Organizations worldwide are recognizing their role as contributors to global warming and setting targets for greenhouse gas (GHG) reductions. Tracking GHGs is a new challenge, so companies are turning to carbon management accounting, which provides processes and procedures that support the implementation of carbon reduction activities.
Fereshteh Mahmoudian and Jamal Nazari from Simon Fraser University’s (SFU) Beedie School of Business study how complex organizations engage stakeholders in sustainability initiatives. Mahmoudian is an assistant professor of accounting and Nazari is an associate professor of accounting and the academic director of KPMG. They recently published Inter-and intra-organizational stakeholder arrangements in carbon management accounting, which compared the effectiveness of stakeholder engagement with a company’s actual carbon reduction. (For article access, please login with SFU ID).
Using data from the Carbon Disclosure Project (CDP) provided by American companies between 2011 and 2014, the researchers found that companies who join forces with others (both externally and internally) on GHG emissions reduction projects are more successful in achieving their goals.
We spoke with Mahmoudian and Nazari about their work.
Your research found that when companies engage external stakeholders in collaborative arrangements such as alliances and partnerships they report better emissions performance. Please elaborate.
Communication with stakeholders could help firms conform to continually changing stakeholder expectations, develop performance measures and accounting approaches, and subsequently drive improvement in corporate sustainability performance and reporting. Likely, many of the firm's stakeholders have a mutual interest in GHG emissions reductions and reporting. For example, governments are interested in firms meeting regulatory targets, shareholders and potential investors are concerned about the risks associated with high carbon sectors and their ultimate legitimacy as society raises more concerns about climate change. Suppliers and customers are choosing low carbon firms as their vendors to reduce Scope 3 emissions in their supply chain, and communities have their own carbon reduction targets to meet—consequently, they look for firms with similar values.
Given the complexity of environmental innovation processes, engagement with external stakeholders appears logical. The complexity and uncertainty involved in making improvements in environmental performance and reporting has led to many long-run and short-run voluntary collaborative initiatives between firms and their stakeholders. We found that these collaborations ultimately assist firms in improving both GHG emissions reductions and reporting.
What are some of the ways that companies can engage internal stakeholders (staff, boards, clients) to improve their overall GHG emissions performance?
Carbon emissions occur everywhere; therefore, carbon reduction projects spread across many functional areas, business units and divisions. For example, strategic carbon management process activities include identifying key carbon/energy cost drivers as good candidates for reduction in building facilities and production processes by generating and interpreting analyses on carbon reduction projects, such as payback and internal rates of return for comparison purposes. Subsequently, accountants, engineers, production process managers and building managers from different functional areas provide their special expertise to reduce carbon cost drivers. Considering strategic carbon management accounting product activities in the early stages of idea generation and product design, accountants can work with research and development, production engineers, and marketing personnel to forecast carbon creation through a product's various attributes and life cycle. Thus, activities in the value chain that drive emissions can be identified before the product is in the marketplace. Furthermore, accountants can work with operations managers, production personnel, marketing experts, and research and development scientists to analyze a current product's attributes for potential re-design to reduce carbon creation in the production, selling and distribution processes. Finally, strategic carbon management accounting organizational activities include incorporating various elements of a management system to encourage behavior change. These might include setting targets for the organization and creating a monitoring system, which is fundamental in motivating an effective course of action and commitment by individuals and divisions across the organization in all functional areas.
Much of your research is about how organizations approach corporate social responsibility and sustainability activities. How does seeing sustainability through an accounting lens help companies?
Accounting organizations across the globe—including the Chartered Professional Accountants (CPA) of Canada—have taken GHG emissions reduction and management seriously and have several ongoing initiatives to address the challenges for the profession. Accounting plays an important role in taking up the GHG emissions reduction challenges. Carbon accounting consists of the processes and procedures that support the implementation of carbon reduction throughout the organization. It helps to monitor and evaluate all financial and non-financial impacts of GHG emissions on all levels of the value chain and subsequently recognize the impact of organizational operations on the carbon cycle of the ecosystem.
Accountants with expertise in internal and external financial and non-financial reporting can assist organizations in reporting and auditing GHG emissions risks and opportunities. They can assist in integrating GHG emissions performance and reporting to the core of the organizational management information system, thereby enabling the senior managers, board of directors, and other organizational actors to actively value and monitor the GHG emissions consequences of various corporate strategies.
This research was funded by the Chartered Professional Accountants of Alberta Fellowship at the Haskayne School of Business, University of Calgary and a Social Sciences and Humanities Research Council Insight Development Grant held at the SFU Beedie School of Business.