Discussion – Sustainability Accounting

Discussion – Sustainability Accounting

Callahan and Mankin’s model offers a transformative insight into sustainability accounting. It does this by quantifying specific climate-associated costs, whereby they are attributed to individual carbon emitters. By doing this, the model introduces a new look into the efforts for sustainability accountability. It makes it possible to ascertain the financial liabilities of environmental harm by removing generalized aspects. As a result, the current sustainability reporting becomes more crucial with raised stakes. In the past, sustainability reports paid attention to voluntary disclosures, ESG metrics, and qualitative narratives of environmental protection efforts (Al Hawaj & Buallay, 2021). When it is made possible to assign financial responsibility to sustainability reporting, the narrative completely changes. Notably, this is so because companies are compelled to decide what to disclose regarding sustainability unlike in the past when firms enjoyed liberty on what to share on matters of sustainability. The overall impact of this shift entails turning sustainability reporting into a compliance necessity from being a reputational tool.

Instead of replacing the existing reports, cost assignment can be considered a crucial part of the reports. For instance, organizations will be reporting provisions for climate-related damages and liabilities in their financial statements in the same manner that they report other provisions, such as those for contingent liabilities. Essentially, this will aid in standardizing sustainability reporting and ensure reports can be compared across the sector and different reporting periods. Also, the information reported in the sustainability disclosures will have more relevance to shareholders. With enhanced emissions tracking, quantified damages will be reported (Jørgensen et al., 2022). Policymakers will be relying on this information to formulate policies that will shape sustainability behavior across various industries. Overall, the ability to assign climate costs to individual emitters bridges the gap between environmental responsibility and financial accountability by pushing companies toward a future where sustainability is not just ethical but essential to legal and financial survival.

References

Al Hawaj, A. Y., & Buallay, A. M. (2021). A worldwide sectorial analysis of sustainability reporting and its impact on firm performance. Journal of Sustainable Finance & Investment, 12(1), 62–86. https://doi.org/10.1080/20430795.2021.1903792

Jørgensen, S., Mjøs, A., & Pedersen, L. J. T. (2022). Sustainability reporting and approaches to materiality: Tensions and potential resolutions. Sustainability Accounting Management and Policy Journal, 13(2), 341–361. https://doi.org/10.1108/sampj-01-2021-0009

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Discussion – Sustainability Accounting

On April 23, just yesterday as I write this, Christopher Callahan and Justin Mankin of Dartmouth College published an article titled ‘Carbon majors and the scientific case for climate liability.’ It’s in the journal Nature dated 4/23, but isn’t yet available online.

Discussion – Sustainability Accounting

They have developed a model using all we have learned about climate change in the last 20-40 years. It allows them to calculate the cost of climate change effects produced by specific emitters of carbon. As the article’s title states, they conclude that their method allows courts to assign the costs associated with climate change to specific companies.

Assume for the moment that their model does just that: “Draw[s] quantitative linkages between individual emitters and particularized harms.”

Connect this idea back to where we started with the sustainability reports you read and discussed in the first part of the course. If we can assign financial responsibility to specific emitters, what does that mean for the future of sustainability reporting? For example, does this cost assignment add to the information companies are already reporting, or does the assigned cost replace everything else? Obviously there are many possibilities between these two extremes. Those possibilities are what I want you to address in this final post.

When the link to the article becomes available, I’ll update this prompt. For purposes of the discussion, however, just go with the description we have today of their model and its properties.