![Turcotte 3
Signs that corporations are being influenced by these trends are already present. On their
own, some businesses have decided to include GHG emissions as part of their overall decision-
making process. Often, the organizations taking the lead in reducing emissions are being
rewarded for their effort. This has certainly been the case for one Colorado based brewery.
New Belgium [Brewery] has always looked for ways to be energy efficient and
socially responsible…
Greenhouse Gas Emissions Reduction • In 1998, New Belgium took an
employee vote and decided to commit to being the nation’s first wind-powered
brewery. The decision came after our engineers, looking to minimize CO2
emissions, discovered that city’s power plant, which supplied the brewery with
electricity, created the bulk of our emissions. Employee owners voted to dip into
their bonus pool to help finance the conversion. (New Belgium)
In this exceptional example, this company decided to take a risk by committing itself to a policy
of sustainability.
Rather than being a liability, incorporating sustainability as part of their ongoing
operations has greatly benefited New Belgium’s corporate image. It may even be possible to
claim that this effort has given them a competitive edge over other breweries. If nothing else, it
lets consumers feel good about using their product, and it makes for interesting conversation.
This informal advertising is yet another benefit. Although it can be difficult to assign such
benefits a direct monetary value, they should not be discounted. Examples such as New Belgium
show that it is possible to reconcile the goals of profitability with sustainability. Still, much
work remains for this ideal to be realized on a global scale.](https://image.slidesharecdn.com/2007sapscholarshipsubmission-091113160450-phpapp02/85/2007-SAP-Scholarship-Submission-3-320.jpg)
2007 SAP Scholarship Submission
- 1. Turcotte 1 Greg Turcotte SAP Research Report 13 May 2007 Summary: Increasingly, corporations are being called on to adopt sustainable practices as part of their standard operations. One of the foremost goals of this movement is to reduce the emission of green-house-gasses. This report examines the role of information systems in reaching this goal. Forward thinking companies such as SAP have recognized this need, and are providing tools for tracking green-house-gas emissions. Using Existing Information Systems for Green-House-Gas Emission Tracking A textbook from one of my undergraduate management courses poses the question, “Should business be responsible for social concerns lying beyond its own economic well-being?” (Bateman 162). Increasingly, social interest groups, individual consumers, and even foreign governments are answering this question with a resounding “Yes”. A call for corporate accountability beyond immediate profits is being raised; a call that emphasizes the need for ethical and sustainable business practices. One such social concern has received considerable attention as of late: global warming due to green-house-gas (GHG) emissions. Many envision a future where corporations are held responsible for their contribution to this global threat. Unfortunately, as implied by the opening question, this vision conflicts with the traditional profit-driven mentality of many corporations. Milton Friedman, credited with shaping modern economic theory, was once asked what he thought of corporate philanthropy. He responded, “’The social responsibility of business is to increase profits’”. He went on to argue that anything in addition to this would be unethical (Bateman 162). Before vilifying this statement, it needs to be added that this principle in itself does not exclude the idea of
- 2. Turcotte 2 sustainability. When combined with a long-term view of the future, sustainability is a necessary component of profitability. If resources are depleted, there are no profits. However, reality has shown that a very short-term economic view is dominating the current global economy. Today’s competitive trade-markets are driven by profits with little concern for anything else. The expansion of these markets has fostered a business environment in which corporations are forced to cut costs wherever possible simply to stay in business. Unfortunately, the lowest common denominator often sets the bar. If a competitor is saving money by spewing waste into the air, others may be inclined to do the same simply to compete. The idea that a business would willingly take on the costly process of reducing green-house-gas emissions seems counter intuitive at best. When looked at with a short-term view of the future, it appears that the goals of profitability and sustainability are at odds with one another. Currently, there are attempts being made to reconcile these two objectives. The hope is to change the rules by which our global markets operate. Across the board, corporate profitability needs to be linked with sustainable practices. The catalyst for change may come in the form of government coercion, the influence of consumers through the purchases they make, or through some other means. Likely, the resulting solution will incorporate aspects from all of these sources. Milburn Thompson, a writer examining the social impact of globalization, has taken an optimistic view. “The system itself can often be directed toward conserving the environment… Multi-national corporations can be shown that environmental responsibility pays in the end.” (Thompson 39). By directly linking profits with sustainability, the competitive market system can be harnessed into self-regulation. While the final outcome is still unknown, steps for reaching this point are already being taken.
- 3. Turcotte 3 Signs that corporations are being influenced by these trends are already present. On their own, some businesses have decided to include GHG emissions as part of their overall decision- making process. Often, the organizations taking the lead in reducing emissions are being rewarded for their effort. This has certainly been the case for one Colorado based brewery. New Belgium [Brewery] has always looked for ways to be energy efficient and socially responsible… Greenhouse Gas Emissions Reduction • In 1998, New Belgium took an employee vote and decided to commit to being the nation’s first wind-powered brewery. The decision came after our engineers, looking to minimize CO2 emissions, discovered that city’s power plant, which supplied the brewery with electricity, created the bulk of our emissions. Employee owners voted to dip into their bonus pool to help finance the conversion. (New Belgium) In this exceptional example, this company decided to take a risk by committing itself to a policy of sustainability. Rather than being a liability, incorporating sustainability as part of their ongoing operations has greatly benefited New Belgium’s corporate image. It may even be possible to claim that this effort has given them a competitive edge over other breweries. If nothing else, it lets consumers feel good about using their product, and it makes for interesting conversation. This informal advertising is yet another benefit. Although it can be difficult to assign such benefits a direct monetary value, they should not be discounted. Examples such as New Belgium show that it is possible to reconcile the goals of profitability with sustainability. Still, much work remains for this ideal to be realized on a global scale.
- 4. Turcotte 4 While the above example illustrated indirect benefits of sustainable practices, there is potentially an additional source of revenue that businesses actively budgeting their emissions can benefit from. Several proposed regulations include the buying and selling of emissions credits. “To meet specific goals, emissions trading markets are being developed in which organizations that meet targeted emissions levels earn credits that can be traded, stock-market style, to organizations that didn’t meet them. Estimated by Point Carbon at $10 billion per year, this emerging trading market is potentially very substantial” (SAP 1). In such a market, businesses that excel at reducing their emissions will be in a position to gain financially. This could be a powerful force for motivating emission reductions. In effect, global markets driven by profit can be used to promote sustainable practices. This report is written as a supplement to this vision of the future. Undoubtedly, the required changes will result in a time of transition where corporations struggle to comply with new standards. Admittedly, the process of incorporating sustainable practices will likely result in increased costs. Minimizing these will be of utmost importance for reconciling the goals of sustainability and profitability. After all, business is still about the bottom-line, and cutting expenses is a key aspect of profitability. Efforts to ease corporations through this time are already being made. The following research identifies some of the work being done to assist corporations with green-house-gas emission compliance. The International Organization for Standardization (ISO) has done extensive work in developing a set of standards and protocols for the monitoring of GHG emissions. A brief excerpt from ISO’s webpage states: ISO launched the development of ISO 14064 in 2002 as a solution to the problems posed by the fact that governments, business corporations and voluntary
- 5. Turcotte 5 initiatives were using a number of approaches to account for organization- and project-level GHG emissions and removals with no generally accepted validation or verification protocols. (ISO) With this standard, the ISO has created a single set of rules by which corporations are evaluated for GHG compliance. Uniformity ensures that the playing field is indeed level. Enforcing these standards as prerequisites for entering the global market could create a competitive environment that encourages sustainability. No longer would one company be able to out-perform another by ignoring GHG emissions. In addition to creating a common set of rules, the ISO standard is a comprehensive guideline for emissions reporting. It details how emissions tracking can be incorporated into the business process. Concepts outlined in the ISO standard are strikingly similar to what one would find in a financial accounting textbook. Unifying similarities can be found between the language implemented in ISO 14064 and the corporate-familiar language of financial accounting. ISO 14046 sets out to achieve four goals, each of which should sound very familiar to anyone in the accounting field. • Promote consistency, transparency and credibility in GHG quantification, monitoring, reporting and verification; • Enable organizations to identify and manage GHG-related liabilities, assets and risks; • Facilitate the trade of GHG allowances or credits, and • Support the design, development and implementation of comparable and consistent GHG schemes or programmes. (ISO)
- 6. Turcotte 6 The reason these goals should look familiar: they closely resemble those promoted by the Financial Accounting Standards Board. • Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency; • Keep standards current to reflect changes in methods of doing business and changes in the economic environment; • Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process; • Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and • Improve the common understanding of the nature and purposes of information contained in financial reports. (FASB) Both standards emphasize relevance, reliability, and consistency as their primary goals. In both cases, the intent is to create a way by which corporations can be evaluated and compared using a common standard. The idea that all corporations will be held to the same rules is found throughout both standards. As a generally accepted rule, it is illegal for a corporation to gain competitive advantage by ignoring the FASB guidelines. Through the ISO standard, GHG emission tracking is presented as though it is simply a subset of existing accounting practices. Building on existing concepts makes the adoption of emission standards more manageable. However, with the ISO standard in place, it must be recognized that GHG emission tracking will cause significant change and expense for most organizations.
- 7. Turcotte 7 SAP, a provider of information systems, is in the business of making change easier. They have recognized that one possible path to ease businesses through this time of transition is to modify pre-existing information systems. First, we should examine the traditional role SAP’s solutions have played in the world of business. From there, a connection to their role in the issue of green-house-gas emissions can be more easily explained. SAP’s information systems are found in enterprise class businesses across the globe. Due to an ever-increasing need to track information, corporations have turned to SAP’s information systems for aid. SAP allows businesses to monitor operations at their most basic levels. SAP’s systems have made it possible to generate financial and operations reports with a rate of frequency and a level of accuracy that was previously impractical. To a large extent, measures taken to implement these systems have justified themselves by cutting costs and increasing profits. The potential exists where these same systems could also be used to monitor green- house-gas emissions. With an ISO standard in place that can be easily translated into accounting principles, it seems reasonable to conclude that corporations could use existing information systems to facilitate compliance. Instead of analyzing the monetary costs each processes will incur, the emission cost of each product could be estimated. Using this information, companies could apply accounting principles that allow them to budget the emissions they expect to produce within a given time period. With an emissions budget in place, appropriate action could then be taken to insure compliance. Such systems would also be key in the trading of emissions credits. Without accurate information systems, there would be no way to realize this trade opportunity. By expanding the role of existing information systems, corporations will be in a position to comply with emission standards and capitalize on potential sources of revenue.
- 8. Turcotte 8 In the recent past, SAP has implemented emission-tracking solutions in industries that are already highly regulated. For example, utility plants are on the forefront of GHG emission monitoring. An excerpt SAP’s website explains: Regulations such as the Clean Air Act and the Kyoto Protocol require emissions- producing entities in the United States, Europe, and elsewhere to reduce energy consumption and greenhouse gas emission… To succeed in this regulated environment, however, utilities – yours for example – need a cost-effective way of monitoring and controlling emissions output, tracking compliance, and generating reports. This is where SAP xApp Emissions Management (SAPxEM) packaged composite application can help… SAP xEM belongs to a new breed of composite applications. It is designed to improve productivity by aligning compliance software with existing processes. Capabilities such as maintaining compliance status, monitoring and controlling plant emissions, tracking performance benchmarks, and communicating with key stakeholders make this solution unique. It supports processes that enhance the information flow across the organization, improve environmental portfolio management, and enable you to move closer to achieving sustainability for your global operations. (SAP 1, 2) As seen here, SAP is positioning its product as a viable solution for emissions tracking. In addition to promoting new stand-alone solutions, SAP has shown that existing enterprise software can be modified to accommodate new environmental accounting methods. “SAP xEM integrates seamlessly with existing enterprise portals. For effective emissions management, you must be able to integrate data from various systems” (SAP 3). Adding further
- 9. Turcotte 9 incentive, the estimate SAP gives for implementing this added functionality to their existing systems is less than four months time (SAP 4). While realistically there are sure to be complications, it is encouraging to see that developers like SAP are recognizing the importance of providing competitive solutions that integrate environmental accounting into existing programs. Retrofitting existing information systems could dramatically reduce the time for implementation and the resulting overhead costs. Personally, I find the merging of environmental accounting into traditional corporate practices exciting. It is a highly practical way of tackling a problem with truly global implications. Though it does not prevent such a thing, it does not require a drastic change in corporate ideology. Compliance can be achieved by using competitive markets, something readily accepted by modern corporations. To me, this seems like a realistic approach to a potentially volatile transition. I hope to position myself professionally so that I’m involved in this emerging field in some way. In viable visions of a sustainable future, it must be recognized that corporations are driven by profits. This basic principle is not likely to waiver. However, it is possible to foster a long-range view of the future, thereby linking profits directly to sustainability. In the end, if we fail to sustain our resources, what good are profits anyway? Competitive markets can be modified to include this concept. Linking profits to compliance will effectively capture the attention of shareholders and the companies they influence. The International Standards Organization has made significant progress to this end. They have developed a standard by which all businesses competing in the global market can be held accountable. Of equal importance, SAP is providing the tools needed for corporations to operate in this new environment. Information systems are helping corporations to comply with these standards in a
- 10. Turcotte 10 way that is cost-effective and timely. Ideally, these efforts will lead to a future where both sustainability and profitability can be accommodated.
- 11. Turcotte 11 Works Cited Bateman, Thomas S., Scott A. Snell. Management Leading & Collaborating in a Competitive World. 7th ed. New York, NY: McGraw-Hill Irwin, 2007. FASB. “The Mission of the Financial Accounting Standards Board.” FASB. 25 Apr. 2007. <http://www.fasb.org/facts/index.shtml#mission> ISO. “New ISO 14064 Standards Provide Tools for Assessing and Supporting Greenhouse Gas Reduction and Emissions Trading.” International Organization for Standardization. 3 Mar. 2006. 25 Apr. 2007 <http://www.iso.org/iso/en/commcentre/pressreleases/2006/ Ref994.html> New Belgium. “Sustainability.” New Belgium. 8 May 2007. <http://www.newbelgium.com/ sustainability.php> SAP. “SAP for Utilities: SAP xApp Emissions Management.” SAP. Aug. 2004. 25 Apr. 2007 <http://www.sap.com/industries/utilities/pdf/BWP_xEM_SAP_Utilities.pdf> Thompson, Milburn J. Justice & Peace. 2nd ed. Maryknoll, NY: Orbis Books, 2003.