , in which they province that SMEs can be guided by Small and Medium Sized Practices ( SMPs ) in developing an EMS. The IFAC ( International Federation of Accountants ) assists SMEs in using Sustainability rules by supplying them with a usher to pattern direction. Thus they should non be exempt from using Sustainability patterns.
Harmonizing to Rizzo ( 2012 ) , Sustainability coverage does non have extremely on most houses ‘ docket and companies are still following a ‘let it be ‘ attitude. He stated that without top-down enterprises from authorities and a legal model, Maltese houses are frequently tempted give Sustainability a back place. As a consequence Malta is still far off from carry oning Sustainability patterns without a ‘policy of voluntarism ‘ but for the clip being may necessitate to stress their importance through ordinance.
2.3.3 SUSTAINABILITY ASSURANCE
The growing in Sustainability coverage in recent old ages has given rise to voluntary Sustainability confidence. In a survey carried out by Cheng, Green and Ko ( 2012 ) it was discovered that confidence of Sustainability studies tends to increase investor ‘s willingness to put since companies would be directing a positive signal about their hazards. Furthermore, they discovered that the willingness to put is likely to be higher for companies whose Sustainability study is audited by an accounting house instead than a consultancy house.
Both locally and overseas, the Big Four accounting houses started uniting their cognition and expertness in order to ‘capture a important portion of the turning market in confidence on sustainability studies ‘ ( O’Dwyer, 2011 ) . However, most companies still seem to oppugn the quality of such confidence since there is deficiency of overall experience. In a public audience with the EU Commission on unwraping non-financial information, respondents stated that although scrutinizing a Sustainability study would heighten truth and assurance among stakeholders, it poses a cost that is hard to quantify ( EU Commission, 2012 ) . Despite this, Sustainability confidence continues to hold turning importance since it allows companies to obtain long-run stockholder value and addition credibleness through the published Sustainability study ( PwC, online ) . Appendix 2 provides an illustration of a Sustainability Assurance study for Vodafone Malta Limited audited by the company auditors PricewaterhouseCoopers ( PwC ) .
After discoursing assorted facets of Sustainability measuring and accounting, Sustainability coverage and confidence, the undermentioned subdivisions will research any current local patterns. Given that in Malta literature on such facets is missing, these subdivisions will try to turn to the spread in local cognition.