Environmental Sustainability Analysis: Wesfarmers Reports (2016-2018)

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This report provides an in-depth analysis of Wesfarmers' sustainability reports from 2016 to 2018, examining the company's efforts in environmental sustainability. The study begins with a research question addressing corporate awareness of climate change and resource usage, followed by a comprehensive literature review of relevant journal articles focusing on climate change accounting, financial performance impacts, carbon business accounting, and the challenges of climate change to accounting. The methodology involves analyzing Wesfarmers' sustainability reports, focusing on climate change resilience, water usage, and waste management, with data presented graphically and in tables. Findings reveal Wesfarmers' commitment to reducing GHG emissions, carbon accounting practices, and risk management strategies. The discussion interprets these findings in light of the literature and stakeholder theory, concluding with an assessment of the company's progress and its impact on society. The report emphasizes the role of accounting in measuring and driving corporate environmental responsibility, offering insights for stakeholders and future research.
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Theoretical Foundations of Accounting
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Abstract
Purpose- The purpose of this study is to find out corporate effort towards environmental
sustainability with accounting as its scale of measurement; as a part of CSR program with the
example of Wesfarmers, an Australian ASX listed company.
Design/ Methodology- The methodology of this study is initiated with identification of research
question followed by literature review of journals and consideration of corporate data on the
subject to analyze their report for last three years.
Findings- The objective of this study is to find out the efforts and approaches of Wesfarmers
towards sustainability of environment for the stakeholders. Three years reports are analyzed to
identify the areas of progress in the aspects of environmental sustainability effort by the
company by accounting parameter set by regulatory bodies.
Discussion- The findings of the study are discussed as per the report and data of the company
related to sustainability effort towards environment with perspective of literature review.
Key Words - Wesfarmers, Sustainability Report, Water and waste usage, Climate Change
Resilience, CO2 emission.
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Table of Contents
Introduction.................................................................................................................................................4
Research Question.......................................................................................................................................4
Literature Review........................................................................................................................................5
Literature Review 1.................................................................................................................................5
Literature Review 2.................................................................................................................................6
Literature Review 3.................................................................................................................................7
Literature Review 4.................................................................................................................................8
Methods......................................................................................................................................................8
Findings.......................................................................................................................................................9
Climate Change........................................................................................................................................9
Water Usage and Waste Management..................................................................................................11
Discussion..................................................................................................................................................13
Conclusion.................................................................................................................................................14
References:................................................................................................................................................16
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Introduction
This research paper will emphasize on the implication of Corporate Social Responsibility
Program of the corporate in perspective of environment sustainability action and its relevance
from accounting viewpoint. The research will evolve with the case study of an ASX listed
corporate named Wesfarmers. For this purpose of research, the Sustainability report of
Wesfarmers is considered for the last three financial years ranging from 2016 to 2018.
Sustainability report of Wesfarmers emphasizes on different aspects of corporate operation for its
stakeholders including environment with specific focus on issues like climate change resilience
and waste and water use. These reports will be analyzed in perspective of literature review on the
subject emphasizing on the issues of environment restoration for greener future world from
accounting perspective. The sustainability reports of the company highlight the domains of Key
Result Area to ensure environmental sustainability by Wesfarmers for the community as a part of
its CSR program. This article needs to generate a research question related to the subject.
Through literature review on the subject and the respective corporate disclosure about
environment sustainability, specific research question is set related to the corporate effort to
ensure environmental sustainability with specific focus on reduction of green gas emission
through the effort initiated by the company for their stakeholders. The findings of research are to
be valued by one theory known as Stakeholder theory. At the end, conclusion is to be drawn to
point out the objective of environmental sustainability effort by the company with its success to
facilitate the society and human kind, at large.
Research Question
Are the corporate bodies aware of climate change and use of natural resources for the society?
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Literature Review
The preliminary task to conduct this research is to do literature review on the subject of
environmental sustainability by corporate in respect of their disclosures with respect to
accounting practices. Four literatures are selected for this purpose from eminent journals to
highlight the need of this issue for future generation and respective stakeholders.
Literature Review 1
First literature considered for review is Climate change accounting: the challenge of uncertainty
in Pacific islands by Umesh Sharma, Vida Lucia Botes, Dani Foo and Ram Karan (January,
2017) published in International Journal of Critical Accounting. (Sharma et al., 2017) This article
is aiming towards setting out different key factors related to research on climate change in
respect of accounting and accountability. This research is based on the case study of specific
Pacific islands regarding climate change with main emphasis on increased water level due to
increased temperature of the region occurred by increased level of Green House Gas (GHG)
emission. This research is made on the basis of historical data of climate change of the region
and respective literature of climate change accounting. Interviews of stakeholders of the region
in the form of farmers were also conducted. It is observed that despite sincere effort on corporate
level to reduce GHG emission considering Kyoto emission reduction parameter, (Nations, 1997)
no significant improvement was found due to lack of strong policy implementation in the subject
with corporate business runs as usual. It is known that Paris agreement (Commission, 2015) had
specified required measures for maintenance of climate change status-quo parameter for
developed countries with identification of this problem as a major global problem for living
objects of the planet. The objective is to maintain the temperature increase within 1.5 degrees
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with comparison to the pre-industrial period. It is observed that relatively very small effort was
done for climate change accounting in this area with lesser projection of accountability from the
responsible stakeholders. This research is based on the information of Pacific Islands but
provides good scope for future study in global context.
Literature Review 2
The second literature considered for review is Impact of Climate Change Disclosure on Financial
Performance: An Analysis of Indian Firms by Praveen Kumar and Mohammed Firoz published
in Journal of Environmental Accounting and Management (2018). (Kumar et al., 2018) This
research article tried to investigate the inherent relationship between disclosure of corporate
regarding climate change and the financial performance of the firm in the context of Indian
corporate scenario. For this purpose, 44 Indian firms are considered to assess their disclosure
related to climate change in perspective of Carbon Disclosure Project through a survey for the
period 2011 to 2015. Moreover their return on equity (ROE) (CFI, nd) and return on assets
(ROA) (Hargrave, 2019) are considered to understand their financial activities. With the control
of variables related to industry and firm specification, it is noticed that ROE is higher for the
corporate bodies with higher scores on environmental disclosure comparing to the entities with
lower scores of environmental disclosure. Further, the outcome of regression analysis proved that
the market endorses the concept of voluntary disclosure of climate change by corporate as
positive initiative resulting to positive coefficient of regression significantly. But there is no
significant proof that ROA is decided by climate change disclosures by corporate. The above
findings proved their significance for stakeholders like managers and investors to evaluate the
financial consequences of voluntary disclosure of climate change by the entities operating in
emerging economy.
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Literature Review 3
The third literature reviewed for this purpose is Carbon Business Accounting: The Impact of
Global Warming on the Cost and Management Accounting Profession by Janek T.D. Ratnatunga
and Kashi R. Balachandran published in Journal of Accounting, Auditing and Finance (2009)
(Ratnatunga & Balachandran, 2009) The literature emphasizes on the gradual increase of GHG
emission resulting to disastrous climate change for the global environment. This problem needs
to attract greater attention by the corporate entities to implement different precautionary steps in
global and regional level. Stakeholders like governments, corporate and individual would be
seriously affected by this phenomenon and the needs of precautionary steps are to be enforced by
the entities in their decision-making system. Of all the entities, corporate entities have to ensure
proper measures in perspective of trading of carbon allowances, (Expert, nd) ensuring
investments in technologies for lower GHG emission, with assurance to regulate CO2 through
cost effective approaches giving effect of this extra cost in the product prices to be borne by the
consumers. (Direct, nd) This article did qualitative research study to follow Kyoto Protocol
system in the perspective of changing information pattern of cost and respective managerial tools
of accounting. This paper had shown the usefulness of strategic cost management process to
ensure carbon reduction management with special attention to ‘whole-life cost’ of products or
services in relation to carbon emission. (Öker & Adıgüzel, 2017) At the same time, this article
highlighted the process of participation of strategic cost management through accounting
activities to ensure facilitation of business decision making in business operation like HR
management, Supply Chain management, strategies of financial management with the resultant
assessment of corporate performance.
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Literature Review 4
The fourth literature considered for review is Climate Change Challenges to Accounting by
Constancio Zamora Ramírez and José María González published in Journal of Low Carbon
Economy (20013). (Ramírez & González, 2013) This article has emphasized on the role of
professional accountants to manage the issue of low carbon economy in corporate sector. Low
carbon economy is posing challenge to the accounting professional globally. There are two
aspects of managing accounting and preparing financial statements by the corporate with
consideration of low carbon economy. First is to understand the implication of financial
statements in perspective of low carbon economy imposed by both regulatory body and the
company. (everblue, 2017) The second aspect is to analyze the impact of accounting treatment
related to this criterion of low carbon economy with identification of real practical problems
raised while implanting this concept of report on emission of CO2 physically. This article
highlighted the probable accounting treatments of assets and liabilities of new carbon
ingredients, which are not controlled by external information. Along with that, the article also
emphasizes on the new relationship created by contract with regard to complex structure of
derivatives, procurement of carbon units through Emission Reduction Purchase Agreements or
EPRAs; monetization and collateralization of carbon and Carbon Funds. Concluding portion
raised the need of new reports to be generated like carbon accounting, respective risk
management with fixation of strategies using upgraded technology to combat climate change
through proper preparation and study of Carbon Reporting. (Trust, 2019)
Methods
The collection of data for this article is based upon the sustainability report of Wesfarmers for
2016 to 2018. The sustainability report for three years have quantitative data related to company
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action on environment preservation with specific focus on climate change and waste and water
management. These data are discussed with the basic concept of preservation of environment
with accounting treatment and ensure future provision of better future global environment.
Findings
The above literature reviews projected the consciousness of global stakeholders with particular
emphasis on accounting practices and respective reaction of accounting professional regarding
sustainable practice for environment. When we assess the evaluation of the literature reviews in
perspective of Wesfarmers, an Australian company, we have to consider their sustainability
reports published and endorsed by their board of directors for last three years related to their
awareness and respective actions regarding environment. It is observed that the company has
major concern about climate change caused by increased global warming and water usage and
waste management. The sustainability reports considered for this article are of 2016 to 2018 of
Wesfarmers.
Climate Change
In the sustainability report of Wesfarmers, 2016-2018 Wesfarmers has emphasized on the
company position about climate change with concern of global temperature to be maintained
within 1.5 degrees to 2 degrees in perspective of pre-industrial levels. The company urged upon
the need of joint effort by government and company to maintain the living environment of the
planet to minimize carbon emission through adapting long term policy and respective
implementation. Then the company emphasized management of GHG through adaptation of
advanced technology. The company declared their total emission of CO2 as 3.9, 4.1 and 3.9
million tons in 2016, 2017 and 2018, which was in lower trend than previous years. The below
chart can give clear idea about reduction of GHG emission in respect of last five years (2014-
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2018). It is evident from the graphical presentation that the company is gradually decreasing its
GHG emission with rigorous effort and adaptation of latest technology.
Refer to fourth literature reviewed, the company practiced carbon accounting with carbon fund
and carbon reporting. Respective adaptation of measures by the company includes better risk
management planning, ecosystem resilience and exercise of shadow pricing of carbon. The
disclosure of environment report by the company includes carbon disclosure project, national
pollutant inventory and potential environmental non-conformances. (Wesfarmers, 2016)
(Wesfarmers, 2017) (Wesfarmers, 2018)
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Water Usage and Waste Management
The company has next priority in the domain of water use and waste management to ensure
environment sustainability. For water usage, the company is trying to reduce the quantity by
fixation of proper business strategies. Below chart can project the diminishing trend of water
usage by the company for its different businesses since 2014.
The variance chart of water usage for the last five years had shown no abnormal increase of
water usage during the period; instead significant diminishing trend of water usage is observed in
2018. Given below the analysis of variance for last five years of water usage:
year
water
usage
varianc
e
2014 17517
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2015 15450
(11.
80)
2016 15913
3.
00
2017 16466
3.
48
2018 13422
(18.
49)
The company used water for its operation from three different sources- municipal supply,
recycled source and ground source. The percentage of municipal supply of water for the
company usage is around 60%, while recycled and reclaimed water resource is 29% and water
from ground sources are 11%. The same is accounted as per prevailing accounting practices set
by regulatory bodies.
For waste management, the company mainly uses the system of recycling and disposal of waste.
To ensure effective practice of efficient waste management, the company identified the packing
materials and found the technological help to make that disposable waste reusable through
recycling method. The below chart can give ideas about the quantity of recycled and disposed
waste as per company disclosure. It is observed that the company has waste management
strategy to ensure recycling method more preferable than disposing waste for the last five years.
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Discussion
In perspective of Stakeholders’ Theory introduced by the economists of Stanford Research
Institute in 1963, corporate bides should consider their role to serve stakeholders attached to
them. There are two types of stakeholders normally attached to any organization- internal and
external. While internal stakeholders consist of employee, people directly involved in business
process like supply chain associates, the Board etc, the external stakeholders consist of investors,
customers, society, government and other parties interested in their business. (Rathod, 2018)
This theory emphasizes to provide better situation for the stakeholders through the business
activities of the organization. Business organization has to ensure proper environment through
different necessary activities of their business process for their stakeholders including society.
The case of Wesfarmers related to assuring sustainable environment for the stakeholders is
mainly on the burning problems of climate change and water and waste management. While
different literature reviews highlighted the importance of these issues for sustainable
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environment with upgraded accounting practice to ensure its feasibility, Wesfarmers follow the
guideline regarding execution of such necessary steps for environment preservation following
the accounting guideline as fixed by the regulatory bodies for proper evaluation of their action in
standardized method for the satisfaction of respective stakeholders.
Conclusion
Environment awareness is present demand of the situation to provide better global atmosphere.
As the business entities mainly damage the environment for their business interest, it is the duty
of them to ensure maintenance of future sustainable environment globally. The business entities
also understand the importance of this issue. The government and the regulatory bodies fixed
certain activities for the business entities to ensure environment sustainability with tolerable
limit. Main problem is climate change. Due to GHG emission, global temperature increases
posing threat to living objects of the planet. The corporate bodies are accountable for
irresponsible exploitation of natural resources. Hence, the government and the regulatory bodies
fixed certain measures with proper process of evaluation through accounting practices. The
literature reviews showed different approaches in different sphere to adhere to the problem of
climate change and responsible uses of natural resources from accounting perspective. The case
study of Wesfarmers of Australia had shown the ways they reacted to the problem of climate
change by mitigating the GHG emission to the satisfactory level to ensure temperature increase
within 1.5 degrees comparing to pre-industrial period, use of natural resources like water and
effective waste management emphasizing more on recycling and less to disposal. The entire
process is covered in their disclosure named Sustainability Report published annually with the
note of CEO and following the set accounting standards. This report has emphasized in different
domains of sustainability including environment. In that report, the company projects their
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activities in the field as per set guideline by the regulatory bodies with accounting parameter.
The rigorous and continuous effort towards sustainable environment, Wesfarmers prove
themselves as trendsetter in Australian business sphere with specific reporting on this subject to
ensure their sincere effort towards this issue. Accounting professionals of the company along
with the auditors are more serious to make this report compliant with the set parameter by the
regulatory authorities and the government. Other business entities should come forward with this
practice to ensure better and sustainable global environment for the future generation and living
objects.
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References:
CFI, nd. What is Return on Equity (ROE)? [Online] Available at:
https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-return-on-equity-roe/
[Accessed 25 June 2019].
Commission, E., 2015. Paris Agreement. Policy and Documentation. Paris: European Commission
European Commission.
Direct, S., nd. Learn more about Carbon Allowance. [Online] Available at:
https://www.sciencedirect.com/topics/engineering/carbon-allowance [Accessed 26 June 2019].
everblue, 2017. What is Carbon Accounting? [Online] Available at:
https://www.everbluetraining.com/blog/what-carbon-accounting [Accessed 26 June 019].
Expert, C., nd. Carbon Allowances. [Online] Available at:
https://carbonexpert.ro/en/co2-emissions/what-are-co2-emissions-allowances/ [Accessed 26 June
2019].
Hargrave, M., 2019. Return on Assets – ROA Definition. [Online] Available at:
https://www.investopedia.com/terms/r/returnonassets.asp [Accessed 25 June 2019].
Kumar, P., Firoz, M. & Liu, G., 2018. Impact of Climate Change Disclosure on Financial Performance: An
Analysis of. Journal of Environmental Accounting and Management, 6(3), pp.185-97.
Nations, U., 1997. What is the Kyoto Protocol? [Online] Available at: https://unfccc.int/kyoto_protocol
[Accessed 25 June 2019].
Öker, F. & Adıgüzel, H., 2017. Reporting for Carbon Trading and International Accounting Standards.
[Online] Available at: https://www.intechopen.com/books/accounting-and-corporate-reporting-today-
and-tomorrow/reporting-for-carbon-trading-and-international-accounting-standards [Accessed 26 June
2019]. DOI: 10.5772/intechopen.68959.
Ramírez, C.Z. & González, J.M.G., 2013. Climate Change Challenges to Accounting. Low Carbon Economy,
4(1), pp.25-35. doi: 10.4236/lce.2013.41003.
Rathod, L., 2018. What is the Stakeholder Theory of Corporate Governance? [Online] Available at:
https://diligent.com/en-gb/blog/uk-what-is-the-stakeholder-theory-of-corporate-governance/
[Accessed 27 June 2019].
Ratnatunga, J.K.D. & Balachandran, K.R., 2009. Carbon Business Accounting: The Impact of Global
Warming on the Cost and Management Accounting Profession. Journal of Accounting, Auditing and
Finance, 24(2), pp.333-55. https://doi.org/10.1177/0148558X0902400208.
Sharma, U., Botes, V.L., Foo, D. & Karan, R., 2017. Cliamte Change Accounting: The Challenge of
Uncertainty in Pacific islands. International Journal of Critical Accounting, 9(5/6), p.393. DOI:
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10.1504/IJCA.2017.090588.
Trust, C., 2019. SECR explained: Streamlined Energy & Carbon Reporting framework for UK business.
[Online] Available at: https://www.carbontrust.com/news/2019/04/secr-uk-business-streamlined-
energy-carbon-reporting-framework/ [Accessed 26 June 2019].
Wesfarmers, 2016. Sustainability Report-2016. [Online] Available at:
https://sustainability.wesfarmers.com.au/media/1835/edited-extract-of-wesfarmers-2016-
sustainability-report.pdf [Accessed 26 June 2019].
Wesfarmers, 2017. Sustaianbility full report-2017. [Online] Available at:
https://sustainability.wesfarmers.com.au/media/2464/2017-wesfarmers-sustainability-full-report.pdf
[Accessed 26 June 2019].
Wesfarmers, 2018. Sustainability Full Report-2018. [Online] Available at:
https://sustainability.wesfarmers.com.au/media/2467/sustainability_website_2018.pdf [Accessed 26
June 2019].
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