Accounting for Ecosystem Goods and Services
Name
University
Examining how Ecosystem Goods and Services are Being Accounted for and Reported by Apple Inc.
Issue:
This report examines the issue of accountability of Ecosystem Goods and Services (EGS in business and how EGS are being brought into the environmental management and CSR program of Apple Inc.
Background /Context:
Companies are increasingly depleting the natural capital by overexploitation of the resources as well as causing pollution through wastes and emissions. Moreover, there are alarmingly high rates of population, which increase the consumption of the natural capital by 30% annually. The planet is getting destroyed by human activities such as pollution through excessive use of cars, airplanes and other transport systems that emit greenhouse gases, as well as many other human activities including forest fires (TEEB, 2010). According to Steffen et al. (2015), human beings now face environmental constraints at the planetary level including climate change, change in biosphere integrity, stratospheric ozone depletion, ocean acidification, biogeochemical flows, and freshwater use.
The destruction of the environment of a global magnitude through overexploitation of natural resources helps companies make more profits to boost their share price. However, while companies and countries account for their DGP and share prices, they do not account for the loss to the environment as a result of their activities. As countries strive to increase their GDP, so does the unaccounted loses to the environment. But if the world was to account for the real cost of their production, they would show the cost of the damage in terms of the cost of the habitat, rising sea level, and depleting assets (The Prince’s Accounting for Sustainability Project, 2010).
According to the Prince of Wales’ address to the World Congress of Accountants 2010, there is only a tiny fraction of an audit required to make better choices. Companies account for income, expenditure, assets and liability precisely, but fail to account for the natural capital, which is an important resources used by all, now and for the future generations. The rationale for the need to prioritize accountability of Ecosystem Goods and Services (EGS) is mainly based on the need to address the long term productivity of the natural resources, as opposed to what can be produced today.
It is worth noting that, the overconsumption of water or deforestation to cater for the food needs of the growing population depletes the environment much faster and more that, the economic value of the food produced from the deforested land is very minimal compared to the long term consequences (The Prince’s Accounting for Sustainability Project, 2010). Sustainability can effectively be reported in non-financial performance reporting to ensure accountability of the company to the ecosystem goods and services (Braat & de Groot, 2012). This will help companies develop systems required for effective accounting practices because the accountancy profession plays a major role in innovating better practices for accounting of EGS.
Key matters of interest to the CEO:
The primary matters that are of interest to the CEO is how Apple Inc. brings the EGS into the environmental management and CSR program and how the company accounts for the EGs in its non-financial reporting.
There are different ways in which Apple Inc. brings EGS into its environmental management and CSR program. Given the nature of production of Apple products, the main areas of environmental management and CSR programs are related to management of waste, water, raw material and energy.
There are several costs associated with environmental waste in terms of fines for failure to comply with pollution, cost of unused raw materials, and taxes on landfills. The company can identify the percentage of the final product that a specific quantity of raw material can yield, thereby helping determine the weight of the natural exploitation against the potential monetary gain. Worth considering is the environment cost of landfills since the electronic materials buried in the landfill generate dangerous greenhouse gases, especially methane. Apple’s sustainability report indicates a commitment by the company to reuse, recycle, compost and in other instances convert it into energy. This has improved the waste generation, especially when working with suppliers who have adopted “zero waste” or “green” measures for the production of Apple Watch and iPhone (Apple, 2017).
In 2016, the company diverted 28.2 million pounds of materials from landfills through recycling and 13.7 through composting against the 21.6 million pounds produced that year. This advancement in waste management to enhance sustainability helps reduce the environmental impact of the company’s activities and the goal of the company towards zero efforts (Apple, 2017). According to the Accounting for Sustainability (2010), Apple is able to address one side of environmental sustainability, and that is the reduction in pollution through human activities. What is still remaining is “show us the money!” Here, the company needs to present a percentage of the raw materials used annually for production, and the exact percentage of waste is generated, so as to account for the loss in natural capital.
There are two major costs associated with water, buying and disposing. When accounting for water, companies tend to only approach it as an expenditure, examining it from the perspective of water bills. However, water is a major natural resource with a major role to play in climate change. Apple Inc. environmental protection efforts demonstrate a commitment to conserve water by limiting consumption and safe discharge of the used water. In 2016, water conversation in the company’s data centers, offices, and retail stores based on the amount of water consumed in sanitation, landscaping and cooling was 630 million gallons, a 10 percent increase from 2015 (Apple, 2017). Despite the increase in data centers, hence water needs, the increase in the volume of water consumed annually in Apple Inc. is a demonstration of the lack of measures put in place to reduce water usage, at a time where many people across the world need this natural resource to survive. As Accounting for Sustainability (2010) notes, the profit made from the use of extra water is not worth the long terms impact to the environment.
The cost of energy and raw material for Apple are intertwined. The company has mapped out a carbon footprint in order to reduce carbon footprint during the manufacturing process, which account for 77% of the overall greenhouse gases emissions. The company has made a commitment to source for raw materials with a low level of carbon to improve the efficiency of energy used. In 2016, the company reduced its carbon footprint to 29.5 million from 38.4 million in 2015 (Apple, 2017). As recommended by Prince of Wales’ in his address to the World Congress of Accountants 2010, the reduction in carbon footprint can be traced to a consistent effort to refine the product’s life cycle analysis through advancement and technologies that enhance efficiency of raw material.
In 2015, the company began a journey towards efficient energy use by engaging suppliers to determine the best ways to update the inefficient systems to improve energy efficiency. 34 energy audits at the supplier facilities in 2016 provided insights into a $55 million annual save that the company and supplier can make by improving energy efficiency. The same year, there was a reduction of 150,000 metric tons of carbon dioxide reduction from 2015.
The adequacy of the information presented in the sustainability report:
Apple’s sustainability report demonstrates a commitment to sustainability by promoting technological development in the enhancement of efficiency of its production, to not only reduce carbon footprint, but also reduce the energy consumed and wastes buried in landfills. This commitment is actualized through commitment with other key stakeholders including the supplier, the public and the government. For instance, the company helped its suppliers reduce 150,000 metric tons of carbon dioxide and save over $55 million of costs saving due to enhanced energy efficiency.
The removal of toxic waste for compost and recycling helps mitigate the long terms environmental impact to the public. However, the same achievement has not been accomplished in water conservation, which a very important natural resource required by many people. If Apple continues increasing its water consumption by 10% annually, it will leads to a great damage to the environment that the value of its production. The same measures used to improve efficiency of energy should be devised to improve efficiency of water usage.
Worth noting is the fact that the major concerns of the company’s operations concerns the key stakeholders, which are the shareholders, which limits the extent to which the corporate governance of the company can prioritize the needs of the public in terms of preservation of the environment. This is also evident in the accounting perspective as sufficient data is lacking in the company’s report to validate their efforts towards sustainability. For instance, there is lack of accounting figures and value to benchmark improvement in environmental conservation from year to year and the rationale for the use of specific figures. Moreover, the sustainability report is characterized more on what the company is committed to achieving in the future, rather than what has already been done.
The most important weakness in Apple’s accountability of EGS is lack of indication of the percentage of its raw material, energy, and water that make up the finished products, so that the company can find an estimated value of its contribution to depletion of the world’s natural resources. With the current accounting of the EGS, even the biggest reduction in energy use or carbon footprint could have highly devastating impact on the environment, hence the need to ensure proper accounting is conducted for purposes of improving the company’s credibility.
Improvement in environmental accounting practices can help Apple Inc. identify ways of reducing wasteful practices and inefficiencies, thereby providing the company with the opportunity for saving costs. Accounting techniques have improved tremendously and there was ways in which a company can improve transparency and sustainability through environmental accounting that reports the value reduction on the environment and the cost of pollution. The environmental accounting involves the contributing value of solid waste, effluents to water and air pollution. The various types of costs in environmental accounting include preventive expenditures, and replacement costs of natural capital (Cekanavicius, et al., 2003). The cost from environmental accounting, thus, helps estimate the reduction in natural capital as a result of emission in carbon, methane and other greenhouse gases resulting from Apple’s activities.
Conclusion
Apple Inc. is a company committed to sustainability, but is not a perfect example of a company that has embedded sustainability, Earth System Science, and Ecosystem Services into their organizational systems. While measures and systems have been put in place to ensure year to year reduction in energy usage and carbon footprint, the water consumption rate continues to increase. There is a greater level of inadequacy in environmental accounting in Apple Inc. due to lack of sufficient data to understand the percentage contribution of natural capital to Apple’ activities.
References
Accounting for Sustainability. (2010). The UK Chancellor speaks at The Prince’s Accounting for Sustainability Forum December 2010. YouTube Video.
Accounting for Sustainability. Costing the Earth. (2010). YouTube Video.
Apple Inc. (2017). Environmental Responsibility Report 2017: Progress Report, Covering Fiscal Year 2016. Apple Annual Sustainability Report.
Braat, L.C. & de Groot, R. (2012). The ecosystem services agenda: bridging the worlds of natural science and economics, conservation and development, and public and private policy. Ecosystem Services, 1(1), 4-15.
Cekanavicius, L., Semeniene, D., Oosterhuis, F., & van Ierland, E. (2003). The Cost of Pollution: Environmental Economics. In Ryden et al., Chap. 19, pp 5666-597.
Steffen, W. et al (2015). Planetary boundaries: Guiding human development on a changing planet. Science, 347(6223), 736-746. DOI: 10.1126/science.1259855
TEEB (2010). The Economics of Ecosystems and. Biodiversity Report for Business – Executive. Summary 2010. Resource. Themes
World Congress of Accountants. (2010). HRH The Prince of Wales’ address to the World Congress of Accountants 2010. YouTube Video.