Question

Measuring the Impact of Sustainability Efforts Some economists and financial executives are beginning to consider the possibility of reporting sustainability costs and benefits in a more compre- hensive manner. The Nobel prize–winning economist, Joseph Stiglitz, and other economists have suggested that nations move beyond the traditional gross domestic product (GDP) measures of a nation’s output. They argue that GDP should include environmental assets and liabilities. For exam- ple, the marshlands in many parts of the United States are key to aquatic life, plant life, erosion control, and storm protection, providing billions of dollars of value. So development on these marsh- lands should be balanced against those values that would be lost in development. An example is the development of the wetlands of southern Louisiana. As a result of this development, New Orleans and southern Louisiana are now much more vulnerable to storms. Some have estimated that the value of those wetlands would be in the trillions of dollars if the wetlands had been there to reduce the impact of Hurricane Katrina in 2005. Canada, Germany, Mexico, Australia, and Japan are among the 24 countries that use some form of “natural capital accounting.”

Individual companies are also looking at the use of this type of sustainability accounting. For example, the sportswear company Puma has considered including on each product tag the estimated monetary value of the environmental cost of the production of the product.

Required List what you would consider to be some of the advantages and disadvantages of the more com- prehensive sustainability reporting proposed by some economists for governments. What are some of the advantages and disadvantages of the type of sustainability reporting being considered by Puma for indi- vidual companies?

Answer 1

The advantages of the comprehensive sustainability reporting proposed by some economists for governments is as follows:

- The government as well as the companies shall become aware of the environmental cost of industrial development and will take these into consideration while coming up with new projects.

- As the environmental costs come to light, the government might come up with more stringent policies for the betterment of the environment.

- If damange is done to a certain area of the country, there shall be accountability as the monetary values of the damage shall be reported.

The disadvantages of the comprehensive reporting are as follows:

- The exact cost of damage to the environment is difficult to ascertain. Thus, it will be estimated. Estimates are prone to bias and error.

- It will deter companies from industrial development as they will come under the radar of the government.

The advantages of sustainability reporting by companies like Puma are:

- Each customer will become aware of the environemtal cost of a product and this shall result in a general increase in environmental awareness.

- Companies shall try to reduce this cost so as to make their contribution towards a better society.

The disadvantage of this type of reporting is:

- As mentioned, the estomated monetary value of the environmental costs shall be reported. This will be subject to error and bias.