Sustainability in Natural Environment - Term Paper Example

Finance and Accounting Table of Contents Introduction 3 Sustainability- definition 3 Drivers of global initiatives and impact of these initiatives oncorporate reporting 4 Importance of integrated reporting to various stakeholders 5 Environmental accounting for addressing various related issues in Ozgold 6 Integrated reporting in Ozgold: benefits, cost and obstacles 7 Recommendations 8 Works cited 9 Name of student: Name of university: Course: Date: Integrated Reporting Introduction Over the years, sustainability has earned huge reputation in various public and private organizations. It has also become one of the corporate mantras to success for various multinationals. Sustainability embodies assurance regarding societal evolution in a world that is equitably wealthy and where cultural as well as natural aspects of environment are preserved for future generations. The concern regarding social equity and economic development is not a new issue and has been continuing for ages. Sustainability in natural environment through conservation is not sufficient and it is important that organizations practice the same in their corporate activities as well. One of the importance aspects of sustainability is corporate reporting, which is also known as integrated reporting (Dyllick and Hockerts 130-141). The aim of this report is to discuss various facets of integrated reporting and its importance, along with its implication on the company discussed in the case, Ozgold. Sustainability- definition Sustainability focuses upon encouraging development within a specific global framework, where continuous fulfillment of the human needs form the ultimate motive. From the business perspective, the concept of corporate sustainability is defined as a process of undertaking activities that meet the needs of direct as well as indirect stakeholders such as, shareholders, employees, community, government, pressure group and clients, of a firm without compromising on the resources required for meeting demands of future stakeholders. There are five primary axioms of sustainability: efficient utilization of critical resources and continuous search for substitutes, sustainable growth of population and resource consumption, utilization of renewable resources at a slower rate than that of replenishment, rate of decline in usage of non-renewable resources should be greater than its depletion rate and lastly, control on the release of by-products from human activities in the environment (Dyllick and Hockerts 130-141). A number of authors have described sustainability from the perspective of triple bottom line approach, which dates back to the 1990s. According to the triple bottom line approach, three dimensions of sustainability can be highlighted, namely economic sustainability, environmental sustainability and social sustainability. Numerous researchers had advocated that none of these aspects are alone sufficient for facilitating corporate sustainability and corporations must integrate all three factors to achieve the same. Sustainability explains that it is completely unfair for organizations to experience economic prosperity without paying attention to factors that are responsible (Kolk 1-15; Dyllick and Hockerts 130-141). Drivers of global initiatives and impact of these initiatives on corporate reporting As expectations in the business world are changing, companies are becoming more accountable for impact of their activities on the environment and communities wherein they operate. The sustainability and growth of any business is highly dependable on the society in terms of being a corporate citizen. Currently, community health, climate, education and development are the most important sustainability issues that organizations are facing, thereby helping to maintain accuracy and transparency in the activities conducted. Socially responsible and legitimate behavior of organizations is nowadays the key driver of business survival. Under the present circumstances, the government of different nations is implementing various sustainability factors so as to improve the overall performance. Another factor that acts as a key driver of global sustainability initiatives is communication needs. Sustainability reporting has become an important communication tool for corporations in order to disclose organizational plans and performance and enhance the stakeholders’ confidence (Eccles and Krzus 25-80). A number of factors act as the chief drivers for increasing sustainability measures on the international forum. According to Ernst & Young, the primary drivers are stakeholders, who emphasizes on sustainability reporting due to participation of organizations in global supply chain, brand reputation at international market, the government and other regulatory authorities, international organizations such as, the UN and competitors. One of the other key drivers that stresses upon sustainability reporting is acknowledgement of the benefits of sustainability. Integrated reporting, unlike corporate reporting that used to be non-financial in nature, comprises various components of the society, namely social, economic and environmental issues. On the international forum, organizations are focusing on developing corporate sustainability reporting that has integrated accounting through triple bottom line accounting approach. In addition, organizations are presently following the internationally prescribed Global Reporting Initiatives guidelines. The main reason for companies to consider global initiatives in respect to corporate reporting is to improve the credibility of their reports. Corporate reporting that follows global initiatives is undertaken by corporations so that global standards can be maintained (Busco, et al. 3-18). Adoption of global sustainability initiatives result in increased level of communication between an organization and its stakeholders. Furthermore, companies that uphold transparency in their practices are able to enhance corporate reputation. Since the stakeholders include management as well as employees, sustainability is found to improve overall performance of an organization. In a number of organizations, the focus has been shifted from products to the consumer needs due to sustainability initiatives. Additionally, sustainability measures also reduce overall cost of a company by way of ensuring efficient utilization of resources. The implementation process is complicated as it is quite similar to that of organizational change. The process of implementing global reporting initiatives requires sharing of useful information and providing motivation for employees so that critical understanding of sustainability can be developed. Initially, resistance can be observed, but it can be resolved with appropriate reasoning and explanation of the necessity of reporting to the organizational members (Cavazzoni and Orlandi 171-190). Importance of integrated reporting to various stakeholders Integrated reporting is of great importance to internal as well as external stakeholders of any firm because it presents them with a report that addresses its short, medium as well as long term business values. There are three primary dimensions of an integrated report: management, investors and stakeholders. Through integrated reporting, the management attempts to communicate strategies that a firm implements for value creation. The investors in turn examine the same in order to have a better understanding about stewardship of the business. However, stakeholders in this context are the most important party to a company because their support is necessary for sustenance of business. Through integrated reporting, stakeholders strive to determine dependency of the firm on non-financial capital such as, social capital (Kolk 51-64). The importance of integrated reporting can be specifically defined in terms of certain elements explained below. Materiality is an important aspect of integrated reporting and is of high value to various stakeholders as they get informed about various risk and opportunities associated with a firm as well as obtain a complete picture of its business structure. A number of authors have agreed that integrated reporting is a great source of assurance for the stakeholders. An integrated report informs stakeholders about governance of an organization, its processes and activities, quality and system of control, thereby maintaining transparency (Cavazzoni and Orlandi 171-190). Developing integrated reporting structure is helpful for the internal stakeholders such as, employees and management, because reporting develops logical links and flows between activities and in turn ensures that redundancies and errors are identified and corrected. An annual report generally presents financial terms and numbers, but integrated reporting makes sure that the reports are well-explained to consumers and other stakeholders for clarity of understanding. Additionally, it provides a balanced view of financial as well as non-financial capital of a firm and efficiency in utilizing the same (Kolk 51-64). In a number of firms, stakeholders consider integrated reporting as a source of performance measure. The reason is that an integrated report indicates the drivers of volatility as well as sustainability; it presents sustainable trends in financial performance of a firm as well as establishes relationship between the same and strategic organizational initiatives. It is noteworthy in this context that integrated reporting is a forward looking approach, where a firm needs to demonstrate the future management plans and related projections and forecasting to its stakeholders (Robert and Daniela 56-61). Environmental accounting for addressing various related issues in Ozgold Environmental accounting can be considered as an extension of general accounting activities, where accounting focuses on measuring environmental performance of an organization. It can also be considered under social accountability of a firm. It is important to note that every industrial or commercial activity entails consequences, which is why all activities conducted should be monitored so as to minimize environmental impact. In Ozgold, the primary raw materials required comprise heavy metals and minerals, water and fuel and activities conducted are labor intensive. Given the elements of the company’s functionality, it is evident that environmental accounting is very important to prevent negative impacts generated on the surrounding components. Another aspect of the company’s business is that a majority of its manufacturing units are located in the developing countries. A developing country is defined by comparatively low living standard, earning abilities, employment opportunities, underdevelopment industrial structure and relatively low human development index. The primary reasons for most multinationals to operate from these countries are inexpensive raw material, abundant labor force at low cost and limited regulatory frameworks. Overall, conducting operations in the developing nations lowers total production cost for companies. At Ozgold, if the reasons of undertaking operations in under-developed countries belong to any of the above mentioned, then the company can face severe regulatory problem in the United States as such practices are not supported therein (Schaltegger, Müller and Hindrichsen 20-240). Ozgold need to ensure that its manufacturing facilities do not hire child labor as such practices have been strictly abolished under the United Nations Global Compact. Moreover, the reports by International Labor Organization and National Bureau of Economic Research indicate that a number of multinationals neither pay sufficient wages to the workforce in foreign facilities nor do they provide basic amenities to support healthy work condition. Ozgold must maintain a detailed record of their foreign activities, in terms of labor, their age, pay structure, work conditions, facilities at manufacturing units, human rights and output level. Reporting of all these factors is necessary owing to the legal implications (“Multinationals, Wages, and Working Conditions in Developing Countries”; “Working conditions”). Apart from human resources, the company should maintain transparency in its accounting related to all the materials used and the discharges made in the environment. For instance, processing of heavy metal and minerals release toxic fumes that are harmful for health and the water consumed in the manufacturing units for cleaning and other purposes will be toxic as well. The company must ensure that its activities do not pollute environment and harm any kind of living organisms to an irreversible extent. Under environmental accounting, Ozgold should adopt sustainable practices so as to continue business functions without affecting the surrounding. Moreover, it can adopt measures that are less destructive in nature. Apart from introducing sustainability in its practices, the company should undertake greater efforts such as, plantation of trees and cleanliness drive, in order to positively contribute towards the development and conservation of natural environment (Schaltegger, Müller and Hindrichsen 20-240). Integrated reporting in Ozgold: benefits, cost and obstacles Integrated reporting is gaining importance in the business world for a number of reasons. With respect to Ozgold, the benefits derived can be explained as follows: Holistic approach in business conduct: If Ozgold undertakes integrated reporting, it will create an impression of adopting comprehensive strategic framework as well as sustainability as performance measure among the stakeholders. Considering that the stakeholders of Ozgold include its competitors as well as governing bodies, practicing integrated reporting will enhance brand reputation in the international forum. Financial and non-financial impact: Integrated reporting will benefit Ozgold not only in financial terms, but also in non-financial terms. Integrated reporting by definition has a broad scope, which comprises various aspects such as, environmental, social and economic. Such an approach would open newer avenues of opportunities as well as minimize overall costs by way of integrating sustainable measures. Internal awareness and corporate sustainability: If Ozgold incorporates integrated reporting as a part of its organizational policies, the awareness of internal stakeholders, such as, employees, will be enhanced at different levels, thereby further contributing towards better performance of individuals. In addition, the organization will earn a reputable position in the corporate community for its sustainability related efforts. These factors will act as goodwill for Ozgold. Trust of stakeholders: If Ozgold incorporates integrated reporting in its activities, then it will require integrating sustainability in efforts made and activities conducted. Once these measures are implemented, it will ensure greater transparency in the approaches undertaken, thereby improving trust and interest of the stakeholders (Kolk 51-64). The process of integrated reporting is not a very smooth one, unless an organization has always been involved in fair practice in all activities conducted. There are certain costs and obstacles associated with integrated reporting, which Ozgold needs to consider. There are three challenges related to integrated reporting, which can be further segregated in terms of cost and obstacles: a) Execution b) Engagement c) Education Execution: Given the nature of the industry wherein Ozgold operates, it is possible to face obstacles in terms of execution of the report. The report execution process will require the company to establish sustainability in its manufacturing units in the different nations. The problem in this respect is that regulations are comparatively weak in the developing nations. Engagement: Engaging educated workforce to instill sustainability in the approaches undertaken will be easier for Ozgold compared to the uneducated labor force in various manufacturing units. In addition, sustainable activities are often time consuming, which may seem as wastage of time and money to underprivileged labors. As a result, they may refrain from practicing the same. Education: Any new initiative in an organization is challenged by its internal and external members and the same is applicable for integrated reporting. The reason is lack of sufficient knowledge about its functionality. Thus, the company will require investing heavily into imparting necessary information to its various stakeholders (KPMG). Recommendations As the economic and business environment is becoming highly competitive, integrated reporting seems to be the need of the hour for every organization. It was observed during preparation of this report that integrated reporting introduces transparency and sustainability in the practices of an organization. In Australia as well, integrated reporting is gaining importance. Ozgold is an organization that deals primarily with factors that are questionable from the perspective of sustainability. It is in the best interest of the company to implement integrated reporting so as to assure the stakeholders about the legitimacy in its practices. Another reason behind recommending integrated reporting to Ozgold is to enhance its brand reputation in the international market. The company can also achieve cost efficiency and higher productivity by implementing integrated reporting. Works cited Busco, Cristiano, et al. Integrated Reporting. New York: Springer International Publishing, 2013. Print. Cavazzoni, Christian and Francesco Orlandi. Integrated Reporting. New York: Springer International Publishing, 2013. Print. Dyllick, Thomas and Kai Hockerts. "Beyond the business case for corporate sustainability." Business strategy and the environment 11.2 (2002): 130-141. Print. Eccles, Robert G. and Daniela Saltzman. "Achieving sustainability through integrated reporting." Stanford Social Innovation Review Summer (2011): 56-61. PDF file. Eccles, Robert G. and Michael P. Krzus. One report: Integrated reporting for a sustainable strategy. New Jersey: John Wiley & Sons, 2010. Print. Kolk, Ans. “A decade of sustainability reporting: developments and significance.” International Journal of Environment and Sustainable Development 3.1 (2004): 51-64. Print. Kolk, Ans. "Sustainability, accountability and corporate governance: exploring multinationals reporting practices." Business Strategy and the Environment 17.1 (2008): 1-15. Print. KPMG. “Performance insight through better business reporting.” KPMG (2012): 3-40. PDF file. “Multinationals, Wages, and Working Conditions in Developing Countries.” NBER. NBER, 2014. Web. 14 August 2014. Schaltegger, Stefan, Kaspar Müller and Henriette Hindrichsen. Corporate environmental accounting. London, UK: Wiley, 1996. Print. “Working conditions.” ILO. ILO, 2014. 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