Social and Environmental Accounting

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BHP Billiton is an Australian Company, the stocks of which are listed on the Australian Stock Exchange. It considers itself as part of resource industry as it produces energy and mineral for various clients globally. It operation with different countries puts the company at different level of risks and regulation by different countries where the company operates. In the conduct of its business of producing energy and minerals, it necessarily causes effects to society and the environment.

As way of looking how the company is facing the social and environment issues, this paper seeks to critically evaluate policies and procedures adopted by BHP Billiton in relation to the social and environment accounting using as bases the company’s Annual report, its website and any media coverage of company’s performance from a social and environmental perspective.

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2. Analysis and Discussion 2. 1 The concept of social and environmental accounting. Before delving into analysis, defining certain concept would lay the groundwork for better understanding the direction of this paper.

So what is social and environmental accounting? Social accounting is requires communication to stakeholders about one’s organizational actions as to their social and environmental effects to society. It is in effect of making the community informed of effects for community to know the advantages and disadvantages of a company’s products for the people to make responsible decisions for themselves and the environment they live with. Companies are therefore required to make disclosures about its social performance of their responsibilities to the public (United Nations Conference on Trade & Development, 2007).

Environmental accounting on the other may specifically refer to the use of accounting principles and concepts in regard to an organization’s impact to the natural environment (Nath, 1998). In a sense, both social accounting and environment accounting do make financial accounting broader in scope, thus making companies to be more concerned above economic events by making their accountability felt by a broader group of stakeholders. As a result of this accountability for social and environmental concerns, companies are presumed to be capable of swaying the outcome of external events through their actions done in accounting practices.

This would be in effect attaining the triple bottom line objectives of companies in the economic, social and environmental sense. 2. 2 What are the relevant policies and procedures of BHP Billiton that have social and environmental dimensions? The company does have its Charter as its internal guide in doing business from which its various policies and procedures are based. In its Charter, BHP Billiton declares its purpose to create long-term value in its process of discovering, developing and converting natural sources while it provides innovation solutions to its customer in the mining and mineral industry (BHP Billiton, 2008a)

The company desires to achieve real growth by actively building and managing its portfolio of assets and services toward high performance which would reward stakeholders for results. For which reason, the company needs to earn the trust of its stakeholders particularly its employees, suppliers, customer, shareholders and communities by its being candid in it disclosures while delivering on its commitments (BHP Billiton, 2008a). It declares as valuing safety and the environment, integrity, high performance, win-win relationships, the courage to change and respect for each other.

It also defines its success as time when shareholders realise a superior return for investments made, when customer and suppliers benefit alike from the relationships created, when the communities treat the company to have good corporate citizenship and that every employee works with a purpose and sense of accomplishment (BHP Billiton, 2008a). The company has several policies and procedures that have social and environmental dimension like its policies on climate change, energy, water, gas emission, waste disposal and biodiversity.

(BHP Billiton, 2008d, 2008e, 2008f, 2008g). The social and environmental dimensions for the purpose of this paper speaks more of climate change since other all the other effects of doing mining may have their connection to climate change. 2. 3. Identify the social and environmental issues arising from the company’s business. The social and environmental issues arising from the company’s business best viewed by looking at the consequences or effects of BHP Billiton’s conduct of its business activities.

The company business is to satisfy the world’s need for mineral and energy but in the process of doing its mining and other activities, it could create actual and potential problems that would affect society and the environment. The company needs to mitigate the impact of greenhouse gas emission on the climate. Climate change has become a global concern because of its effect effects to mankind in many aspects such the frequency of more flooding, tornado and other human experiences from calamities that were not there before (BHP, 2008c).

The first social and environmental issue that could be deciphered from these facts is whether the company is justified in conducting its mining business given the problems or that are created along the way. It is a social concern because, it affects people in terms of employment that may be lost if the company stops operation, in terms of possible destruction of life, health and psychological beings as a result of disturbing nature caused by climate change, and many other concerns that will be discussed along the way.

May man just stop using minerals and energy so that the companies engage in mining and energy need not cause problems like these? The fact that there is a demand for mineral and energy and which is expected go grow creates the impression that the need will have to be satisfied if only to sustain life itself on this planet. With the expected growth in need for mineral and energy come more from developing countries, it can only be expected that the industry is indispensable for mankind.

This is especially relevant in the context of world’s governments’ goal to reduce poverty (BHP, 2008c). Remove energy, minerals and metals and one could be assured of not getting graduated from alleviation of poverty. Thus with the need for economic growths or economic development for countries, the need for mineral and energy will always be there. It could not be argued therefore as some would like to think that man may just go back in time and just do what could be done before population has exploded.

Time has changed and so with technology and needs and wants of mankind. Suffice to say therefore that the need of mineral and energy must be sustained and companies like BHP Billiton are licensed by their own governments, with presumed legal authority to engage in mining and other activities pursuant to its defined purpose of satisfying demand for their products.

Since this paper aims to critically evaluate policies adopted by BHP Billiton in relation to the social and environment accounting, this paper will have to look on how the company will have to face the challenge created by its business based on the company’s Annual report, company’s website and any media coverage of company’s performance from a social and environmental perspective. BHP Billiton of Australia is therefore facing the challenge how to mitigate the potential impact of gas emission on climate change.

As a producer of fossil fuel energy that brings with it the problem of greenhouse emission that is contributing or causing global climate change (BHP, 2008c). The company in its effort to reduce potential impact on climate change has adopted policies and procedures to contain the problem. The social and environmental issues are found in how effective is the company in addressing the said issues which will be better evaluated in looking at the ethical issues involved in its effort to craft and implement policies.

This will be further discussed in the next subsection. 2. 4. Identify the ethical issues that arise from the company policies and procedures Since this paper requires evaluation of policies and procedures from social and environmental accounting point of view, this paper considers the use of accounting policies in addressing the social and environmental issues which incidentally are best viewed from an ethical point of view. Ethical issues involve the consequences of choice made by the company.

Since the company is a facing a sustainability challenge, it wants to focus its energies in controlling the emission that it is producing and discover what how its customers would also reduce their emissions as the company products are consumed by said customers not only at present but also in the future (BHP, 2008c). The most dominant ethical issue is on closure and rehabilitation and from said issue are other connected or sub-ethical issues based on separate decisions to be made.

The company declares that is mining, extraction and processing activities gives rise to its real obligations for closure and rehabilitation which requires it do closure and rehabilitation works. The works would require the company to decommission and dismantle its facilities, remove and treat waste material and rehabilitate lands that would be disturbed as a result. The company explains in its accounting policies that the works and costs could be extensive since as much depend on the requirements of relevant authorities and what the company policies provide for the environment.

The company therefore recognises its cost for closure and rehabilitation program in cases of the environment gets disturbed in the process of its conduct of business (BHP Billiton, 200bb). A company which recognizes the obligations of closure of rehabilitation that may be created from its business activities which it classified at mining, extracting and processing is anticipatory of great concern for the environment and society.

It means that company is not getting away from where it had benefited. By closing the facility it does not mean the responsibility ends but would mean also rehabilitating the areas for the better alternative use of land while preventing loss of biodiversity due to competing land use. The company states in its accounting policies that disturbance could increase over the life of operation that would necessitate the company to increase the provision for rehabilitation accordingly.

The reporting date of the disturbance matters most to the company as basis for its provision for provision for closure and rehabilitation. Separate from the provisions made which are recorded as assets and to be depreciated over given period, the company also incurs as expenses for the period also routine costs that may have an effect on the ultimate closure and rehabilitation activities. Included in this part are costs for waste material handling since the same are considered as inseparable part of the mining or production process.

In case of costs that could arise as a result of unforeseen events such as when contamination happens due to unplanned discharges, the company would just have to recognize them as expense and liability as living the obligation is expected to be probable and estimates could be reliably measured. The stakeholders would be affected by the destruction of the environment if the company close its mining site. The company admits of disturbance that it causes over the life of the operation. The costs that the company incurs in the closure or rehabilitation speak of the disturbances that the company causes to the environment.

This includes material handling as an integral part of a mining or production process. The company would have also to prepare for unforeseen circumstances such as contamination caused by unplanned discharges. The company also explains that timing and closure and rehabilitation expenditure depends upon different factors which include the assets’ life and nature, conditions surrounding its operating license, the company policies based on its Charter and the requirements of the particular environments that they operate.

It is therefore a company’s accounting policy to expect that expenditures may be incurred before and after closure of the facilities and can even continue for an extended period of time. Much will depend on the laws of the community governing closure and rehabilitation. Thus is admits that majority of its expenditures is paid over periods of even up to 50 years and some extends to perpetuity.

The company admission of different factors such as the life and nature of asset, the operating license conditions, the principles of the company’s Charter and environment in which the mine operates that could affect the timing of closure presupposes again a difficult choice the company has to make and in the course making has to balance the conflicting interests of stakeholders. This could be taken as a separate ethical issue since there is separate decision to be made.

The fact that liability could be long-term of up to perpetuity makes the company very risky to manage and it finance theory is to be followed the company will have to factors this expected cash outlay too into perpetuity. This could be way beyond the typical legal life of a corporation of 50 years. As a result, the company’s provisions for closure and rehabilitation are measured at the expected future values and which company discount at their present values based on its determination of the probability of its alternative cash flow estimates during the operation of a given facility.

The company also declares as part of its policy that its use of discount rates vary since each rate is specific to the country where it operates (BHP Billiton, 2008b). The company’s practice of estimating the cash flows involved in its effort to provide for the closure and rehabilitation of areas affected by its business could be again considered as a separate ethical issue. The use of expected cash flow confirms the economic nature of its decision to address environmental concerns.

The fact that the company needs to provide for closure and rehabilitation is an acknowledgement of its responsibility to the environment. It cannot choose to just leave the mining sites if it has benefited from them; it has to rehabilitate the place so that it could sustain a better alternative purpose. Closure is also a responsibility since leaving the place could expose people to danger and it would greater cost for the company in terms of possible damages that it may cause to people living in or near the area where is have done mining.

It is significant to note that the moment the company has initially recognized provision for closure and rehabilitation, the company would have to capitalize the cost as an asset under its plant property and equipment which it may have to depreciate over the years. The recognition of as assets is an acceptance that the company is making a long term investment for the rehabilitation and closure and thus because a necessary consequence of doing its business.

By being able to recognize the same as expenses, the company would factor in the cost from is profitability computation and would therefore entitle the company for an allowed deduction to reduce its taxes to the government based on its income. This could be again considered as separate issues since its errors of judgement of what to capitalize or not could affect the interest of shareholders’ value.

The fact that the company is adjusting the provision for closure and rehabilitation overtime is a proof that the company is just being responsible for the changes and is evidence of a serious an attitude and following through what it has committed. The company is also sensitive to changes caused by several factors which would require the company to change the earlier capitalized cost by possibly adjusting future depreciation or an adjustment in interest charges.

It therefore considers adjustments to earlier estimated amount since there were basically based on significant estimates and judgement in the past (BHP Billiton, 2008b). The company could therefore revise estimated reserves, including resources and lives of operations when there is a justified to do so. When developments in technology could not be resisted or ignored, the company may just have to revise its estimates accordingly. The different governments, from which they operate also change, amend and even repeal laws for which the company will also have to justify its revision of earlier estimates.

Moreover, the economies of the world have different risks, different levels of inflation and movement in foreign exchange for which again the company may find itself revising earlier provision to conform to new logical consequences of such changes. There is the movement in interest rates that could affect the discount rates in different areas of operation and necessarily present values cash flow would have to be recomputed accordingly. 2. 4 Does the extent of the company’s attitude to social and environmental policies & issues agrees or contradicts the text and/or reading list?

The extent of the company’s attitude social and environmental policies and procedures appear to agree the text and/or reading list appears within an acceptable level. That companies need to consider the social and environmental effects of its decision is seen in the case of BHH Billiton. The fact the company is investing money in addressing the social and environmental issues created by its business is an evidence that the company is serious in concern for attaining its social and environmental objectives in close association with its economic objectives.

There is integration of Sustainability Balance Scorecard (SBSC) in among the different issues – economic, environmental and social one as faced by the company. Since the company wants to have long-term shareholder value, it must hurdle its sustainability challenge. The company has in fact developed measures in terms reduced gas emission, lands to be rehabilitated and percentage of to be rehabilitated still, amount of acceptable wastage reduced to a minimum according to its Charter and in other areas. These findings do agree with Figge, et.

al (2002) about the possibility of integrating social and environmental measures with economic measures in attaining shareholder’s higher value and position of Porter and Kramer (2006) of interdependence of stakeholders. 2. 5 Identify the stakeholders & their interests involved and indicate potential conflict of interests The stakeholders in the companies desire to address climate change as a result of its business includes the following: First among the list are the customers. Customers are the immediate entities which have demand for company’s products and services.

These customers are basically industrial clients which need energy in their operations. Energy produced many things from electricity the runs the clients business, mineral used in equipments that are needed also in business and many other things. It is Billiton’s desire to create value in its exploration of ways to assist customers to reduce gas emission footprint. The company’s business has therefore the characteristics of an integrative industry since what it is not only the company that will cause the damage to the environment but also its customers who are part of the consuming public.

The second group of stakeholders is the community from which company operate sits business and the general public. This group of stakeholders want to be protected from the dangers that may be caused by the company’s mining activities and the impacts of climate change within their borders both nationally and globally. In mining, lands could be disturbed; water and air could be polluted by wastes coming from the company’s facilities (BHP Billiton, 2008g). These communities need not be adjacent to the company’s operational facilities.

They may include therefore those who are concerned also with the possible loss of biodiversity that is caused by the company’s business. BHP Billiton says does to earn the respect of these communities since the company will have need to return to hire and retain employees and be recognized by the community as a responsible company (BHP Billiton, 2008c). The third group is the government which works for the interest of the general public and communities. The government needs tax to sustain its life and any business passing the requirements imposed by law is a source of taxes.

In addition to taxation however, various governments need to ensure compliance with laws and regulation for the promotion of public welfare. The fourth group are the shareholders. The company’s management is bound to produce sufficient returns for the investments made by stockholders above the company’s cost of capital. The management can do this by protecting the shareholder value. Billiton expects its customers will seeks diversify their fuel supplies as possible changes to energy markets is wider. Thus, this will require the company needs to analyze the actions of the customers.

The management actually fears that its failure to respond to customer need and anticipate regulatory change could have an ultimate impact on the demand of its products and could put in danger the shareholders’ value (BHP Billiton, 2008a). The climate change is therefore a challenging and risky situation for the company. The fifth group is management which has interest in the stability of the business of the company. The managers are hired by stockholders through the corporate boards and said management represent also people who have needs for their stable employment and other needs.

They are therefore expected to behave in manner consistent with their inherent needs so that their interest could conflict with those of stockholders under the agency theory. Management involves choices and they would have the tendency to choose what is favourable to them rather than for the stockholders. The managers of the business or the executive officers are deemed agents of the stockholders but these people are positioned to tilt the influence in their power.

An important feature that contributes to the existence of the agency problem within public limited companies is the tendency to maximizing their wealth first instead of the stockholders’ wealth. Since managers can access management accounting and financial data, they know more about what is happening in the company while stockholders are only getting their financial statements on an annual basis. Management can therefore cause the preparation of the financial statements by making it appear they performed well even when may not be substantially true. The sixth group is the employees.

Said employees like the managers also need to have long-term and reputable employment during their lifetime as such they are also interested in the stability of the company. Their interest could be in conflict with management since the latter would like them to perform well at the least cost to the company which cause employee dissatisfaction but, on the other side, these employees have to obey management since their employment is very important to them. 2. 6. New information/learning from the analysis of the company’s policies and disclosure contributes to our understanding of Environmental and Social Management Accounting

The new information from the analysis of the company’s policies and disclosure that could contribute to understanding Environment and Social Management accounting include the following: First, the different interests of stakeholders need not be in conflict in attitude if there is a way to reconcile them. Since interest presupposes bias there is tendency to stay within one’s interest. Second, because of the seeming inherent conflict of interest among stakeholders, it should be a great challenge to see the beauty in creating commonality of interests.

Third, this world consist of great trade-offs and the acquisition of one benefit has a cost where both benefits and costs become relative in relation to time. As to how this happens is explained by the fact that it is the need to survive that would justify the satisfaction of the need for the meantime but the next generation may not view same way since knowledge evolves and by the time that they have discovered what was good may not be any more applicable. Everything therefore seems to be a matter of time. 3. Conclusion

In resolving the issues raised based on facts generated from identified sources the following statements could be made: The company’s policies and procedures may be considered by company’s management as complying with its ethical requirements based on its own implementation of its own charter but from a wider or other’s perspective the way the company is facing its environmental and social issues through its policies and procedures may actually put the company a very difficult situation because of the seeming perpetuity of some liabilities.

It appears that damages to environment could be hard to restore and if the company would b held liable in perpetuity, then how it ever be fair for investors. The only thing that makes if fair its that present need of investors are at least met.

The rehabilitation and closure costs or investments that the company are spending to its mining sites, for which the company sometimes capitalize and sometime charged to current operations, are not guarantees for future responsibilities to the public but the company may argue that it is at least doing something. The proof that the activities of business to address its social and environmental concern are not enough is borne still by land slides and flooding in many areas which seem to become extensive in relation to time.

Porter and Kramer (2006) said found that many companies have already done much to improve the social and environmental consequences of their activities, but they could be considered productive from the points of view of some government and non-government organization because the later would try to put business as something against society while they actually depend from each other and because the same entities would like to judge the companies under the concept of social responsibilities under a generic category instead of what is most applicable to what may firm can possibly do in designing and implementing its strategies in the attainment of corporate objectives.

The company appears to have integrated Sustainability Balance Scorecard (SBSC) in trying to resolve environmental and social issues for the company. The scorecards in terms reduced gas emission, measurable areas or percentage to total of land to be rehabilitated, level of reduction in wastage to be attained, percentage of recycled water and others (BHP Billiton, 2008, 20083, 2008f, 2008g). This is consistent with what the position taken by Figge, et. al (2002) about the possibility of integration among economic , social and environmental measures for purposes of controlling is operations leading to attainment of corporate objectives. References: BHP Billiton (2008a), Company Charter, {www document} URL http://www. bhpbilliton. com/bb/aboutUs/charter.

jsp, Accessed October 7, 2008 BHP Billiton (2008b), 2008 Annual Report, {www document} URL {www document} URL http://www. bhpbilliton. com/bbContentRepository/docs/annualReport2008. pdf, Accessed October 7, 2008 BHP Billiton (2008c), 2006 Sustainability Report, www document} URL http://sustainability. bhpbilliton. com/2006/sustainability/challenges/gasEmissions. asp, Accessed October 7, 2008 BHP Billiton (2008d) Climate Change and Energy, http://www. bhpbilliton. com/bb/sustainableDevelopment/environmentalCommitment/climateChange. jsp, Accessed October 7, 2008-10-07 BHP Billiton (2008e) Biodiversity and Land, {www document} URL http://www. bhpbilliton.

com/bb/sustainableDevelopment/environmentalCommitment/biodiversityAndLand. jsp, Accessed October 7, 2008 BHP Billiton (2008f) Waste, {www document} URL http://www. bhpbilliton. com/bb/sustainableDevelopment/environmentalCommitment/wastes. jsp, Accessed October 7, 2008 BHP Billiton (2008g) Water, {www document} URL http://www. bhpbilliton. com/bb/sustainableDevelopment/environmentalCommitment/water. jsp, Accessed October 7, 2008 Figge, et. Al (2002) The Sustainability Balanced Scorecard – Linking Sustainability Management to Business Strategy, Business Strategy and the Environment Porter and Kramer (2006) Making a Real Difference, Society and Strategy , Harvard Business Review