CPA PROGRAM

CONTEMPORARY
BUSINESS ISSUES

MODULE 2

Version 16a
Published by Deakin University, Geelong, Victoria 3217 on behalf of CPA Australia Ltd,
ABN 64 008 392 452

First published July 2010, updated January 2011, July 2011, revised January 2012,
reprinted with amendments July 2012, revised January 2013, reprinted with amendments July 2013,
revised January 2014, reprinted July 2014, second edition January 2015, updated January 2016.

© 2010–2016 CPA Australia Ltd (ABN 64 008 392 452). All rights reserved. This material is owned or
licensed by CPA Australia and is protected under Australian and international law. Except for personal and
educational use in the CPA Program, this material may not be reproduced or used in any other manner
whatsoever without the express written permission of CPA Australia. All reproduction requests should be
made in writing and addressed to: Legal, CPA Australia, Level 20, 28 Freshwater Place, Southbank, VIC 3006
or legal@cpaaustralia.com.au.

This is an electronic version of the printed study material. Apart from any fair dealing (e.g. for the purposes
of private study) as permitted under the Copyright Act 1968 (Cwlth), no part of this material may be
copied, scanned, transmitted, distributed or reproduced in part or in whole without the permission of
CPA Australia Ltd.

Edited and designed by DeakinPrime

Printed by Blue Star Print Group

ISBN 978 0 7300 0036 5

Authors
Terence Brooks Manager of the Forensic Investigation Unit,
Professional Standards Command of Victoria Police
Courtney Clowes Director, KnowledgEquity
Keith De La Rue Independent Consultant, Speaker and Director, AcKnowledge Consulting
Dr Jane Hamilton Independent Consultant
Marina Kelman General Manager, Mergers and Acquisitions, National Australia Bank
Dr Hayat Khan Lecturer, La Trobe University
Dr Julie Margret Senior Lecturer, La Trobe University
Dean Newlan Consultant to McGrathNicol Forensic
Roger Simnett Professor, University of New South Wales
Dr Siri Terjesen Assistant Professor, Indiana University, USA

2016 updates
Terence Brooks Manager of the Forensic Investigation Unit,
Professional Standards Command of Victoria Police
Keith De La Rue Independent Consultant, Speaker and Director, AcKnowledge Consulting
Susan Jones Founder, Ready Set Startup and Lecturer in Entrepreneurship,
Swinburne University of Technology
Dr Hayat Khan Lecturer, La Trobe University
Dr Tehmina Khan Lecturer, RMIT University
Dr Rahat Munir Senior Lecturer, Macquarie University
Dean Newlan Consultant to McGrathNicol Forensic

Acknowledgments
George Apostolos Senior Forensic Accountant, ASIC
Betty Ferguson Consultant
Dr Dean Hanlon Senior Lecturer, Monash University
Professor Karen Jansen Senior lecturer, Australian National University
Tui McKeown Senior Lecturer in the Department of Management, Monash University.
Dr Áron Perényi Lecturer, Swinburne University of Technology

Advisory panel
Desley Ward CPA Australia
Dianne Harvey Latrobe University
Gavin Ord CPA Australia
John Purcell CPA Australia
Sarah Scoble CPA Australia
Stephen Zigomanis 72 Financial
Terence Brooks Victoria Police
CPA Program team
Kerry-Anne Hoad Alisa Stephens Sarah Scoble
Kristy Grady Yvette Absalom Belinda Zohrab-McConnell
Desley Ward Nicola Drury
Kellie Hamilton Elise Literski

Educational designer
Jan Williams DeakinPrime

Acknowledgment
All legislative material is reproduced by permission of the Office of Parliamentary Counsel, but is not the official or authorised version. It is
subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth
legislation. In particular, s. 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction
or publication beyond that permission by the Act, permission should be sought.

These subject materials have been designed and prepared for the purpose of individual study and should not be used as a substitute for
professional advice. The materials are not, and are not intended to be, professional advice. The materials may be updated and amended
from time to time. Care has been taken in compiling these materials but may not reflect the most recent developments and have been
compiled to give a general overview only. CPA Australia Ltd and Deakin University and the author(s) of the material expressly exclude
themselves from any contractual, tortious or any other form of liability on whatever basis to any person, whether a participant in this subject
or not, for any loss or damage sustained or for any consequence which may be thought to arise either directly or indirectly from reliance
on statements made in these materials.

Any opinions expressed in the study materials are those of the author(s) and not necessarily those of their affiliated organisations,
CPA Australia Ltd or its members.

Extracts used from International Accounting Standards are Copyright © International Accounting Standards Committee Foundation.
 CONTEMPORARY BUSINESS ISSUES

Module 2
GLOBAL BUSINESS CONTEXT
COURTNEY CLOWES, MARINA KELMAN AND DR SIRI TERJESEN*

* The authors wish to acknowledge the use in this module of content previously prepared by
Dianne Harvey, Corinne Proske, Shawn Callahan and Dr Diane Kraal, as well as the assistance of
Tehmina Khan, and previously Russell Clowes and Tui McKeown in updating the material.
 100 | GLOBAL BUSINESS CONTEXT

Contents
Preview 103
Introduction
Objectives
Teaching materials

Part A: Impact of dwindling resources 105

Introduction 105
Global risks
A role for accountants 106
Oil 107
Oil reserves, production and demand
Peak oil
Food 112
Government, market and natural forces
Effect on organisations and accountants
Water 118
MODULE 2

Sources, uses and contemporary issues

Solutions for water sustainability
Actions by accountants and organisations
Biodiversity 123
Issues regarding biodiversity
Responses to biodiversity depletion
Summary 133

Part B: Operating in a carbon-constrained economy 134

Introduction 134
Climate change 134
Regulatory position of governments related to the carbon economy 140
China’s programs for carbon pricing
European Union Emissions Trading System and its impact on business enterprises
Australia’s former Energy Efficiency Operations program
European Union: Measures to ensure competitiveness 146
The United States: Carbon pricing differences across states and
federal initiatives 148
The United Kingdom: Environmental performance reporting 148
Summary 152

Part C: The changing population 153

Introduction 153
Demographic overview 153
International demographic trends
Role of the accountant
Managing the effect of an ageing workforce using peer mentoring
Gender diversity in the workplace
Workplace issues and discrimination
Succession planning and business exit
Summary 162
 CONTENTS | 101

Part D: Offshoring 163

Introduction 163
Outsourcing 163
Types of offshoring 164
Captive (in-house) offshoring
Outsource offshoring
Offshore drivers 165
Selecting where to base the headquarters of a company 166
Implementing a successful offshore outsourcing program and
business partnering 167
Offshoring accounting and finance activities 170
The evolution of offshoring accounting and finance activities
The impact of offshoring accounting and finance activities on the profession
Summary 175

Review 176

MODULE 2
Suggested answers 177

References 185
MODULE 2
 Study guide | 103

Module 2:
Global business context
Study guide

MODULE 2
Preview
Introduction
Accountants must do more than focus solely on internal organisational issues and external
financial reporting. They must also be aware of the global context in which they operate,
including the major issues and the alternative approaches and solutions to problems.
This knowledge will help guide decision-making at the micro level (e.g. what types of raw
material to use) through to the macro level (e.g. what industries to participate in and what
broader overarching strategies to employ).

Many global issues are not strictly financial in nature. It is therefore important to develop skills
in assessing and communicating qualitative data across areas that are increasingly important and
relevant to accountants.

In Part A of this module we consider both the economic and social impact of dwindling
resources worldwide, with a specific focus on oil, food, water and biodiversity. We also look at
a comprehensive example of how innovation and change can help address dwindling resources.
This highlights the question of ‘how sustainable is current business practice really?’—and
helps form the foundation for establishing the different ways sustainability can be addressed.
The discussion of dwindling resources is also extended in the Module 2 case study, which looks
at the management of a major gas project in Papua New Guinea (PNG). The case study details
PNG’s new sovereign wealth fund (SWF). The establishment of this fund is a long-term approach
to managing some of the economic and social impacts of dwindling resources.

We then examine the effect on businesses of moving towards a carbon-constrained economy.

Part B focuses on the regulatory position of some governments and how entities are currently,
or likely, to be affected. We also examine related matters including: Australia’s preparedness,
the European Union (EU) measures for ensuring the competitiveness of its organisations,
and the effect of the carbon-constrained economy on small-to-medium enterprises (SMEs).
Finally, we consider how organisations manage and report on environmental performance using
key performance indicators (KPIs).
 104 | GLOBAL BUSINESS CONTEXT

In Part C, we consider the ageing population and the changing and evolving labour force.
There are longer-term issues to consider, including demographic changes, gender issues and
transition between the four generations that comprise the current workforce (i.e. baby boomers
and generations X, Y and Z). At the same time, recognising and eliminating unhelpful ageist,
sexist, racial and religious stereotypes is necessary. Organisations that allow such stereotypes
to circulate will lose out in the competition for talented employees. Once again, accountants
are expected to step beyond traditional, financial-focused boundaries to consider broader
qualitative issues that have a significant financial effect.

We conclude this module in Part D by looking at offshoring. This section considers various types
of outsourcing arrangements and offshoring models as organisations look to reduce costs,
manage risks and improve the effectiveness of their operations. We consider various drivers
of offshoring and consider how to successfully implement such strategies. An example of an
offshoring strategy by a large accounting firm is also presented, highlighting the key factors and
risks needing consideration, as well as the net benefits experienced.
MODULE 2

Objectives
After completing this module, you should be able to:
• examine how dwindling resources will affect organisations;
• examine the potential impact of operating in a carbon-constrained economy for
governments, businesses and individuals;
• explain the rationale for organisations managing and reporting environmental performance
using KPIs, and assess which environmental KPIs are most relevant to which sectors;
• examine how the ageing population, diversity and other issues must be managed in a work
place; and
• discuss outsourcing and offshoring in the context of accounting and global business activities.

Teaching materials
• Online glossary
Explanations for some terms used in the ‘Offshoring’ section are available from the online
glossary located in My Online Learning.
• Case study
The case study referred to in the ‘Impact of dwindling resources’ section,
‘The sovereign wealth fund of Papua New Guinea’, is available in My Online Learning.

Please note that the articles or videos that are recommended for additional information are links to
external websites and therefore not examinable.
 Study guide | 105

Part A: Impact of dwindling resources

Introduction
An important part of understanding the global business context is to appreciate current and
future resource constraints. In this section we consider the problem of declining resources and its
impact on business, especially on sustainability.

‘Sustainable development’ is defined in the Brundtland Report as development that ‘meets the
needs of the present without compromising the ability of future generations to meet their own
needs’ (United Nations 1987).

Many of our current production approaches consume finite raw materials. For example,
we depend on fossil fuels, minerals, metals, arable land, plants, animals and water. Unless we
can identify more sources of these resources, create or find substitutes, or identify ways of
re‑using these resources, sustainability cannot be achieved and the viability of many businesses

MODULE 2
will be threatened.

As raw materials become scarce, they will become more expensive—the underlying theory
related to supply and demand. This in turn will lead to higher prices for food, goods and services,
and will make them unaffordable for many. The resulting social upheaval, as shown by events
like food riots, will also be of concern to everyone, especially governments. The political impact
may lead to social dislocation and wars between nations over access to important resources,
including energy, water and food.

Opinions on whether resources are being depleted too rapidly are divided. Some argue that
resources are not being depleted at the levels claimed; that the unknown deposits we are yet to
find will be more than adequate. Others agree that resources are being depleted but then argue
that this is not an issue because substitutes, recycling and more efficient processes will limit the
impact. Still others declare that we are at, or have already passed, the point of no return; that the
current level of damage cannot be reversed and we will suffer the consequences for generations
to come.

Accelerated consumption exacerbated by a world population increase intensifies the issue

of sustainability. As developing countries move towards a more ‘developed’ way of living,
their populations’ levels of consumption will increase significantly. Changes in preference for
food, vehicles and housing will all lead to greater stresses on current resources.

Global risks
While some issues associated with dwindling resources may vary between countries, some global
trends can be identified. For example, the US National Intelligence Council’s (NIC) Global Trends
2030: Alternative Worlds report has identified the ‘Food, Water, Energy Nexus’ as one of four
global ‘mega trends’.
Tackling problems pertaining to one commodity won’t be possible without affecting supply and
demand for the others. Agriculture is highly dependent on accessibility to adequate sources of
water as well as on energy-rich fertilizers. Hydropower is a significant source of energy for some
regions while new sources of energy—such as biofuels—threaten to exacerbate the potential for
food shortages (NIC 2012, p. iv).
 106 | GLOBAL BUSINESS CONTEXT

The World Economic Forum (WEF) also highlights food and water scarcity as global risks in
its annual Global Risks 2015 report. The report, states that:
… three of the top 10 risks in terms of impact over the next 10 years are environmental risks: water
crises, at the top of the table, and failure of climate-change adaptation as well as biodiversity loss …
Global water requirements are projected to be pushed beyond sustainable water supplies by
40% by 2030. Agriculture already accounts for on average 70% of total water consumption and,
according to the World Bank, food production will need to increase by 50% by 2030 as the
population grows and dietary habits change. The International Energy Agency further projects
water consumption to meet the needs of energy generation and production to increase by 85% by
2035 (WEF 2015, p. 20).

The report also notes that decision-makers will need to enforce tough choices regarding
allocation of water, and this will ‘affect users across the economy’ (WEF 2015).

It is clear that how individuals, businesses and governments respond to changes in resource
availability is an important factor in sustainable development. Whether those responses are
immediate or delayed, and whether they are incremental or holistic, the actions today may
MODULE 2

influence (or even determine) the ability of future generations to meet their own needs.

A role for accountants

Accountants spend a significant amount of time designing and implementing performance
measurement systems. Although these systems often focus on the efficient and effective use
of resources, they may not be broad enough to capture all relevant information, especially
throughout the supply chain.

Furthermore, accountants need to consider whether they should be recording and reporting
the cost of ‘externalities’. Externalities are costs that are not borne by the organisation (i.e. they
are external). Therefore, traditional accounting practice based on the entity assumption ignores
these costs. However, costs are still being incurred and it is important to consider whether more
effort should be spent identifying and reporting them. Accountants need to be prepared for
the likelihood that some of these externalities will become internal costs (e.g. carbon costs).
Frameworks such as the Global Reporting Initiative guidelines for sustainability reporting, as well
as attempts to produce triple bottom line and integrated reports, help accountants perform
their role in this area. Integrated reporting—considered in detail in Module 4—captures financial
and non-financial elements of business performance and aims to provide a more holistic and
future-oriented view of the organisation.

Accountants also need to be able to help make organisational decisions in an environment of

limited resources. This involves better gathering, analysis and communication of information
and requires consideration of economic, social and ethical factors.

In the following sections, we consider four specific types of dwindling resources in more detail:
• oil (and the idea of ‘peak oil’ specifically);
• food;
• water; and
• biodiversity.

We conclude with a relevant example highlighting how innovation can help address the
phenomenon of dwindling resources.

As you work through this material it is important for you to consider all sides of the argument.
You should also focus on how your opinion (and the opinion of others) affects the way
organisations respond to these issues.
 Study guide | 107

Oil
Oil is a non-renewable fossil fuel that is typically sourced from underground reservoirs. Many of
the world’s major oil discoveries have been in the Middle East, although large deposits have also
been found in other parts of the world. Despite these discoveries, significant concerns remain
about the long-term production and availability of this dwindling resource.

Oil is traded as a commodity on world markets with prices based on supply and demand.
The price of oil can be quite volatile, as it is sensitive to changes in weather, disruptions
to production and levels of economic growth. Figure 2.1 highlights how political upheaval
(e.g. 1979 Iranian Revolution), acts of terrorism (e.g. September 11, 2001) and wars (e.g. Iraq War
from 2003) can cause significant spikes in price. Periods of low or negative economic growth
(i.e. recessions), as shown during the period 2008–2009, typically reduce consumption and lead
to major falls in oil prices.

Figure 2.1: Inflation-adjusted crude oil price (1947–2014)

MODULE 2
$120.00

$100.00

$80.00
USD/Barrel

$60.00

$40.00

$20.00

$0.00
7

57

67

72

77

82

87

92

07

12
14
4

0
19

19

19

19

19

19

19

19

19

19

19

20

20

20
20

Source: Based on data from the U.S. Department of Energy, accessed November 2015,
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=F000000__3&f=A.

Oil has been, and continues to be, vital to the growth and maintenance of modern industrial and
consumer economies, directly contributing to increased standards of living. Its major use is as a
fuel—whether for transport, operating machinery or generating heat—and it is also used in the
manufacture of chemicals and plastic products. Oil products are therefore a significant input cost
for many industries, underpinning the price of basic necessities such as transport and food.

The combination of global population growth and rapid development of many countries has
led to constantly increasing energy requirements. Table 2.1 provides an indication of just how
much oil is used throughout the world on a daily basis, and how our overall oil use is increasing.
While oil consumption is decreasing in some parts of the world, for example in France and
Germany, the rapid increase in use in countries like India and China is causing an increasing
global trend.
 108 | GLOBAL BUSINESS CONTEXT

Table 2.1: Daily oil barrel† (bbl) consumption

Growth (decline)
Country 2003 2013 2014 2014 over 2013

United States 20 033 000 18 961 000 19 035 000 0.4%

China 5 771 000 10 664 000 11 056 000 3.7%

France 1 952 000 1 664 000 1 615 000 (−2.9%)

Germany 2 648 000 2 408 000 2 371 000 (−1.5%)

India 2 485 000 3 727 000 3 846 000 3.2%

Russian Federation 2 679 000 3 179 000 3 196 000 0.5%

Brazil 1 973 000 3 048 000 3 229 000 5.9%

Australia 854 000 1 022 000 998 000 (−2.3%)

Total world 80 262 000 91 243 000 92 086 000 0.9%

MODULE 2

†
The volume of oil extracted or consumed is usually described in barrels (bbl), which equate to 42 gallons
or 159 litres.

Source: Extracted from BP 2015, ‘BP statistical review of world energy June 2015’,
p. 9, accessed November 2015, http://www.bp.com.

➤➤Question 2.1
What trends can be identified when comparing developed countries with the leading developing
countries (Brazil, Russia, India, China—often called BRIC)?

Burning oil contributes to significant environmental pollution and accidental oil spills (e.g. the
Exxon Valdez in Alaska in 1989 and the BP Deepwater Horizon in the Gulf of Mexico in 2010)
can lead to significant environmental damage and social upheaval. Despite these issues, and the
fact that there are a number of alternative fuel sources—including renewable (e.g. solar, wind)
and non-renewable (e.g. natural gas, coal)—oil is by far the fuel source most heavily relied upon.
This is because extraction technologies, conversion to power technologies, and distribution
networks are well developed and readily available. Individuals and businesses alike are reliant
on oil for their daily operating activities and the importance of oil in today’s society cannot
be underestimated.

Oil reserves, production and demand

To properly understand issues in relation to oil and sustainability, we need to be familiar with
three key components of the oil industry:
1. Oil reserves reflect total recoverable oil—the volume of oil that can be extracted in a cost
effective manner. As such, the identification and location of reservoirs, the advancement of
extraction technologies and the oil price are all significant determinants of the amount of
oil reserves. Proven oil reserves have jumped from 997 billion barrels in 1993 to 1656 billion
barrels in 2014 (EIA 2015a). This suggests proven world reserves have increased by over
60 per cent over the last two decades.
 Study guide | 109

2. Oil production refers to the rate of extraction of oil from reserves—it therefore represents
the supply side of the industry. The Middle East, Eurasia and North America are currently
the largest producing regions. However, with major recent additions to proven reserves,
the South and Central America region has a significantly higher ‘reserves-to-production’ ratio
(BP 2015)—implying that future production can rise significantly and/or existing production
can continue for a much longer period.
3. Oil demand refers to the national, regional or global need for oil. Developed countries
have a much greater total demand for oil than developing countries, although the growth
in demand for developing countries is significantly higher.

Figure 2.2 reveals how, over the last decade, world demand for oil has outstripped world
production levels. At a global level, production of oil will need to increase and/or demand for
oil will need to reduce—it is impossible for such deficits to continue indefinitely.

Figure 2.2: World production and demand (thousands of barrels per day)
95000

MODULE 2
90000

85000

80000

75000

70000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Demand Production

Source: Based on data in BP 2015, ‘BP statistical review of world energy June 2015’,
pp. 8–9, accessed July 2015, http://www.bp.com/.

As oil is not found throughout the world, countries are typically considered to be net exporters
or net importers. For example, Venezuela is a net exporter of oil, with current production at
over three times the level of local demand. Further, it has sufficient oil reserves to maintain
current production rates for over 100 years. In contrast, Australia is a net importer of oil,
and its supply gap has increased considerably over the last 15 years (see Figure 2.3). In 2000,
local production met 97 per cent of demand, falling to 45 per cent in 2015, and forecasted to fall
to below 25 per cent by 2020 (ASPO Australia 2008; BP 2009 & 2014).
 110 | GLOBAL BUSINESS CONTEXT

Figure 2.3: A
 ustralian oil production deficit—supply and demand
(thousands of barrels per day)
1200

1000

800

600

400

200
MODULE 2

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Demand Production

Sources: Based on data in BP 2015, ‘BP statistical review of world energy June 2015’,
pp. 8–9, accessed November 2015, http://www.bp.com/.

These global, regional and national perspectives highlight the importance of identifying and
implementing future energy strategies. Net exporters need to consider how demand will
change as more energy-efficient and environmentally friendly technologies are developed.
They also need to consider national security and political risks where such technologies are not
developed quickly enough. Net importers need to consider how they can guarantee oil supply
without incurring exorbitant costs that threaten to derail both their economies and governments.
They also need to identify ways to reduce their oil demand through the use of more energy-
efficient technologies and alternative energy sources, such as solar, gas or even nuclear power.

Analysis and action is also important at the organisational level. Consider the energy costs and
environmental impact of Qantas, an Australian airline company.

Example 2.1: Energy strategies at the organisational level

In 2000, fuel costs for Qantas Airways Ltd represented 10.4 per cent of expenditure and 9.5 per cent of
revenue. However, by 2014, fuel costs were 29.3 per cent of expenditure and 28.5 per cent of revenue
for Qantas. In addition, in 2014, fuel was the cause of 98 per cent of all emissions for Qantas.

Planning and preparing for such significant changes in operating costs and social responsibility
expectations is therefore a core activity for airlines. In the short term, strategies could be implemented
to improve efficiency and minimise fuel consumption (such as analysing preferred flight paths and
reducing air speed). In the medium to longer term, strategies would likely include renewal of the fleet
with more fuel-efficient aircraft, reconfiguration of existing aircraft, and perhaps adopting alternative
fuel sources. Hedging of oil prices, passing on fuel costs to customers (i.e. fuel levies) and carbon-
offset initiatives are all policies that can be implemented to minimise the financial or environmental
impact of fuel.

Sources: Qantas Airways Ltd 2000, 2000 Annual Report, p. 34;

Qantas Airways Ltd 2014b, 2014 Longreach Review.

With oil (and its derivatives) representing a significant cost for many organisations, and with
greater social expectations to be more environmentally friendly, organisations can no longer
afford to ignore the fact that they operate in an increasingly resource-constrained world.
 Study guide | 111

Peak oil
Peak oil refers to the point at which global production levels reach their maximum (peak)
because we have extracted so much oil from all of the easily accessible reserves. Peak oil does
not mean that oil production has stopped, or that oil supplies have run out; it means that after
the peak, production levels fall, reducing the available supply of oil.

M. King Hubbert is credited with first raising the issue of peak oil, in his article in 1949,
which clearly identifies the finite amount of fossil fuels available to provide energy, and argues
that, based on our growing population and consumption, the resource will rapidly deplete if
traditional activity continues: ‘the production curve of any given species of fossil fuel will rise,
pass through one or several maxims, and then decline asymptotically to zero’ (Hubbert 1949,
p. 105). In 1956, Hubbert also predicted that US oil production would decline from about 1970
and that, globally, oil production would peak by approximately 2005 (Hubbert 1956).

However, despite Hubbert’s predictions, peak oil has not yet been reached. The moment at
which peak oil has occurred, or will occur, is the subject of great debate by experts, officials and
influential bodies throughout the world. It is important to consider the concept of ‘peak oil’

MODULE 2
carefully.

As the International Energy Agency (2015) has pointed out, peak oil can mean multiple
things relating to both demand and supply. For example, on the demand side, peak oil may
be reached as a result of the implementation of energy-efficient production and the use of
alternative fuel technologies. On the supply side, it may also be an outcome of reaching the
maximum possible annual rate of extraction of crude oil due to physical constraints or due to
political, economic or transportation factors.

The International Energy Agency’s (IEA) view is that there are substantial oil and liquid fuel
resources for the future. What is changing is the rate at which oil can be extracted and
the break-even prices, which are higher than before. It is the demand for crude oil that is
expected to change due to higher prices and the investment, discoveries and uptake in
alternative non-renewable (e.g. natural gas) and renewable (e.g. solar, wind) energy sources.
The availability of other forms of energy will continue to impact demand for crude oil, as will
the sensitivity towards methods of oil extraction such as hydraulic fracturing (discussed later
in this module).

Although oil is still the world’s most heavily used fuel (32.6% of global energy consumption),
it has lost market share to renewable and non-renewable fuel sources for 15 consecutive years
(BP 2015). This raises the question of whether oil is going to run out before the demand to
use it does (Main 2009) or whether the demand for oil will be lesser than its supply due to the
availability of other energy sources and the constant increases in price.

This highlights that, despite the relatively subdued state of the peak oil debate, there is a strong
pursuit of alternative energy sources. It also reveals how quickly technology and social behaviours
can change the ‘current state’ and the importance of being both predictive of, and responsive to,
those changes. In a very short space of time we have seen an amazing transformation indicating
the ability of people, organisations and economies to adapt to dwindling oil resources.

➤➤Question 2.2
How might peak oil affect an accountant in business?
 112 | GLOBAL BUSINESS CONTEXT

Example 2.2: A
 dapting to dwindling oil resources:
hydraulic fracturing (fracking)
Fracking as an alternative way of sourcing oil
Fracking is a process used to stimulate oil wells in order to get the maximum amount of resources
including oil, natural gas and geothermal energy (EPA 2012). Fluids that consist of water and chemicals
are pumped into the land at high pressure. The processes cause fractures or breaks in the rocks,
which allows the resource contained in them to flow freely and then be captured. After the process is
complete, the fracturing fluids (flow back) come back to the surface when they are stored in tanks or
pits (big holes) for disposal (Gottlieb 2012; Hoffman 2015).

Fracking has been undertaken on a large scale in the United States. Exploratory fracking is now being
undertaken in Australia, Poland, China and other countries (Nehamas 2012).

Risks of fracking
There are risks associated with fracking. These include contamination (poisoning) of groundwater
as methane gas and toxic chemicals can leach out of the site. The contaminated drinking water can
cause serious bodily damage including respiratory and nerve damage. The flow back that is stored
MODULE 2

in the open pits is left to evaporate, releasing harmful gases that create polluted air and acid rain.

Other risks include blowouts due to gas explosion, risky waste disposal (flow back can leak out of the
wells), and the need for access to large volumes of water, which is particularly risky in regions that lack
ready access to water. Due to the nature of the fracking process, there is a potential risk of earthquakes
and infrastructure degradation as well as risks for workplace safety.

Due to these serious risks, fracking has been banned in certain states of the United States and in
countries including Scotland, Canada, Germany, Italy and New Zealand (Rosenbaum 2015).

Natural resources and national impacts

Many countries are experiencing a boom in the exploration and mining of non-renewable resources.
A useful strategy to deal with the eventual depletion of these resources and maximise their benefit
to the nation is to set up a sovereign wealth fund (SWF).

You can access a case study exploring the Papua New Guinea (PNG) SWF and gas resources on
My Online Learning. The case study investigates the issues about protecting the future citizens’
standard of living, making the most out of the ‘windfall’ situation, and good governance principles.
The case study also presents you with some tasks to complete and suggested answers. You should
read this case study now.

Food
The global community faces a troubling paradox with regards to food. In one sense, we have
never produced more food globally than we do now. However, despite the total amount
produced, there are significant numbers of people who struggle to obtain enough food to
sustain themselves and their families. We therefore ‘find ourselves in a time of unprecedented
food abundance as well as in an era of perpetual famine’ (Schade & Pimentel 2009).
 Study guide | 113

These issues will continue to grow as:

• land for farming becomes more scarce and, in many places, deteriorates in terms of
nutrients and quality;
• the world population increases (expected to rise by over 2 billion by 2050, leading to a
70 per cent increase in food demand);
• the effects of climate change are felt (with potentially more extreme weather events);
• water supplies remain unevenly distributed and unable to meet future requirements; and
• food prices continue to fluctuate (see Figure 2.4) (United Nations 2015).

Figure 2.4: Food price index—international prices of a basket of food commodities

250

200

MODULE 2
150

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Based on United Nations 2015, ‘FAO Food Price Index’, accessed July 2015,
http://www.fao.org/worldfoodsituation/foodpricesindex/en.

Higher prices and problems with distribution can have a significant effect on countries and
regions in short spaces of time. Such issues were highlighted in 2007–08 when a combination
of high fuel prices and drought led to significant increases in food prices (e.g. wheat jumped
120% in one year). Food riots broke out in many countries across the world, such as Haiti, India,
Bangladesh, Egypt, Somalia and Mozambique. Even developed countries felt pressure, with food
banks nearing empty and retail stores in major cities limiting sales to individual customers.
Similar events occurred in north-east Queensland (in Australia) as a result of severe flooding in
early 2011.

Accountants should consider the issue of dwindling food resources from several perspectives.
First, there are commercial implications in generating appropriate returns on investment
in agricultural products. However, this needs to be balanced with the social implications of
price increases making food unaffordable for some individuals. Sustainability implications are
increasingly important, especially with regards to land and water usage. In addition, ethical issues
arise in the allocation of outputs—for example, using wheat and corn for biofuel instead of food.

The need to increase yields while improving water usage and dealing with climate change is a
daunting but, arguably, not impossible task. The following example indicates future possibilities,
although the solution (genetically modified food) may lead to other issues.
 114 | GLOBAL BUSINESS CONTEXT

Example 2.3: Food—increasing yields

Monsanto is a multinational agricultural biotechnology company. Monsanto produces 90 per cent of
the world’s genetically modified (GM) seeds that are designed to produce greater yields. Pest- and
drought-resistant crops help farmers to generate greater returns than ever before. However, there is
a potential downside to this situation. Monsanto customers must purchase new seeds every season.
Monsanto prohibits the use of seeds obtained from prior-year crops and aggressively pursues customers
who hold unlicensed seeds for future use. Monsanto states that it costs USD 100 million to bring a new
seed to market, and as such, these costs must be recouped and its intellectual property protected.

Monsanto also points out that GM crops significantly increase yields, for example:
• insect-resistant cotton in India experienced a 50 per cent yield increase; and
• herbicide-tolerant corn in the Philippines experienced a 15 per cent yield increase.

Sources: Monsanto 2012, ‘Do GM crops increase yield?’, 26 November, accessed July 2015,
http://www.monsanto.com/newsviews/pages/do-gm-crops-increase-yield.aspx;
The Economist 2009a, ‘The parable of the sower’, 19 November,
accessed October 2015, http://www.economist.com/node/14904184.
MODULE 2

Government, market and natural forces

During the 2008–09 global recession, many industries operated at two-thirds of capacity.
This meant that once the recovery started there was room to increase production. However,
in agriculture, due to a variety of reasons, including limited capital investment over the past
few decades, capacity was already at 100 per cent. Thus, as economies recover from such
recessions and demand increases, oil prices will likely rise and we will see greater problems
arising—that is, demand exceeding supply, an inability to increase agricultural output and
rising food prices. To successfully address these issues, a coordinated response among regions,
countries, companies, non-government organisations (NGOs) and farmers is essential. However,
this requires the successful interlinking of a multitude of institutions (e.g. the United Nations
food agencies) that have competing interests.

While we typically think of dwindling food resources as being directly related to hunger
and famine, food scarcity and higher food prices also pose a threat to economic growth,
domestic and international peace, and security of supply (UNECA 2010). For these reasons,
governments frequently intervene in various areas of the food supply chain. The need to
balance market forces with political intervention is very important. There are many cases where
direct intervention through the provision of fertiliser, guaranteed minimum prices and wage
support benefit extremely poor farmers and improve yields. However, there are also examples
in developed nations of subsidies that provide massive benefits to large, wealthy corporations.

The purpose of a particular subsidy may be to enable investment in a new technology, equipment
or in developing efficiencies. It may also support surviving through a difficult time such as a drought
or in helping poorer members of the community. However, distortions occur when behaviour moves
away from improving outcomes, as shown in Table 2.2.
 Study guide | 115

Table 2.2: Subsidy outcomes and distortions

Subsidy Desired outcome Distortion

Reduced energy prices for Greater levels of production as Unnecessary water use leading
pumping water farmers can afford to water crops to inefficient water use because
mechanically the cost has been reduced

Reduced prices for fertiliser
To encourage fertiliser use, which
increases crop yields.
Overuse of fertiliser causes soil
degradation, environmental
pollution when it runs off into
waterways, and groundwater
depletion.

Price support (minimum prices To protect farmers from major Over-production of items
for products) declines in a product so they are beyond the level of demand
not completely wiped out during because a minimum price has
a bad period been guaranteed

MODULE 2
Source: World Economic Forum 2013, Lessons Drawn from Reforms of Energy Subsidies,
accessed September 2015, http://www3.weforum.org/docs/GAC13/WEF_GAC13_
LessonsReformsEnergySubsidies_Report.pdf.

Other examples of government intervention include state-buying programs and rationing systems.

Example 2.4: S
 tate-buying programs, subsidies and
rationing systems
In Thailand, the government started stockpiling rice in 2011 at well-above-market prices as a populist
strategy to stimulate the economy. However, with the huge cost involved, revelations of corruption and
the deterioration in rice quality over time, the government’s actions were being seriously questioned.
In addition, as the government began to sell off the stockpile, a price war erupted with neighbouring
countries, leading to significantly lower revenues than expected and potentially damaging the nation’s
credit rating (Suwannakij 2014; The Economist 2013).

In Venezuela, the government subsidises essential food items to help poorer members of the
population. However, many citizens accumulate items at the subsidised prices and then on-sell them
at higher prices, making a profit on the transaction. In order to alleviate food shortages caused by such
practices, the government is rolling out a food purchase monitoring program. The program has been
described as a step towards food rationing, with families being provided with fingerprint-registered
ID cards that can detect suspicious buying patterns (Associated Press 2014).

At the extreme level of intervention, governments have even prohibited exports of food to
ensure that supplies for the local population are maintained (e.g. India, Vietnam and the
Philippines have temporarily banned the export of rice on several occasions in the past few years).
Many governments are now attempting to become fully self-sufficient in their food production
needs, rather than relying on imports. This will probably lead to a rise in export and pricing
controls, and may also result in the nationalisation (i.e. government appropriation) of privatised
producers, an example of which occurred with private rice producers in Venezuela in 2009
(The Economist 2009b).
 116 | GLOBAL BUSINESS CONTEXT

➤➤Question 2.3
Do you think a nation’s agricultural industry should be protected from foreign competitors?

Outsourcing food production

One strategy some countries are using to maintain adequate food supplies is to purchase
or lease foreign land for food production. This land acquisition strategy has created fear
and unrest in some communities, as the government-to-government dealings have often
ignored the rights and needs of the local communities that previously occupied the land.
For example, in 2008, South Korean company Daewoo Logistics obtained a 99-year lease of
over three million acres (half the arable land) in Madagascar to produce corn and palm oil for
South Koreans (Walt 2008). The political ramifications of this deal helped lead to the overthrow
of the President of Madagascar in 2009. The deal was then cancelled by the new leader of
Madagascar, who argued that the people should be consulted before it should be allowed to
continue (BBC 2009).
MODULE 2

➤➤Question 2.4
Do you think it is ethical for countries to outsource food production? In your answer, consider how
the property rights of minority interest groups should be dealt with.

Climate change policies and food production

While the earth experiences natural variations in weather patterns, the term ‘climate change’
is often associated with human-induced variations, such as through the burning of fossil fuels.
Climate change is a significant issue that is being addressed by local, national and international
efforts, and is discussed in more detail later in this module.

One problem that reveals the difficulty in addressing climate change is the impact on food
supplies as a result of a switch from fossil fuels to renewable fuels. The use of corn, wheat and
other food to generate biofuels such as bio-diesel is seen to be a positive solution to avoiding
pollution with burning fossil fuels as well as the problem of peak oil discussed in the previous
section. However, these approaches have been partly responsible for falls in supply and increases
in food prices (as produce is redirected from food to fuel), often making food unaffordable to
poorer communities.

Opinions differ on the actual contribution that biofuels play in rising food prices. For example,
a World Bank report (Mitchell 2008) revealed that biofuels had forced up global food prices by
70–75 per cent. Other reports suggest that ‘systemic factors, like reduced reserves, food waste,
speculation, transportation issues, storage costs and problems, and hoarding play a much larger
role in local food prices’ (Hamelinck 2013). Opinions also differ on whether food prices are now
more closely linked to fuel prices and are hence more volatile. The debate therefore continues
to raise questions as to whether the two goals of using biofuels for energy and feeding the world
can be reconciled (The Economist 2011).

This provides us with a key insight into the interrelationship between the two global issues of
climate change and food shortages. It also demonstrates that we must be very careful when
selecting new strategies. Failure to consider the potential negative impacts of new policies
(including unintended outcomes) could have an even greater effect than the problem we are
trying to solve (Chakrabortty 2008).
 Study guide | 117

Effect on organisations and accountants

Effect on day-to-day operations
Food shortage is a global issue that affects all nations. Business leaders and accountants must
consider the effect of limited food supplies on an organisation’s day-to-day operations. It is
helpful to consider this in two different ways:
1. organisations in the ‘food’ value chain; and
2. organisations directly affected by the food value chain.

For organisations that are directly involved in creating or distributing food, there will be
significant changes in the products offered, the efficiency of production, and accounting for
food beyond its economic inputs and outputs. Organisations capture and report on the social
and environmental aspects of production and distribution. This data can be used to highlight
issues and drive improvements.

For other organisations with limited direct involvement in food, their decisions may still be
influenced by (or will influence) activities in the food value chain. For example, transport

MODULE 2
companies deciding on the energy source for their fleets (e.g. diesel, biofuel or petrol) will
impact the demand for crops used to create biofuels.

Role of the accountant

Although many of the issues raised in this section affect entire economies and are usually dealt
with by governments rather than by individual corporations, it is important for private sector
accountants to be aware of the broader ramifications of their decisions. When a company
creates policies that have an impact in these areas, it is important to include non-financial
issues in the analysis.

Two main considerations that accountants should give to food-related issues are strategic
analysis and business decision-making.
1. It is important for strategists to consider the effect of food shortages, changing food
prices, changing diets and related issues. For example, as food prices rise, individuals
spend more of their disposable income on food, leaving less for other products. This can
significantly alter spending and savings patterns, affecting a large range of industries,
from telecommunications to banking. Therefore, even if your organisation is not directly
involved in food-related industries, it may still be affected, and planning and analysis
of these effects is recommended.
2. As accountants, we are used to providing detailed financial analysis to support
decision-making. However, it is also important that we discuss the political, social and
environmental impact that our organisation’s decisions may have. For example, due to
social and environmental concerns, a lending institution may decide not to finance a
biofuel producer. This type of decision typically involves an organisation’s interaction with
its industry. However, other food-related business decisions may include actions within the
organisation. For example, a simple place to start might be ensuring that food waste is
minimised in corporate functions and office kitchens.

At a global level, the issues relating to food production, distribution and security have many
contributing factors, including freshwater availability, climate change and alternative uses
(such as for energy). Food production has never been higher, but food resources are not
sufficient in all areas and food prices continue to rise. There is a need, therefore, for sound
policy decision-making to ensure the availability of food resources (e.g. through subsidies and
outsourcing). There is also a strong need for innovation to improve food yields and distribution.
From an organisational perspective, it is important to consider how the organisation can help
to address food shortage issues, as well as how food shortages will impact the organisation
and its stakeholders.
 118 | GLOBAL BUSINESS CONTEXT

Water
Water is the cornerstone of all known forms of life. More than 70 per cent of the earth’s surface
is water. However, less than one per cent of this water is fresh water that is suitable and available
for human consumption and use. The limited supply or availability of fresh water is of increasing
concern due to the combined impacts of human population growth, greater water usage per
capita, and the effects of droughts and climate change.

Water is therefore a significant resource that must be carefully managed and protected to ensure
the sustainability of not only businesses but, more broadly, the natural environment and society.

➤➤Question 2.5
Water stress refers to situations where there is not enough water to meet demand.
Read ‘Water: Facts and trends’, from the World Business Council for Sustainable Development
(WBCSD) (2009) at: http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=137.
MODULE 2

Identify three things that organisations can do to alleviate water stress.

Sources, uses and contemporary issues

Fresh water is traditionally sourced from:
• underground aquifers (e.g. wells, springs);
• natural lakes and rivers;
• man-made storage facilities (e.g. dams, tanks); and
• rainfall.

Human use of fresh water is extensive, with some of the key categories of usage being:
• domestic—for example, drinking, cooking, hygiene, recreation and gardening;
• industrial—for example, cooling, power generation and waste processing; and
• agricultural—typically food production.

The level of water use in each of these categories differs between regions and countries, and is
largely dependent on a nation’s economic development (measured by GDP per capita). Figure 2.5
reveals the breakdown between high-income countries and low- and middle-income countries.

Figure 2.5: Competing water uses for main income groups of countries

Competing water uses for main income groups of countries6

Industrial use of water increases with country income, going from 10% for low- and middle-income countries
to 59% for high-income countries.

World High-income Low–middle

countries income countries
Domestic use 8% Domestic use 11% Domestic use 8%
Industrial use 22% Industrial use 59% Industrial use 10%

Agricultural use 70% Agricultural use 30% Agricultural use 82%

Ref.6: UNESCO, ‘Water for People, Water for Life’, United Nations Water Development Report, 2003.

Source: World Business Council for Sustainable Development 2009,

‘Water: Facts and trends’, version 2, WBCSD, Geneva, p. 3, accessed July 2015,
http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=137&NoSearchContextKey=true.
 Study guide | 119

➤➤Question 2.6
Review Figure 2.5 and consider the following questions:
(a) What are the potential reasons for the small increase in domestic water use between low- and
middle-income countries and high-income countries?
(b) What are the causes of the vast differences in agricultural use?

Increasing populations, changing diets, salinity and pollution, ageing, inefficient infrastructure,
the effect of droughts and climate change are all issues that will cause water to dominate political
discussions for decades to come. This is especially the case where water sources are shared
between countries.

Example 2.5: Redirecting water flows

Bangladesh is a relatively poor country that is wholly dependent on water for its primary industry—
agriculture. The country’s fresh water supply predominantly comes from the rivers that flow from the
Himalayas through China and India. Consider the ramifications to Bangladesh’s primary industry,

MODULE 2
the Bangladeshi people and the natural environment, if countries that are upstream decide to dam
these rivers, or divert a large amount of water to drought-prone areas within their own countries.
Water appears to be part of the conflict in Kashmir (a north-western region of India, claimed by India,
China and Pakistan), where key rivers flow through neighbouring countries. We can see how easily
water could become a catalyst for major political and military conflicts between nations.

Another issue with the sustainability of water is wastage. Sometimes, due to its perceived low
cost and the ingrained belief in many countries that fresh water is in infinite supply, people use
more water than necessary or do not maintain water supply equipment properly (e.g. they do not
promptly fix water leaks in pipelines). As water becomes more scarce and demand continually
grows, the value of water will naturally increase (often by a significant amount). This will help
people realise the value of water and should lead to less wastage.

With the demand for water increasing, UNESCO (2012) reports that over 40 per cent of countries
could experience severe water shortages by 2020. Further, with water and food production being
very closely intertwined, such declines in water availability are likely to lead to even greater levels
of food scarcity.

Example 2.6: Virtual water

As the developing world becomes wealthier, populations are moving towards a more Western diet,
which includes a larger percentage of meat. This increases the agricultural requirements for water
by a factor of 10. Table 2.3 shows the amount of water required to produce various foods, as well
as the amount needed to produce environmentally friendly fuels from vegetable oils (biofuels were
discussed earlier).
 120 | GLOBAL BUSINESS CONTEXT

Table 2.3: Water requirements for different items of food (and energy)

Item Water requirement (L)

Potatoes—1 kg 287

Bananas—1 kg 790

Bread—1 kg 1 608

Rice—1 kg 2 497

Pork—1 kg 5 988

Bio-diesel—1 L 11 397

Beef—1 kg 15 415

Chocolate—1 kg 17 196

Source: Adapted from Institution of Mechanical Engineers 2013,

MODULE 2

Global Food: Waste Not, Want Not, Institution of Mechanical Engineers, London, p. 12.

Solutions for water sustainability

There are a number of solutions for water sustainability. Although many will have a positive effect
on the environment, some may actually have harmful effects.

Reduce
Although there is a trend towards higher use of water (e.g. through population growth and
changing diets), significant developments are being made in reducing water use. In some
countries, governments have imposed restrictions (e.g. prohibiting washing vehicles or watering
gardens), and have ‘named and shamed’ heavy water users as a means to reduce their water
consumption. Voluntary water conservation programs and behavioural change campaigns
have also been implemented, such as Target 155 in Melbourne (Australia) during 2008–10 and
southern California (US) during 2014.

Other options include promoting more efficient irrigation systems and domestic appliances,
and planting more drought-resistant plants. In addition, water trading schemes, which put
a higher value on water and require licences or permits to draw water from public sources,
attempt to force heavy users to become more efficient.

Example 2.7: Water trading

Water trading is considered to have a number of benefits in the quest for water sustainability because it:
• helps people clearly see the value of their water as a secure asset, and obtain finance against
its value
• encourages water-use efficiency—by allowing allocation holders to sell, lease or seasonally assign
spare water
• enables holders of entitlements who want to stop production to sell their water without selling
their land
• enables users to increase water supplies and improve the reliability of current allocations, and to
switch to [an] alternative use of the water that may generate higher returns
• enables new industries to acquire water without jeopardising the environment, or affecting other
water users (Queensland Government 2015).
 Study guide | 121

Specialise
Another way to reduce fresh water use is through specialisation. Water has many quality levels.
The quality of the water can be matched to its required use, which makes it possible to reduce
the consumption of high-quality fresh water. For example, higher-quality, pure, ‘potable’ water
can be kept for drinking, and lower-quality, ‘non-potable’, grey water—which is recycled water
from sinks in bathrooms and kitchens—can be used for irrigation. However, the infrastructure
required to separate such water sources is considered to be prohibitively expensive in many
circumstances.

An example of specialisation in action is the Salisbury City Council in South Australia. A successful
project that has existed for over 30 years, it uses a ‘purple pipe’ system to deliver non-potable
water that is approximately 30 per cent cheaper than mains water.

Capture and recycle

The earth has a natural way of recycling water, but efforts are being made to capture and recycle
fresh water where it is needed. Rather than solely relying on public infrastructure to supply

MODULE 2
water, more people are turning to run-off systems and tanks to capture rainwater and grey water.
Plants that treat effluent have made significant progress and in many countries drinking water
supply is supplemented with such recycled water (often with no taste difference).

Meeting demand
One of the key issues with dwindling water resources is that fresh water is often not available
or accessible where it is required. Expensive options such as desalination plants, dams and
pipelines are under consideration in many places, although the environmental impacts can be
significant and so need to be carefully considered. For example, desalination plants use a large
amount of power and produce industrial waste (called brine, which is very salty water), and dams
can damage surrounding ecosystems and harm the livelihoods of downstream populations.

Reorganising global trade

Water sustainability can be improved by reorganising global trade so that foods requiring high
water content are produced in those nations with the most suitable weather and agricultural
locations (Chapagain & Hoekstra et al. 2005). This strategy is directly related to the section on
outsourcing food production, as discussed previously. In addition, if such outsourced production
takes place in locations that are also more efficient (i.e. have higher productivity levels)—due to
more specialised technology or better agricultural methods—then there will likely be a reduction
in global water usage.

Actions by accountants and organisations

In addition to the specific solutions described previously, the disclosure of an organisation’s water
resources and commitments can improve water resource allocations, as well as help promote
and achieve water sustainability. In Australia, the Water Accounting Standards Board (WASB) has
released two Australian Water Accounting Standards (AWASs) that facilitate these objectives:
• AWAS 1 focuses on how to prepare and present a general purpose water accounting
report, and also specifies how items are recognised, recorded and presented (WASB 2012).
It provides specific definitions for elements such as water assets and water liabilities. Instead
of a balance sheet or income statement, it refers to a ‘Statement of Changes in Water Assets
and Water Liabilities and a Statement of Water Flows’.
• AWAS 2 refers to the requirements for assurance engagements on general purpose water
accounting reports (WASB 2014). The benefits of such water reporting (and its assurance
by independent practitioners) include transparency, consistency and comparability across
organisations and over time.
 122 | GLOBAL BUSINESS CONTEXT

Water accounting is discussed in more detail in Module 4.

In addition to water accounting, accountants need to be able to help organisations contribute

to solutions for water sustainability. Whether by reducing use through greater efficiency,
specialisation of water usage, or by capturing rainwater from properties, organisations in all
industries have a large role to play. By helping others effectively understand the real cost of
water and its importance, accountants can help improve sustainability efforts.

The following examples reveal how accountants and their organisations can work towards
sustainable solutions.

Example 2.8: Corporate action plans on water

Mitigating water-related business risks will require action, both by investors and companies themselves.
Companies have a clear economic incentive to closely assess their relationship to their water inputs
and outputs and to proactively address and manage them. To do so, companies should take the
following steps:
MODULE 2

1. Measure the company’s water footprint (i.e. water use and wastewater discharge) throughout its
value chain.
2. Assess the physical, regulatory and reputational risks associated with its water footprint, and seek
to align findings with the company’s energy and climate risk assessments.
3. Engage key stakeholders (e.g. local communities, NGOs, government bodies, suppliers, employees)
as a part of the water risk assessment, long-term planning and implementation activities.
4. Integrate water issues into strategic business planning and governance.
5. Disclose and communicate water performance and associated risks (Pacific Institute 2009, p. 28).

Example 2.9: R
 educing water use across the value chain:
Unilever
Unilever has been capturing data about its water usage since 1995, analysing the results and making
significant water saving improvements. In that time, it has reduced water consumption per tonne of
production by 74 per cent in absolute terms. However, Unilever doesn’t just focus on its own water
usage—it considers its direct and indirect water usage throughout the value chain, including suppliers
(e.g. crop growers) and consumers (e.g. in laundering and cooking).

Suppliers:
Unilever works with its suppliers to reduce the water consumption of its raw material inputs,
with standards for water and irrigation management and catchment-level conservation. It also shares
expertise on water reduction and management strategies. For example, Unilever provides financial
and technical support to tomato farmers to implement drip irrigation, which helps to increase yields
by up to 35 per cent and reduce water consumption by up to 70 per cent.

Consumers:
Unilever analyses consumer use of its products to determine where water is being wasted and where
improvements can be made. It uses this information to redesign products and also to improve its
communications with consumers (both in product use and in water reduction strategies). For example,
the recommended amount of one particular type of laundry powder has reduced 25 per cent over five
years—using less water in the washing process, using less raw materials and packaging, and lowering
distribution costs and emissions.

Source: Adapted from Unilever 2014, ‘Water use’, accessed July 2014,
http://www.unilever.com/sustainable-living-2014/reducing-environmental-impact/water-use.

The International Water Management Institute (http://www.iwmi.cgiar.org) is a useful resource

for a range of relevant ideas and tools, such as benchmarking and mapping. It also provides
detailed academic and policy research and access to technical experts, so that organisations can
focus on using water more effectively and efficiently. With a greater focus on sustainability issues,
such water management strategies are increasingly expected by organisational stakeholders and,
with rising water prices, they are also becoming a higher priority for organisations themselves.
 Study guide | 123

Biodiversity
Biodiversity, defined as the diversity of genes, species, ecosystems and landscapes on the planet,
provides businesses with access to a variety of natural resources (UNEP-FI n.d.). As we deplete
these resources at an accelerating rate, businesses are increasingly faced with having to reassess
their practices in order to continue operating in the long term. The extent to which biodiversity
supports business varies across regions and economic sectors; however, the importance of
biodiversity to issues of resource security (e.g. water quantity and quality, timber, food, medicinal
resources) is increasingly recognised as universal (Earthwatch Institute & IUCN et al. 2007). As a
result, the loss of biodiversity is considered a significant risk factor in business development and
a threat to long-term economic sustainability.

Biodiversity provides basic natural services such as the provision of fresh water, fertile soil,
clean air and stable weather systems. We still have little understanding of the species necessary
for this, and how they interact with each other, and contribute to natural services (see Table 2.4).

MODULE 2
Issues regarding biodiversity
Scientists estimate that the current rate at which species are becoming extinct is between 1000
and 10 000 times greater than the normal ‘background’ extinction rate (WWF 2014)—all of which,
they contend, is due to human activity. The International Union for Conservation of Nature
(IUCN) uses a globally accepted scientific methodology to identify the risks of species extinction
and publishes a list of threatened species called the IUCN Red List of Threatened Species
(IUCN 2010) on its website (http://www.iucnredlist.org).

A variety of issues—climate change, loss of habitat through development, introduction of foreign

species and an increasing human population—have compounded the threat to species. As an
example, ecosystems are already being over-exploited. It is estimated that, with rising food
demand, an additional 10 to 20 per cent of grassland will be required (which means that native
grassland animals will be ‘pushed out’ by livestock) (Business and Biodiversity Resource Centre
n.d.). A range of biodiversity issues are presented in Example 2.10.

Example 2.10: Key facts

• Over the last 8000 years about 45 per cent of the Earth’s original forests ha[ve] disappeared,
most of which were cleared during the past century.
• Approximately 13 million hectares of the world’s forests are lost to deforestation each year, an area
the size of Greece.
• Emissions resulting from deforestation may contribute up to 20 per cent of annual global
greenhouse gas emissions.
• Soil worldwide is being lost 13 to 18 times faster than it is being formed.
• There are over 25 000 bee species, but populations are declining. One-third of the world’s crop
production must be pollinated [often by bees] to produce seeds and fruits.
• Some 2311 known dry and sub-humid land species are endangered or threatened with extinction.
• About 80 per cent of world fish stocks, for which assessment information is available, are fully
exploited or overexploited and require effective and precautionary management.

Source: Convention on Biological Diversity 2014a, ‘Fact Sheets of the Convention on Biological Diversity’,
United Nations Environment Programme, accessed July 2015,
http://www.cbd.int/2011-2020/learn/factsheets.

The damaging impact—from issues such as deforestation and human population growth—
on biodiversity and natural resources means that businesses must actively consider the value
they derive from natural resources, as well as better understand their direct and indirect impact
on biodiversity. For many companies, their impact, whether direct or indirect, is not always clearly
visible. For example, in the beverage industry, much of the impact lies in the supply chain and is
not directly attributable to the company. Table 2.4 highlights some of the biodiversity effects of
various sectors.
 124 | GLOBAL BUSINESS CONTEXT
Table 2.4: Biodiversity effects
Note: BES stands for ‘Biodiversity and Ecosystem Services’ and combines the concept of biodiversity
(as defined by the Convention on Biological Diversity) with ecosystem services, which are the
goods and services biodiversity provides.
Industry sectors Major risks to biodiversity
Agriculture and Conversion of natural habitats and
Biofuels marginal land being brought back into
production (biofuels is a major driver
of both);
Indirect risks, e.g. through changes
in water quality and quantity to
downstream users or cumulative
issues;
Land use change (generally conversion
MODULE 2
from natural state) or farming systems
(livestock and rice) resulting in
significant GHG emissions;
The introduction of alien species
as part of production or pest
management systems;
Use of agrochemicals without an
integrated pest management system
and without a full assessment of input
requirements.
Construction and Cement production uses large
Building Materials quantities of limestone as raw
(including cement) materials and the mining of this can
be extremely damaging to biodiversity
associated with limestone habitats.
Additionally cement production is
major emitter of GHGs with attendant
climate change risks. Mitigation of
emissions and impacts to limestone
habitats should be considered;
Mining for other construction materials
(rock, gravel, sand) and also the use of
timber can have biodiversity impacts
if sourcing from areas of biodiversity
and/or ecosystem service value.
Attendant risks to business
Reduced production and profitability
from the failure to implement better/
best management practices in relation
to soil and water management
(resulting in damage to soil through
mechanisation, poor farming practices
and lower production, and over
abstraction and use of water, drainage
of wetlands, and salinisation);
Lost revenue and productive capacity
because of failure to assess the real
economic costs of farming marginal
lands;
Loss of access to markets and finance
if poor practices are more widely
reported.
Loss of access to land and resources
and reputational damage;
Constrained production and
operational efficiencies as carbon
controls and limits become more
demanding;
Long-term sustainability of operations
will be affected where renewable
natural resources (such as timber)
are an important element of
company products.

Industry sectors Major risks to biodiversity
Electricity Power generation involving fossil fuels
Generation and adds to atmospheric carbon and is a
Supply significant contributor to GHGs;
Power generation can also have
significant effects on the biodiversity of
water courses (through the discharge
of heated cooling waters);
Roads and transmission corridors for
power lines can fragment habitats and
allow increased access to previously
undeveloped areas, leading to
potentially significant impacts from
land conversion, small-scale mining,
hunting and logging;
Wind turbines may adversely affect
wildlife, particularly birds.
Food, Beverages and The primary risks associated with
Pharmaceuticals this sector are via supply chain
impacts associated with food,
beverages and pharmaceuticals
production. These may be diverse
and complicated (for example water
use to grow grain for chicken feed);
Particular care needs to be taken
when prospecting for pharmaceuticals
(and new varieties of foods) since
intellectual property rights in relation
to biodiversity may need to be met;
The other key biodiversity risk
associated with this sector relates to
‘food miles’ (the distance travelled
by food items and the carbon/GHG
burden they have accumulated),
and embedded water (the amount
of water required to produce a
product/food products—for example
11 000 litres of water for a pair
of jeans, and 400 000 litres for a
car). Options for offsetting carbon
emissions associated with food miles
is an area in which many retailers and
food producers are currently exploring.
Study guide | 125
Attendant risks to business
Loss of access to land and resources
and reputational damage;
Profitability of hydro operations may
be affected by reduced capacity in
reservoirs (as a result of catchment
land use change and soil erosion),
as well as changing rainfall. Drainage
arising from climate change;
Public campaigns and action against
large emitters of GHGs;
Thermal power generation will be
affected by GHG emission limits and
potentially liabilities.
MODULE 2
Reputation and market access drivers
will increasingly affect both retailers
and supply chains;
Security of supply (for fish and some
types of timber) is increasingly an
issue;
Forward looking retailers and food
producers are beginning to assess
environmental and social impacts
through the supply chain, but to date
these have largely failed to assess
biodiversity issues (except where there
are clear and widely recognised risks—
for example oil palm and fisheries).
BES impacts are far more widespread
than generally recognised and
environmental management systems
should specifically include supply
chain BES risk capacity.
 126 | GLOBAL BUSINESS CONTEXT

Industry sectors Major risks to biodiversity Attendant risks to business

Forestry and Paper The primary risk is from the
unsustainable and illegal harvesting
of natural forest in emerging markets
(with impacts on BES and local
communities);
Additionally there are often significant
impacts on soil and water biodiversity
from forestry/logging operations,
and GHG emissions from conversion
and logging;
Access to capital is becoming more
complex for forestry and paper
companies that cannot demonstrate
sustainable practices;
Reputational and market access issues
are also becoming more significant;
For some types of wood, security of
supply is also becoming an issue as
natural stocks are depleted;

Indirect impacts (particularly relating Certification under an acceptable

to improved access to previously
inaccessible areas which encourage
new settlements and activities—
including hunting and illegal
MODULE 2
and credible forest management
programme is becoming an essential
ticket to market for producers wishing
to sell in W Europe and the USA;

logging) may also be an issue in

some locations; The social issues related to land
tenure and access to BES for local
For plantations, biodiversity impacts communities are also important in
arise as a result of the conversion of many emerging markets.
original habitats to plantation (and use
of non native species) and ecosystem
changes resulting from large scale
plantation development (particularly
water availability);

For pulp mills, in addition to assurance

needs relating to the sourcing of wood
supply (legal, from sustainable sources)
GHG emissions from pulp mills and
effluent quality can affect biodiversity.

Leisure and Tourism The siting of hotels and resorts Access to land is becoming more
(particularly if these are located complicated and stronger evidence
in coastal or mountain areas) can that hotels will be developed in a
have BES impacts through direct sustainable fashion is becoming
loss of habitat and also a range of important;
indirect and cumulative impacts
(the sector is particularly prone Reputational risks to operators (who
to cumulative biodiversity risks as may not be the developers of assets) is
a result of the development of a increasing as green branding becomes
number of resorts/hotels owned and a significant part of a hotels brand;
operated by different companies in
close proximity); Potentially loss of fundamental source
of revenue (e.g. if coral reefs are
Linked to resort development, there destroyed).
are often BES impacts associated
with supporting infrastructure and
recreational facilities (including
airports, waste water treatment
facilities, power plants and golf
courses) which can have a range
of indirect BES impacts.
 Study guide | 127

Industry sectors Major risks to biodiversity Attendant risks to business

Mining Land take and habitat conversion from
exploration and extraction—including
associated facilities such as access
roads, tailings dams;
It is estimated that three quarters of
active mines and exploration sites
overlap areas of BES value;
Induced impacts from increased
access to remote areas (in-migration,
artisanal mining by third parties,
increased hunting, and clearance of
natural habitat by third parties);
Water use and quality often decline as
a result of acidity and elevated levels
Legacy issues associated with poor
closure practices and the risks of
incidents which release large volumes
of polluted water with BES impacts
will restrict access to new sites and
may tarnish the industry more broadly
across regions and countries;
Access to new land and access to
capital increasingly viewed through
the lens of sustainability (including
BES issues);
Liabilities and clean up costs
associated with long-term pollution
and ecosystem damage (e.g. tailings
dams collapse and acid mine

MODULE 2
of suspended solids which can have drainage) will increase.
significant impacts on downstream
BES and local communities who
depend on these natural resources.

Oil and Gas Land take and access to remote
areas during exploration: There are
numerous examples of recent
exploration and production
programmes which have had impacts
in areas of high biodiversity (on and
offshore). Concerns about the impacts
on deep water biodiversity from
offshore extraction are increasing
(and concerns about the impacts of
seismic testing on whales and other
cetaceans are also noteworthy in
some regions);
Access to new land and access to
capital increasingly viewed through
the lens of sustainability (including
BES issues);
Liabilities and clean up costs
associated with long-term
pollution and ecosystem damage
(including potentially attribution for
responsibilities for climate change)
will increase.

Pipeline and road development

which can fragment habitats and,
more importantly, increase third party
access to previously inaccessible areas;

The transport of alien marine species

in ballast waters has had extreme
impacts to native biodiversity and
knock on effects on local and even
national economies;

The exploration and production of

oil and gas creates significant GHG,
and pollution risk from transport,
processing and production are
concerns.
 128 | GLOBAL BUSINESS CONTEXT

Industry sectors Major risks to biodiversity Attendant risks to business

Water Utilities Building of dams for hydroelectric
power can profoundly affect
biodiversity through loss of terrestrial
habitats, restriction of fish migration,
and induced effects on catchment land
use as a result of reservoir and water
supply opportunities;
Excessive water abstraction to
service demand lowers soil water
tables, which can affect wetlands,
soil chemistry and river flows;
Inter-catchment transfers can address
water imbalances between regions,
moving water between catchments
risks the introduction of alien species
MODULE 2
Loss of access to land and resources
and reputational damage;
Reputational risk [is] becoming more
significant and financing will become
more complex for compan[ies] that
do not subscribe to international
good/best practices (such as those
espoused by International Hydropower
Association;
Profitability of hydro operations may
be affected by reduced capacity in
reservoirs (as a result of catchment
land use change and soil erosion),
as well as changing rainfall.

as well as more subtle changes in

water chemistry and temperature.

Source: United Nations Environment Programme Finance Initiative

(UNEP-FI) 2008, ‘Biodiversity and ecosystems services: Bloom or bust?’, Annexe 1:
A Sector Overview of Biodiversity Risks, pp. 30–32 (notes deleted), accessed October 2015,
http://www.unepfi.org/fileadmin/documents/bloom_or_bust_report.pdf.

Responses to biodiversity depletion

The United Nations Convention on Biological Diversity (CBD), which has 168 signatories, is an
organisation committed to tackling biodiversity issues. The CBD has three main objectives:
1. The conservation of biological diversity;
2. The sustainable use of the components of biological diversity; and
3. The fair and equitable sharing of the benefits arising out of the utilization of genetic resources
(CBD 2014b).

In 2010, a meeting of the CBD in Nagoya, Japan, established the Aichi Biodiversity Targets for
the 2011–20 period. Some of the targets include:
• At least halve and, where feasible, bring close to zero, the rate of loss of natural habitats,
including forests
• Establish a conservation target of 17% of terrestrial and inland water areas and 10% of marine
and coastal areas
• Restore at least 15% of degraded areas through conservation and restoration activities
(CBD 2014c).

Under the CBD, governments worldwide have recognised the precarious position the world is in
with regards to biodiversity, and many countries have also published their own biodiversity and
conservation strategies and targets. In addition, the private sector is becoming more aware of its
impact on biodiversity as well as the risks of not responding themselves, including reputational
damage, regulatory burdens and an increase in the cost of (or shortage in) raw material inputs.
 Study guide | 129

Many businesses are taking action to reduce the negative impact on biodiversity by following
a set of principles known as the ‘mitigation hierarchy’:
1. Avoid negative impacts where possible
2. Minimize the negative impacts if necessary
3. Restore and rehabilitate the environment from the environmental impacts
4. Offset the unavoidable and necessary harms by additional compensatory conservation action
5. Accrue benefits to the environment (Doswald & Barcellos et al. 2012, p. 6).

In contrast, other businesses deliberately use the conservation of biodiversity as a business platform
and differentiator, for example, aquaculture of native scallops and certified organic coffee.

Example 2.11: The pharmaceutical industry and biodiversity

The pharmaceutical industry is one of the most research-intensive industries in the world. Often,
the potential for new discoveries lies within the realm of biodiversity and hence the industry has a

MODULE 2
direct interest in and impact on the natural world.

Plants, fungi, marine organisms, insects and animals are genetic resources from which medicinal products
have been discovered and developed throughout history. Yet, it is estimated that less than 15 per cent
of higher plant species have been investigated for their potential medicinal use. Consequently, there
are substantial opportunities for further research and discoveries from the diversity of species.

The drive to sample and discover new species, molecules and applications to medicine provides
the industry with many opportunities. However, there are also numerous risks associated with poorly
managed processes.

One of the leading challenges for bio-prospecting, or the search for new products based on naturally
occurring organisms, relates to fulfilling the third objective of the CBD (i.e. sharing the benefits derived
from biodiversity equitably).

Responsible companies will comply with export licensing and royalty payment requirements for any
species they acquire or use in their research and development activities. They will also look at reinvesting
and supporting local economies given that many of the areas with the highest levels biodiversity on
the planet lie within developing countries.

In a few cases, particularly in developing countries, the responsibilities described above have not
been met. The result has been a decrease in medical advancements emanating from those countries,
and a loss of potential investment and support for those locations. Acting against bio-prospecting are
the greater conditions imposed by some governments on pharmaceutical companies’ access, due to
governments’ unhappiness with past ‘bio piracy’ (the use of biodiversity knowledge for profit without
permission and with little or no compensation to the countries/regions and communities from which
the medicine was derived). Other reasons include uncertainty about the fair market value for access to
the natural resources, the simplicity associated with synthetic compounds and the lengthy negotiations
necessary to access biodiversity for costly, long-term research (Conniff 2012).

Biotechnology, on the other hand, is an industry that uses biology (nature) to capture processes to
develop technologies and products that have a positive impact on human and environmental health
(Biotechnology Industry Organization 2015). It is a developing, research-driven industry and is in the
process of creating a comprehensive framework aimed at avoiding the problems that have been faced
by the pharmaceutical industry in gaining access to biodiversity for research and product development
purposes.
 130 | GLOBAL BUSINESS CONTEXT

Different industries will be affected in different ways and will see restrictions on access to
biological resources as a threat or as a possible source of innovation and development.
This pressure on resources will continue to grow, particularly as large developing economies
such as India and China strive to feed their growing populations and accommodate changing
standards of living. Predicting the actual financial impact of these changes is difficult but is likely
to be increasingly important.

For organisations, accountants are essential in helping to gather information about the effect
of the loss of biodiversity and how it affects the organisation. Furthermore, accountants must
become and remain well informed in order to advise organisations on how best to adapt their
operations to the constraint of dwindling worldwide resources.

➤➤Question 2.7
How is biodiversity relevant to the financial services sector, in particular accounting firms, law firms,
financial planning firms and insurance firms? Outline the possible impacts.
MODULE 2

Example 2.12: Innovation and change help address

dwindling resources
In Module 1 we focused on the broadening of the accountant’s role to consider issues such as physical
costs and flows and environmental impact. Environmental management accounting uses tools and
techniques to help draw attention to these areas and generate ideas and action for change.

This example demonstrates the outcomes of action in this area and provides a picture of what can be
achieved, and encourages others to pursue similar approaches in their own industry.

Let there be light …

The history of the light bulb goes back over 200 years, although the
first 80 years was spent refining and developing a version that could
be successfully commercialised and distributed across large areas.
These ‘incandescent’ light bulbs work by heating a filament which then
generates light. Thomas Edison was not the original inventor of the
incandescent light bulb (although he is often credited with this), but he
was able to refine the design and discovered that a carbonised bamboo
filament could last up to 600 hours (Museum of Unnatural Mystery 2013).

Old incandescent bulb

Photograph: iStock.com/Jasenka

From about 1880 onwards, commercial installations occurred as technology rapidly improved. Changes
included using new materials for the construction of the filament and replacing the vacuum inside
the bulb with inert gases. However, despite these developments, one major issue with these bulbs is
that only around 10 per cent of the power consumed is actually converted into light, with 90 per cent
being emitted as heat (Moll 2013).

Total cost of ownership

While the up-front cost of an incandescent globe was often less than a dollar, the total cost of energy
over its lifetime was significantly greater, and the total life span was often limited. Alternatives that
provide lower running costs, have less environmental impact and last longer have often been shunned
by consumers due to their significantly higher up-front cost.

One of the biggest problems with changing consumer behaviour towards purchasing more expensive
lights that have less impact on the environment (and lower total cost over the product life) is our
human psychology and lack of understanding of total cost of ownership. For this reason, government
regulators in many countries have forced the hands of consumers by either banning (e.g. Australia,
Brazil) or phasing out (e.g. the United States) incandescent bulbs.
 Study guide | 131

Calculating the total cost of ownership for a bulb or light would require an analysis of the following items.

Physical costs and flows:

• type and volume of raw materials used to create the bulb or light and the lamp or fittings it is
housed in;
• other aspects of raw materials, including scarcity, toxicity and whether they are renewable;
• transportation impact of raw materials;
• labour used to create the bulb or light as well as the lamp or fittings;
• packaging material used for both the bulbs and fittings;
• the secondary impact of the choice of lighting should also be considered—for example, the heat
released from incandescent bulbs will require additional effort for cooling systems; and
• volume of waste during the production process and at the end of the light’s operating life.

Monetary costs:
• raw materials;
• labour;
• packaging;
• transportation;
• running costs—installation, energy; and

MODULE 2
• waste during production and throughout the light’s operating life.

Opportunity costs:
• value forgone by not pursuing cheaper or more environmentally sustainable alternatives.

Alternatives to incandescent light

There are several alternatives to incandescent bulbs. These include fluorescent or compact fluorescent
lights (CFLs), halogen lights, lights using LEDs (light emitting diodes) and xenon short-arc lamps.

Table 2.5: Alternatives for household light bulbs

Fluorescent lights are more expensive up front than incandescent lights,

but are more energy efficient and so have a lower total cost of ownership.
One problem with these lights is that they use mercury to produce light,
and so they end up a waste product that may well be hazardous or toxic.

Halogen lights are actually incandescent but also have some type
of halogen inside them (one of the elements: fluorine, chlorine,
bromine, iodine and astatine). This enables them to operate at much
higher temperatures and also allows them to be much smaller in size.
However, the level of heat generated is a negative side-effect.

LEDs are completely different in that they are a semiconductor light

source. They have much lower energy consumption as well as longer
operational life than an incandescent light.

Photographs: iStock.com/bear36_7/, avdeev07, boroda 003.

 132 | GLOBAL BUSINESS CONTEXT

Planned obsolescence
For many organisations, repeat business enables them to remain profitable and continue growing.
A dilemma arises if the product they make is so good that customers do not need to buy it again
for many years. For example, many white goods such as washing machines and refrigerators were
originally designed to last for many years, even decades. This creates a dilemma because it reduces
the number of customers available to buy your products in the near future. The obvious solution is for
organisations to design and build obsolescence into their products. That way, the products will ‘fail’
after a certain time period and need to be replaced. The environmental impact of this approach to
business creates an enormous amount of physical waste and an ongoing depletion of scarce resources.

Other areas where we see planned obsolescence in action is in the release of computer software
upgrades (such as for operating systems). This creates a need for ever more powerful hardware,
creating a cycle of upgrades of both hardware and software.

The benefit of planned obsolescence in the lighting industry seems apparent because light globes
that last a predetermined amount of time need replacing, which leads to more purchases and healthier
profits.

A bright green future

MODULE 2

One company has taken an environmentally sustainable approach to designing new lights that turn
the old ‘planned obsolescence’ approach upside down. Brightgreen is an Australian company that
has created a range of patented LED downlights that are expected to last 70 000 hours. That equates
to more than 30 years based on usage of six hours per day. This is up to 35 times more operating life
than the typical expected life of a halogen bulb, which may only be 2000 hours (or one year of normal
operating use). Additional benefits include:
• a significant reduction in energy required to create the light (20% of the energy used to create
equivalent halogen and incandescent bulbs);
• the use of non-toxic materials that are 98 per cent recyclable;
• operating at a lower level of heat than halogen globes, which helps reduce fire risks;
• a seven-year warranty to support the long-life claims; and
• the emission of brighter light than equivalent products.

The up-front cost of these products is significant when compared to alternatives, and ranges from
approximately AUD 50 to AUD 200. However, a full payback on the investment can be achieved within
two years, because of ongoing energy savings.

With Brightgreen’s LED downlights there is no sacrifice of performance while still achieving beneficial
social, environmental and economic outcomes. The company also offers to purchase the unit back
at the end of its life, which helps ensure full life cycle control over the materials used in this product.

Australian homes have an estimated 215 million halogen downlights, with a further 108 million in
commercial buildings (Acil Allen Consulting 2013). These use a staggering amount of electricity,
accounting for a substantial percentage of the country’s domestic power consumption, and therefore
contributing significantly to both electricity costs and emissions.

Chief designer, David O’Driscoll said:

We were continually being told to design things that would break in about two years. We’d
tell them that we could make them last for much longer than that, but the sales department
kept telling us to ‘Make it break’. We’ve been able to make long-lasting light bulbs for years
now, but the manufacturers think it’s bad for business (Wright 2011).

The benefits from such new business are extraordinary and include reduced consumption of dwindling
resources, reduced energy consumption, reduced energy costs for households, better quality lights
and reduced waste going into landfill. This new model of planned ‘longevity’ is going to be of critical
importance in all industries in future and accounting information should really help communicate the
benefits to both business and consumers.

Sources: Brightgreen 2014, accessed July 2015, https://brightgreen.com;

Wright, C. 2011, ‘Aussie light bulbs slash power bills … and step ladder usage’, The Age, 15 July,
accessed October 2015, http://www.theage.com.au/digital-life/computers/blogs/bleeding-edge/aussie-
light-bulbs-slash-power-bills--and-step-ladder-usage-20110715-1hgwx.html#ixzz1SAXeuZyo.
 Study guide | 133

Summary
In Part A we considered four areas of dwindling resources—oil, food, water and biodiversity—
as well as a related example on how organisations can make a positive contribution.

In the section on oil, we provided an overview of the importance of oil and the world’s reliance
on oil as a fuel source. We considered the impact of the oil supply gap on future energy strategies,
provided an overview of peak oil, and examined the differing views and implications of this global
issue. Governments, militaries, industry bodies and energy companies throughout the world
are paying increasing attention to oil reserves, production levels and demand. The message
is clear: oil is a finite resource and demand is outstripping supply. However, alternatives to oil
and new technology for exploiting previously inaccessible oil reserves are helping overcome
these shortages.

We then considered the issue of food as a dwindling resource. Global food production is at its
highest but key issues, including lack of food availability and production sustainability, are still
felt throughout the world. With the world’s population increasing, food prices rising, climate

MODULE 2
change occurring, and the availability and quality of farming land deteriorating, the lack of
food resources will a require a coordinated global effort to help resolve.

We then shifted our focus to another dwindling resource—water. We outlined the importance
of water, and the need for more effective and efficient water use. In addition to the commercial
issues that water creates, there are also social and political issues that could lead to major upheaval
in situations where people’s livelihood is threatened. Broad economic issues that need to be
considered include the effect of limited water on particular industries and economies, and how
organisations use water (and account for it) in their day-to-day processes.

In the section on biodiversity, we emphasised how biodiversity is inextricably linked to the

issues of dwindling water and food. The loss of biodiversity is a significant risk to the long-term
profitability and operations of businesses, with previously considered ‘externalities’ now rapidly
evolving into an internal cost consideration for many organisations. This internalisation is driven
mainly by growing public concern over climate change and sustainability, and resulting global
frameworks for sustainability reporting (e.g. GRI Sustainability Guidelines), which are covered in
Module 4.

We concluded Part A by looking at an example of how innovation and change can help address
dwindling resources. This example highlighted the issue of whether current business practice is
sustainable and helped establish different ways in which such problems can be addressed. A key
issue for consideration is the total cost of ownership (and externalities), while at the same time
abandoning the practice of planned obsolescence.

The issue of dwindling resources poses a number of business risks that need to be identified
and managed. In order to secure a sustainable future for their organisations, it is important
for accountants to take a leading role by collecting and analysing relevant information,
assessing alternative ways of performing organisational activities, providing recommendations
for improvement and guiding the implementation of those changes.
 134 | GLOBAL BUSINESS CONTEXT

Part B: Operating in a carbon-

constrained economy
Introduction
With climate change being a significant environmental issue facing the world, there is an
increasing focus on reducing human impacts, typically through emissions reductions. A wide
range of strategies are being undertaken to address climate change, from the United Nations
climate summits, to regional directives such as the European Union Emissions Trading System,
to national and state legislation and targets for reductions. These developments impact
organisations operating in such a carbon-constrained world, whether directly (e.g. the effect
of a carbon tax on electricity generators) or indirectly (e.g. increased electricity prices for
consumers due to a carbon tax).
MODULE 2

In this section, we examine the effect on businesses of moving towards a carbon-constrained

economy. We consider the current status of climate change and regulatory positions of some
governments, as well as how those regulations affect organisations. We also look at specific
measures and programs adopted by governments to improve energy efficiency, ensure industrial
competitiveness, reduce emissions and provide reporting on environmental performance.
These are important considerations as, according to the WEF 2015, three of the top 10 risks
that need to be addressed over the next 10 years are environmental risks and failure of climate-
change adaptation has been identified as one of these environmental risks (WEF 2015).

Climate change
Whether over decades or millions of years, the earth’s weather patterns have naturally undergone
significant change. However, as noted earlier, the term ‘climate change’ is often associated with
human-induced variations, believed to be caused by increasing greenhouse gases from land-
use changes and burning fossil fuels. Climate change is linked with disruptive weather events,
increased global temperatures, melting of snow and ice and higher sea levels, and has become a
primary environmental focus throughout the world.

The United Nation’s Intergovernmental Panel on Climate Change (IPCC) was established in
1988 to assess the available scientific, technical and socio-economic information relevant for the
understanding of the risk of human-induced climate change. The IPCC has three working groups
and a Task Force:
• Working Group I—assesses the scientific aspects of the climate system and climate change;
• Working Group II—assesses the vulnerability of socio-economic and natural systems
to climate change, negative and positive consequences of climate change and options for
adapting to it; and
• Working Group III—assesses options for limiting GHG emissions and otherwise mitigating
climate change.

The IPCC prepares, at regular intervals (of approximately five years), a comprehensive and up‑to-
date assessment of the policy-relevant scientific, technical and socio-economic dimensions of
climate change.
 Study guide | 135

While ‘greenhouse gases’ is a collective term for the variety of air pollutants, many of the gases—
predominantly carbon dioxide—are hydrocarbons. For comparability, the various emissions are
often converted into a carbon dioxide equivalent amount, leading to the more general term
of ‘carbon emissions’. Figure 2.6 illustrates the carbon emissions around the world—indicating
Australia’s world-leading carbon emissions intensity, which is due in part to its status as the
world’s biggest exporter of coal and its reliance on coal for 80 per cent of electricity generation.

Figure 2.6: Individuals’ emissions in high-income countries and developing countries

MODULE 2
Sources: Emissions of greenhouse gases in 2005 from WRI 2008, augmented with land-use
change emissions from Houghton 2009; population from World Bank 2009c. World Bank 2010,
World Development Report 2010: Development and Climate Change. Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/4387 License: CC BY 3.0 IGO.

Around the world, GHG emissions vary by sector. Figure 2.7 illustrates gas emissions, end use and
activity for various energy sectors. As illustrated, the sectors with the greatest GHG emissions are:
• industry (29%);
• land use change (15%);
• transportation (15%); and
• energy supply (13%).

The majority of gas emissions are:

• carbon dioxide (76%);
• methane (15%); and
• nitrous oxide (7%).
 136 | GLOBAL BUSINESS CONTEXT

Figure 2.7: World greenhouse gas emissions by sector

MtCO2 EQ
48 629
Total emission worldwide (2010)

Greenhouse gas

HFCs & PFCs

76%

15%
CO2

CH4

7%

2%
N20
2010
World GHG Emissions Flow Chart
MODULE 2

1.5%
2.6%
Road 10.5%

5.5%
1.4%
Other industries 10.5%
Non-metallic minerals 6.0%

Iron and steel 4.8%

4.3%
1.4%
1.1%
1.0%

Landfills 1.3%
Waste water & others 1.6%
and losses 8.3%
Coal Mining 1.8%

refining and processing 3.1%

Agricultural soils 4.4%

and Land Use CO2 10.3%

Commercial/Public Buildings & Services
Residential Buildings
Chemical and petrochemical
Non-ferrous metals
Food and tobacco
Paper, pulp and printing

Deforestation/Afforestation
Aviation
Others

Livestock and manure

Agricultural Energy Use

Energy industry own use

Oil and gas extraction,

Energy Supply
Transport

Land Use
Agriculture
Industry

Change
Sector

3%
15%
29%

11%

15%
13%
7%

7%

Waste
Natural Gas§

emissions‡
Source†

34.6%
Direct
Coal

19%
25%

21%

0.4%
Waste
Oil

†
Greenhouse gases can arise from two sources.
‡
Direct emissions (examples)
Sector: Agricultural—Cows and other livestock emit tons of methane (CH4) by passing gas each day.
Sector: Land Use Change—Cutting down trees for logging or agriculture releases CO2 stored in the biomass.
Sector: Waste—Organic matter in landfills emits tons of methane each year.
§
Fossil fuel related emissions. Burning fossil fuels (coal, natural gas and oil) in industry, residential sector,
commercial and public sector, transport and energy supply.

Source: ECOFYS 2010, ‘World GHG emissions flow chart’, accessed October 2015,
http://www.ecofys.com/files/files/asn-ecofys-2013-world-ghg-emissions-flow-chart-2010.pdf.
ASN Bank. Reproduced with permission from ASN Bank.
 Study guide | 137

Evidence suggests that taking action to mitigate GHG emissions will lead to long-term economic
growth. According to the Stern Review on the Economics of Climate Change, a British government
report by leading economist Nicholas Stern (2006), climate change is the greatest market failure
ever. The Stern Review advocates deep international cooperation in creating price signals and
carbon markets, stimulating research and development in technology, and promoting adaptation.
As noted by Stern:
if no action is taken to reduce emissions, the concentration of greenhouse gases in the atmosphere
could reach double its pre-industrial level as early as 2035, virtually committing us to a global
average temperature rise of over 2°C (Stern 2006, p. 2).

Stern’s warning about the effects of not taking action have been heeded by many countries.
With the concept of climate change now largely accepted, action is being taken to reduce the
use of carbon-based fossil fuels and the resulting carbon dioxide emissions. The Kyoto Protocol
is one example of such action. Australia ratified the Kyoto Protocol in December 2007, making its
first set of commitments for the period 2008–12. The second commitment period relates to the
period 2013–20. Some of Australia’s emissions targets under the Kyoto Protocol include:
• 108 per cent of 1990 emissions by 2012;

MODULE 2
• 5 to 15 per cent below 2000 emissions by 2020;
• 19 to 28 per cent reduction on a per capita basis between 2012 and 2020; and
• 80 per cent below 2000 emissions by 2050 (Australian Government 2012).

As seen in Figure 2.8, not all of Australia’s targets have been reached (or are on track to be
reached) (Climate Action Tracker 2013).

Figure 2.8: Australia’s progress towards Kyoto objectives

800 Historical emissions,
Emissions (MtCO2eq.)

excl. forestry
700
Historical emissions,
600 removals from forestry
500 Current policy projection
400 Policy projections prior
to repeal of climate
300 legislation
200 2020 pledge unconditional/
100 conditional*

INDC max/min
0
First commitment period
–100 Kyoto emission allowances***
–200 Second commitment period
Kyoto emissions allowances***
1190 2000 2010 2020 2030 2040 2050
Kyoto targets (QELROS)***

* Emissions level in 2020 resulting from unconditional/conditional pledge. This differs from the Kyoto pathways
as it depicts final 2020 levels whereas the Kyoto emissions allowances consider the average level or emissions
over the second commitment period (2013-2020).

** IncL LULUCF credits and debits, incl. LULUCF base year emissions accounting rules and application of historical
threshold on emissions allowances in 2020 under the Doha decision.

*** Higher bound: Kyoto emissions allowances calculated with credits from mandatory afforestation, reforestation
and deforestation, forest management and optional cropland and grassland management estimates, carry-over
surplus from first commitment period but without cancellation through Article 3.7ter. Lower bound: Kyoto
emissions allowances calculated with credits from mandatory afforestation, reforestation and deforestation and
forest management estimates, carry-over surplus from first commitment period and with cancellation through
Article 3.7ter.

**** Excl. LULUCF credits and debits, excl. LULUCF base year emissions accounting rules and without application of
historical threshold on emissions allowances in 2020 under the Doha decision.

Source: Climate Action Tracker 2015, Australia, accessed October 2015,

http://www.climateactiontracker.org/countries/australia.
© 2009 by Ecofys and Climate Analytics. Reproduced with permission.
 138 | GLOBAL BUSINESS CONTEXT

At an international level, a range of entrenched views often delay or prevent climate change
mitigation. These include:
• Developing nations will often not commit to emission reductions unless the developed
nations agree to honour and extend their own targets. Developed nations argue that
developing nations must cut carbon emissions.
• Climate change sceptics claim that human action has not caused climate change. Rather,
change is a naturally evolving phenomenon and therefore carbon-emission controls are a
waste of effort and money.
• Activists call for a halt on the use of fossil fuels such as coal, while business conservatives
recognise that industries and businesses will fail without such inputs.
• Land-rich countries, such as Australia and Canada, push for tradable carbon credits
from carbon sequestration in rural landscapes. The credits from this huge carbon sink
of millions of hectares of rural land would postpone the need for cuts to industrial fossil
fuel emissions for decades. Land-poor countries accuse these land-rich countries of
questionable environmental accounting practices.

Despite entrenched views such as those described above, coordinated political response
MODULE 2

internationally around climate change has a long history, dating at least as far back as the
Rio Earth Summit in 1992. A key outcome of the summit was to establish a framework for action
to stabilise atmospheric greenhouse gases (GHGs), to prevent dangerous levels of human
interference with the earth’s climate. The purpose of the annual Conference of Parties (COPs)
is to review the implementation of this framework. COP21 (the 2015 Paris climate conference)
is expected, for the first time in the last 20 years, to achieve a legally implemented and universal
agreement on climate, with the goal to keep global warming below two degrees Celsius
(Climate Action & UNEP 2015).

Individually, countries vary in their policy approaches to climate change. The Australian
Government’s Productivity Commission report focused on nine key world economies and
identified over a thousand policies focused on electricity generation and road transport
emissions. In terms of electricity sector abatement policies and their effectiveness, Germany has
the highest allocation of resources (per GDP) and the highest estimates of actual abatement,
followed by the United Kingdom. Australia, China and the United States are in the middle range
of the nine economies. The per unit abatement cost varies across countries. Table 2.6 shows
the report’s conclusions regarding international comparisons in the electricity generation sector.
Table 2.6: International comparisons, electricity generation sector.
 Abatement 
as a
percentage of
Total subsidy counterfactual Total Average
equivalent as electricity electricity implicit
Total subsidy a percentage Total sector sector abatement Electricity
Country equivalent of GDP abatement emissions emissions subsidy price uplift

A$m % Mt CO2 % Mt CO2 A$/t CO2%

Australia 473–694 0.04–0.05 7.0–10.7 3.5–5.2 196 44–99 1–2

China 1 835–2309 0.03–0.04 40.7–52.1 1.2–1.5 3 370 35–57 1

China including abatement from LSS 1 835–2 309 0.03–0.04 159.2–225.6 4.5–6.3 3 370 8–15 ..

US 2 886–3 339 0.02–0.02 66.5–66.7 2.8–2.9 2 270 43–50 —

UK 2 042–2 433 0.08–0.10 12.3–27.4 7.5–15.4 151 75–198 17

EU ETS coal/gas switch 115–403 0.00–0.02 4.0–14.1 2.6–8.5 151 29 ..

UK excluding all ETS effects 1 648–1 752 0.07–0.07 8.2–13.3 5.2–8.1 151 124–213 ..

Germany 10 019–11 769 0.28–0.33 67.1–73.1 18.3–19.6 299 137–175 12–14

EU ETS coal/gas switch 15–800.00 0.7–3.9 0.2–1.3 299 20 ..

Germany excluding all ETS effects 9 868–11 553 0.28–0.32 66.4–69.1 18.2–18.8 299 143–174 ..

Japan 669–940 0.01–0.02 3.3–4.3 0.8–1.1 396 156–287 1

South Korea 313–379 0.03–0.03 0.9–1.4 0.5–0.7 191 225–401 —

New Zealand .. .. .. .. .. 8–10 1–2

Table 2.6: International comparisons, electricity generation sector (2010)

Research Report, Australian Government, Canberra, p. xxxvii.

Source: Productivity Commission 2011, ‘Carbon emissions policies in key economies’,
Study guide |
139

MODULE 2
 140 | GLOBAL BUSINESS CONTEXT

It appears that where GHG emissions remain an externality, companies involved do not bear
the full cost of those emissions. As a result, efforts to rectify this have focused on creating
an economic incentive to reduce emissions, either through compliance with regulations or,
more commonly, through establishing a carbon price.

These approaches to reducing emissions and transition to low carbon energy systems
are summarised below:
1. carbon taxes; or
2. carbon emissions trading (also known as ‘cap and trade’); and
3. regulations.

Governments aim for schemes that will have the highest impact on the environment and
minimal impact on firms in terms of cost and resources.

A carbon tax is essentially an environmental tax levied on fuels that convert hydrocarbons to
carbon dioxide (e.g. coal, petroleum, natural gas). By contrast, solar, wind, hydropower and
nuclear energy sources are not taxed. As an example, Sweden enacted a carbon tax law as
MODULE 2

early as 1991. In Australia, the first steps were taken in this regard with the introduction of the
National Greenhouse and Energy Reporting Act 2007 (Cwlth).

Carbon emissions trading, or ‘cap and trade’, facilitates the trading of carbon credits across
countries. Regional carbon trading markets have emerged, such as the European Union
Emissions Trading System. The most successful ETS is considered to be the North American
‘Acid rain’ program, known as Title IV of the 1990 Clean Air Act (CPA Australia 2009).

Government regulations also include banning the use of certain pollutants.

Regulatory position of governments related

to the carbon economy
Government policy is most effective when it includes carbon pricing as well as a technology
policy and energy efficiency (Osborne 2006). Carbon pricing through taxation, ETSs or regulation
is viewed as demonstrating to all involved the full social costs of an entity’s actions. Hence, the
goal is to have coordinated carbon pricing across countries and industry sectors. In addition,
countries should prepare a national sustainable development strategy, which features a
technology policy that encourages large-scale innovation and low-carbon and high-efficiency
products. This entails a commitment on a global scale, based on a regulatory regime.

There is global consensus on the need to reduce human-generated GHG emissions, with an
understanding that countries will demonstrate different levels of responsibility and capacity
to act. Although there is a call for effective institutions and systems that establish renewable
energy goals and control carbon emissions, there is disagreement about the best method of
controlling carbon emissions. Some advocate a carbon tax while others support an emissions
trading scheme or system (ETS). Each country’s regulations will also change over time.
 Study guide | 141

There is an ongoing debate regarding which policy measure(s) best achieve a reduction in
emissions: carbon price or regulation. The carbon price supporters have an internal debate
around whether emissions trading or a fixed-price carbon tax is the best policy measure.
Humphreys (2007, p. 6) argues that a revenue-neutral carbon tax is preferable to a carbon
trading system, because it is more efficient, effective, simple, flexible and transparent.
He claims that a carbon tax has the added benefit of providing revenue that can be used to
cut other taxes, or, if the carbon tax is revenue-neutral, there may be little or no economic
cost. On the other hand, ETS supporters argue that pollution reduction will be achieved at the
lowest cost to society as those who can reduce emissions most cheaply will do so. Furthermore,
the market nature of the scheme reduces uncertainty. For example, in the case of inflation,
prices will adjust automatically (CPA Australia 2009).

Currently, most governments favour a GHG ETS for the reasons outlined, especially the potential
to deliver the most GHG emission reductions at the least cost. The EU Emissions Trading System
aims to gradually slow carbon dioxide and other GHG emissions in a cost-effective manner.
A carbon tax may also be initiated concurrently with an ETS. Several countries have established
this trade and tax option (e.g. Denmark, South Korea), while others have opted for carbon

MODULE 2
caps on top polluters (South Africa) and coal taxes (India).

China’s programs for carbon pricing

The emission intensity of the Chinese economy is three to seven times higher than that of Europe.
Over the past decade, the Chinese government has signalled an intention to reduce carbon
emissions nationally, considering a range of policy approaches. In 2006, China proposed the use
of legal, economic and administrative measures, with the dual goals of energy saving and pollution
reduction. In 2013, China decided to use market-based mechanisms in addition to administrative
measures to achieve these objectives. In 2014, the country’s National Development and Reform
Commission indicated that the country’s national carbon market could deal with as much as three–
four billion tonnes of carbon dioxide by 2020 with further expansions after that (The Conversation
2014). The market is said to be will be worth 60–400 billion yuan (Zhang 2011, 2015).

China’s pilot carbon trading schemes

In 2011 the Chinese government approved seven pilot carbon trading schemes leading towards
the national scheme. Each pilot covers different sectors and operates under different rules and
requirements, affecting the use of allowances and offsets, as well as approaches to enforcement
and requirements for compliance. The pilot programs (which run from 2013 to 2015) cover the
regions of Shenzhen, Shanghai, Beijing, Guangdong, Tianjin and Hubei and Chongqing.

Due to the difficulty of accurately measuring the volume of pollutants emitted and captured,
only one gas (carbon dioxide) has been selected for use in the pilots. The pilots typically include
direct emissions by enterprises (including government-owned businesses) in the regions, as well
as indirect emissions arising from electricity use.

A key element of the pilots is the threshold used to determine whether an enterprise is covered.
For the different programs, this ranges between 500 tonnes of carbon dioxide (CO2) to 60 000
tonnes of coal equivalent. The share of covered emissions out of the total emissions for a region
varies from 36 per cent to 57 per cent.

A key basis on which carbon trading schemes might differ is the approach used for allocating
permits/allowances. In the pilot programs in China, allowances are free or partially free of charge
based on ‘grandfathering’, benchmarking or both criteria.
 142 | GLOBAL BUSINESS CONTEXT

Grandfathering is a term used to describe the consideration of historical emissions or historical

emissions’ intensities. Further allowance rewards have been provided to enterprises (except
power plants) for taking energy saving actions in 2006–2011. The reward equalled 30 per cent
of the avoided carbon emissions together with monetary payments.

In some regions such as Guangdong, the allowances required to be purchased by the enterprises
increase every year. Some of the regions have imposed a maximum limit on the allowances that
an entity can bid for. In Shenzhen for example, if a business exceeds its allocated allowances
for emissions, it can purchase further allowances (for 46 yuan per tonne of allowance), which
cannot be more than 15 per cent of the difference between actual emissions and the allocated
emissions. Enterprises that do not comply (meet their allowances targets) are fined and/or
allowances are deducted from the next allocation. In some regions, the enterprises’ credit
evaluations are recorded as negative for not complying. This information is used by banks to
consider whether to provide loans to companies with poor environmental records.

Compliance rules are different for different states. All pilot regions have issued administrative
regulations to legalise the ETS, but only two regions at present have included the ETS regulation in
MODULE 2

their local law. The level of reporting and transparency varies between the regions. The accounting
methods are similar but differences exist between sector coverage and technical details.

By 2014, 1919 enterprises had been covered by the pilot schemes. Allowances capped at
1.2 billion tonnes of CO2 had been issued. The total value of the traded allowances in 2014
was 536 million yuan (DCCNDRC 2015). A national carbon market will be established in 2016
(DCCNDRC 2015).

European Union Emissions Trading System and its impact on

business enterprises
The EU ETS began in 2005 and is the largest market in the world, covering approximately half
of Europe’s carbon dioxide emissions and 40 per cent of its GHG emissions. According to
the guidelines, each polluter or firm can report carbon dioxide emissions and receive trading
credits. At a macro level across the United Kingdom, there are imposed caps on GHG
emissions, and each firm receives emission permits that are either freely allocated (known as
‘grandfathering’) or auctioned. The allocation in ‘grandfathering’ is calculated on historic or
forecasted emissions. ‘Grandfathering’ is advantageous to those firms with higher baseline
emissions that have traditionally made the least effort to reduce their pollution. Auctioning,
on the other hand, allows authorities to collect revenue that can be used to offset taxes in other
areas. The emission limits will become stricter over time, and the total permitted emissions
limitation for all polluters becomes the national quota.

Some firms may find it easier than others to reduce their emissions and may end up with a
surplus of emission permits. Under an ETS, these firms may sell their surplus (extra permits)
to firms that are not able to meet the required reductions. This creates a system that:
• establishes a set level of overall national emission reductions;
• compensates the most efficient firms; and
• ensures that the national quota is obtained at a minimum cost to the economy.

The key difference between emissions trading and a carbon tax is that trading provides quantity
certainty on emissions and the tax gives price certainty on emissions.

Carbon tax supporters argue that the tax facilitates price stability, thereby reducing the
uncertainty over the effects of climate change and the future cost of reducing carbon intensity.
Carbon tax opponents argue that it is difficult to combine a set price for carbon with a transfer
of proceeds from business to government. In other words, the carbon price is not likely to be
set at a correct level, but may be influenced by the politics of large-scale revenue transfers.
Furthermore, a carbon tax policy does not limit pollution—firms can pollute as much as they
like as long as they pay.
 Study guide | 143

How are business enterprises likely to be affected?

Firms must consider using fewer carbon fuels by identifying alternative sources of energy and
improving their operating efficiency. Despite the costs, such actions can reduce a firm’s exposure to
the carbon-constrained economic environment and mitigate the risk of increases in carbon prices.
For example, each entity faces an initial transition cost to operate in an emissions-sensitive business
environment, such as investing in new equipment, changes in the choice of raw materials and
developing new reporting systems. These costs may be offset by bottom-line savings related to
reducing GHG emissions, especially in lower energy consumption, lower waste and possibly raised
long-term growth prospects.

Moreover, businesses that implement GHG emissions measures early will acquire a competitive
advantage through product differentiation, thereby increasing market share and profit margins,
and reducing operating costs. It is estimated that by 2050, markets for low-carbon technologies
could be worth at least USD 500 billion (UNFCC 2011). Hence, a carbon-constrained economic
environment may provide innovative firms with a significant opportunity, as evidenced by the
growth in start-up firms providing goods (e.g. green energy sources) and services (e.g. consulting)
in clean technology sectors.

MODULE 2
Government measures directed at reducing carbon dioxide emissions will affect firms depending
on their size (e.g. revenues, number of plants), industry and other characteristics. For example,
a carbon tax imposes a tariff at a fixed rate, independent of income. This would mean that
low-income earners (businesses or individuals) are taxed at the same rate as high-income
earners. A carbon tax may also be excessive for some social groups, unless there is sufficient
compensation. Environmental and social campaigners argue that whatever type of method is
applied, it must have regard for equity considerations and individual and household welfare.
For example, the measure must provide for the transition of labour from high- to low-emissions
industries where required, guarantee energy security and sustain the research, growth and
economic exploitation of carbon-reducing technology, plant and equipment.

Seamus French, CEO of Anglo American, said that a carbon pricing scheme in Australia would
affect the estimated AUD 4 billion in coal expansions in Australia, cutting coal-mining investment
by 13 per cent and output by up to 35 per cent (Behrmann 2011). Based on the findings of research
published in the journal Climate Change (2014), the 90 top emitting companies internationally were
responsible for more than 63 per cent of global emissions, with all but seven of the top 90 being
energy companies producing oil, gas and coal (Goldenberg 2013).

Large firms operating in these industries must be particularly proactive in crafting responses.
For instance, firms will be exposed to increased supply chain pressure for low-emissions
products and services, which initially could be more costly. There is likely to be a substantial
increase in business input costs, such as electricity, gas, diesel, transport, waste services and
packaging. There is also likely to be consumer pressure for low-emission goods and services,
resulting in disparity between supply and demand.

A critical aim for countries that implement an ETS is to ensure that the scheme has international
linkages to encourage market depth and liquidity, and to preserve the relative competitiveness of
industry, particularly those that are energy intensive. Operating in a carbon-constrained economy
will also result in changes in infrastructure development and the skills required. Structural change
is likely to cause economic hardship in some key sectors, regions and businesses. For example,
the Irish government initially postponed its carbon tax proposal because of protests from the
rural sector (which accounts for 33 per cent of the Irish population) that the tax would weigh
more heavily on rural households. However, since Ireland implemented its carbon tax in 2011
(Rosenthal 2012), it has experienced a 15 per cent drop in emissions. The tax has also raised over
EUR 1.6 billion, and is widely supported by all the political parties. This development highlights how
tough decisions on structural changes are being made by governments, and provides a warning to
organisations to prepare their business operations for a carbon-constrained environment.
 144 | GLOBAL BUSINESS CONTEXT

Uncertainty about the real impact of an ETS on the economy may increase the cost of capital,
which may slow down innovation and growth in the emerging low-carbon industries and
technologies as well as existing businesses. A carbon-constrained environment may also have
an effect on the labour market. In the long term, low-carbon innovation is expected to generate
widespread opportunities for economic growth, and increased employment in some industries
and decline in others. This type of transition is similar to what occurred over four decades ago
with the introduction of computer technology, when many jobs were lost but many more were
created, and overall productivity increased.

Action by accountants and organisations

As a first step, organisations should become aware of current and potential initiatives in place
in the countries in which the entity has operations. Organisations should develop models
and forecasts of the carbon price based on their current and expected short- and long-term
carbon footprint. This analysis may involve examining the impact of electricity and gas on
business overheads, the level of processing required in the country (e.g. in Australia), and also
transportation. In parallel, organisations and accountants must consider pricing issues of the
MODULE 2

carbon price on the goods and services provided and any compensation that may be applied for.

Organisations and accountants must also examine the potential for investment in low emissions
technologies. In some cases, there are government incentives available for these investments.
Accountants must also consider risks and opportunities (e.g. in long-term supply contracts),
budgeting, purchasing and surrendering of permits, supply chain management, measurement
of emissions, disclosure, assurance of emissions data, financial reporting, taxation, and general
business issues related to staffing and responsibilities for compliance.

Concern about sustainability cannot be ignored because it has the potential to affect an
organisation’s financial performance, its global strategies and its wider relationships with
stakeholders. The public, the media, employees, investors and other stakeholders all demand
some action by organisations. Those that fail to adapt to the increasing demand for non-financial
reporting risk reputation damage and loss of competitiveness to more adaptable organisations.

➤➤Question 2.8
What is the current regulatory position of the government in your country regarding measures
for operating in a carbon-constrained economy?

➤➤Question 2.9
What would be some of the likely effects on business enterprises transitioning to and operating
in a carbon-constrained economy?

Australia’s former Energy Efficiency Operations program

In 2006, the Department of Resources, Energy and Tourism (DRET) initiated the Energy
Efficiency Operations (EEO) program to ‘improve the identification, evaluation and public
reporting of energy efficiency opportunities by large business energy users’. Under the EEO
program, organisations that consumed more than 0.5 petajoules (500 000 000 000 000 joules)
of energy per year were obliged to conduct a precise and thorough appraisal ‘of their energy
use and identify cost effective energy efficiency opportunities, with up to a four year payback
period’ (DRET 2009, p. 1). In 2014, the EEO program was disbanded as part of the government’s
deregulation agenda and its commitment to reduce the costs of business. However, as the
EEO program was successful in raising Australian industry’s awareness of the potential savings
achievable through energy efficiency activities, this section takes a closer look at some of the
key organisational learnings from such programs.
 Study guide | 145

The EEO program was designed to help highly energy-dependent industries prepare for
operating in a carbon-constrained economy. Results suggested that where the EEO framework
was implemented effectively, it helped organisations to reduce costs and increase energy
productivity. As energy prices rise and issues of climate change take a higher profile, relevant
stakeholders (investors, shareholders and the general public) are expecting organisations to show
their commitment to improved energy efficiency (KPMG 2011).

The EEO program reporting requirements helped in this regard, since they were consistent with
or improved existing systems for transparency and accountability. EEO reporting requirements
highlighted the progress being made towards improving energy efficiency. Issues that deter
the successful implementation of such programs include weak commitment and deficient or
rival demands for capital and resources. Senior management must therefore be fully committed
and provide strong leadership by ensuring that energy efficiency is ‘owned’ by key people in
the organisation and that their achievements are recognised. Furthermore, there is the need to
link energy efficiency to core business systems and processes, as part of a business-improvement
process and ensuring that defined plans are implemented.

MODULE 2
The EEO framework, although rigorous, was flexible and could be adapted to meet the needs of
individual organisations. The design of an effective energy efficiency program must therefore be
based on a good understanding of each organisation’s business drivers, structure, systems and
culture. Organisations have differing impetuses for energy efficiency, and appraisals must reflect
this. Even where organisations already have energy efficiency goals and energy management
systems, there is always room for constant improvement. Energy prices and energy security
are major concerns for large energy users and these organisations are always looking for and
finding new opportunities to increase efficiency.

Many companies used the EEO compliance requirements as an opportunity to:

• review and improve their business and energy management systems;
• engage with their board, senior management and staff on energy efficiency; and
• show their commitment to external stakeholders through corporate reporting.

The EEO program illustrated that organisations were able to learn about energy efficiency as they
integrated it into their businesses. Despite it no longer being a formal, government-mandated
program, the benefits that can be gained from identifying, evaluating and reporting environmental
efficiency opportunities are significant and should be considered by all organisations.

Example 2.13: Bunker Freight Lines and Nyrstar Ltd

Bunker Freight Lines spent about 30 per cent of its budget on fuel. The obligation of the EEO program
to regularly collect good-quality energy information and study its use helped the organisation learn
about using energy more efficiently. EEO appraisal revealed 32 energy-efficiency opportunities that
had a payback requirement of four years at the earliest. Eight opportunities were carefully examined
and found to have a savings potential with a payback of 1.7 years, of at least AUD 4.4 million for a
one-off investment of AUD 2.6 million, reducing fuel use and GHG emissions by at least 12 per cent
and 13 per cent respectively (DRET 2009, pp. 1–2).

Nyrstar is a lead smelter at Port Pirie, South Australia, ‘consuming about five petajoules of energy at a
cost of $50 million each year’. Before joining the EEO program, this organisation had ‘limited energy
monitoring systems at a process level, [with no] specific resources allocated to energy management’.
Using the EEO framework and enhancing existing business systems, it developed a much better insight
into energy use, and identified opportunities for recovering lost energy. These opportunities, if applied,
were forecast to ‘save the company around $5 million per year for an initial investment of $9 million,
a return of less than two years’ (DRET 2009, pp. 2–3, 5). More recently, due to these developments,
the  smelter is expected to emit air with lower lead content, creating reduction in pollution and a
positive impact for the surrounding communities (Donnellan 2015).
 146 | GLOBAL BUSINESS CONTEXT

European Union: Measures to ensure

competitiveness
With the opening up of global markets, the EU has a strong focus on improving its industrial
competitiveness. The European Council (2014, p. 4) has stated that ‘Europe needs a strong
and competitive industrial base, in terms of both production and investment, as a key
driver for economic growth and jobs’. As highlighted by Figure 2.9, competitiveness is
one of Europe’s three top climate and energy priorities, along with security of supply and
sustainability. Traditionally, to achieve the goal of sustainability, a trade-off has been required
in competitiveness. However, the EU is working towards an outcome in which sustainability
also drives competitiveness. In this regard, competitiveness can be improved by a number of
factors, including resource efficiency, sustainable business practices, investment in eco-innovative
products and infrastructure, as well as lower regulatory costs.

Figure 2.9: European Union climate and energy goals

MODULE 2

Competitiveness

Security of supply Sustainability

Source: Barroso, J. M. 2014, ‘Climate and energy priorities for Europe: the way forward’,
Presentation of J. M. Barroso to the European Council, 20–21 March, p. 1, accessed July 2015,
http://ec.europa.eu/clima/policies/strategies/2030/docs/climate_energy_priorities_en.pdf.

In 2005, the EU established the High Level Group (HLG) on Competitiveness, Energy and the
Environment. This consisted of policy makers and stakeholders with expertise in the three areas,
to provide advice to policy makers at the EU and national levels. The HLG (2006) approved a
number of recommendations to ensure EU member states remained competitive, including:
• liberalising the supply of gas and electricity by increasing the range of offers to utility users;
• removing regulated tariffs that distort competition;
• speeding up or expediting investment approval in energy generation capacity and
infrastructure;
• strengthening the distribution grids and promoting renewable development investments; and
• fine-tuning the implementation process of the EU Emissions Trading System.

The HLG aimed to ensure future sustainability and competitiveness of European firms in a
carbon-constrained and resource-constrained world. It suggested that markets should reward
best performers and ‘lead markets’ should be developed that help address policy goals of
climate change and sustainable resource use.
 Study guide | 147

The main conclusions of HLG’s report (2007, pp. 4–6) included the following:
• Define a policy that helps global demand for more environment-friendly products and services.
• Offer environment-friendly products and services at affordable prices.
• Pursue lead markets that support EU industry driving worldwide markets towards lower emitting
products and technologies, facilitated by a clear and simple consumer labelling system.
• Encourage industry associations, SMEs and NGOs to develop codes of conduct for
sustainable private sector procurement.
• Develop a raw materials policy that ensures security and diversity of supplies to the EU
manufacturing industries, as well as optimal use of resources to minimise waste.

Since the original HLG reports, a number of studies have confirmed the importance of the EU’s
energy system, as well as its level of innovation in efficient and low-carbon technologies, on
the EU’s industrial competitiveness (European Commission 2011, 2013). In addition, from 2007
to 2013, the European Commission ran the Competitiveness and Innovation Framework
Programme (CIP), with a budget of over EUR 3.5 billion. The CIP was aimed at improving the
competitiveness of SMEs and their innovative capacity, with a specific focus on energy efficiency
and use of renewable energies (European Commission 2014a). From 2014 to 2020, the European

MODULE 2
Commission is running COSME—a EUR 2.3 billion program for the competitiveness of enterprises
and SMEs. COSME’s focus is on providing SMEs with better access to finance and markets,
supporting entrepreneurs and creating favourable conditions for business creation and growth
(European Commission 2014b).

Highlighting the importance of competitiveness to the EU, in 2014 the European Council
published conclusions on industrial competitiveness and policy, which included the following:
• Through its budget, the European Union contributes to industrial competitiveness. The best
possible use should be made of EU [funding] instruments … as well as market-based and other
innovative financial instruments to support competitiveness and access of SMEs to finance.
• Efforts should continue to improve market access around the world by facilitating the integration
of European companies in global value chains and promoting free, fair and open trade …
• … key enabling technologies (KETs) are of crucial importance for industrial competitiveness.
Special attention should be paid to the role of cleantech [clean technologies] as a cross-cutting
element for enhancing the competitiveness of the European industry …
• A strong, resource-efficient and competitive European industrial base must be seen in relation to
a coherent European climate and energy policy, including through addressing the issue of high
energy costs, in particular for energy-intensive industries (European Council 2014, pp. 4–7).

The EU competitiveness measures therefore include recommendations to member states and

the European Commission, as well as specific EU policies and programs. The competitiveness
measures are aimed at increasing business growth and jobs, and must be balanced with the
goals of sustainability and security of supply. The EU is looking at unearthing ways to align all
three priorities, rather than viewing them as conflicting.
 148 | GLOBAL BUSINESS CONTEXT

The United States: Carbon pricing differences

across states and federal initiatives
In the United States, a number of states have enacted various pieces of carbon pricing legislation.
In 2005, several north-eastern US states signed a regional agreement to reduce CO2 emissions
by 24 million tonnes. In August 2011, California established the most extensive CO2 emissions
law, requiring a 25 per cent reduction in emissions by 2020, with the first major controls going
into effect during 2012. The new law is enforced by the California Air Resources Board.
Proponents of the legislation believe that it will ‘be an example for other states and nations to
follow as the fight against climate change continues’, according to the then California Governor
Arnold Schwarzenegger. Some businesses are also supportive. Opponents believe that the law
will harm Californian businesses as manufacturers seek to relocate elsewhere in the United States
or overseas (Worldwatch Institute 2012).

In 2013, President Obama announced a climate action plan, which began with his contention
of a need to address environmental responsibility:
MODULE 2

While no single step can reverse the effects of climate change, we have a moral obligation to future
generations to leave them a planet that is not polluted and damaged. Through steady, responsible
action to cut carbon pollution, we can protect our children’s health and begin to slow the effects of
climate change so that we leave behind a cleaner, more stable environment (Obama 2013, p. 4).

Obama’s plan has three key pillars:

1) Cut carbon pollution in America …
2) Prepare the United States for the impacts of climate change …
3) Lead international efforts to combat global climate change and prepare for its impacts.
(Obama 2013, p. 5).

The plan outlines implementation goals, including the deployment of clean energy, a 21st century
transportation sector, and the reduction of GHGs. Obama’s plan will involve federal, state and
local levels.

The United Kingdom: Environmental

performance reporting
This section explores the United Kingdom’s mandatory disclosure requirements for environmental
performance. Such reporting is seen as an important way for organisations to manage their impact
on the environment. It is also used to monitor organisations’ operations, providing stakeholders
with better information to assess performance.

It is important to note that there are also voluntary disclosures driven by a range of social, political,
economic, stakeholder theory and political cost hypotheses. In this regard, the Global Reporting
Initiative has produced some of the world’s most prevalent standards for (voluntary) sustainability
reporting, which includes economic, environmental and social performance (GRI 2013).

The GRI is discussed in Module 4 and in the ‘Ethics and Governance’ subject in the CPA Program.

Listed companies in the United Kingdom are required to report on annual emissions in their
directors’ reports (in tonnes of carbon dioxide equivalent). The reportable emissions are those
sourced from the company’s combustion of fuel and operation of facilities. Companies are also
required to disclose ‘intensity ratios’, which normalise the company’s environmental impact—
enabling comparisons across companies. An intensity ratio is generated by dividing the level
of emissions by another business metric, such as number of staff, size of facility or number of
units produced.
 Study guide | 149

Environmental performance reporting is often based on KPIs that are tied to specific industries
or sectors. In the United Kingdom, the Accounting Standards Board’s (ASB) Reporting Standard 1
Operating and Financial Review details how KPIs should be reported on. For each KPI disclosed,
details to be provided include:
• definition of the KPI, its purpose and an explanation of the KPI calculation method;
• disclosure of the core data source and assumptions for calculating the KPI;
• ‘quantification or commentary on future targets’;
• reconciliation, when financial statement data has been adjusted; and
• the corresponding KPI value for the previous financial year being reported (ASB 2005, p. 21).

The UK’s Department for Environment, Food and Rural Affairs (DEFRA 2006, pp. 18–19;
DEFRA 2012a) identified 22 KPIs important to UK businesses. DEFRA advises firms to focus
on the five KPIs most relevant to them. DEFRA also suggests, by industry sector, the KPIs that
each firm should maintain and report on (see Table 2.7). Most of DEFRA’s recommended KPIs
can be computed from data routinely collected by firms, such as quantity of fuel consumed per
annum, business mileage and electricity consumption. DEFRA notes that a KPI for biodiversity is
not included, since, in its opinion, there is no single, universally accepted method for measuring

MODULE 2
the effects of company activity on biodiversity. Each firm can report on environmental issues
in two contexts:
1. mandatory reports, such as the business review; and/or
2. voluntary reports, such as a corporate responsibility report.

Table 2.7: DEFRA KPIs by indicative industry sector

KPIs Indicative industry sector

Emissions to air

1. Greenhouse gases Every business sector

2. Acid rain and smog precursors Sectors that use fossil fuels

3. Dust and particles Energy industry (using fossil fuel) and road transport

4. Ozone-depleting substances Every business sector. These are often only emitted by accident
(e.g. leakages from air conditioning or fire extinguisher system or
use of fire extinguishers)

5. Volatile organic compounds Manufacturing, mining, textiles and paper production

6. Metal emissions to air Burning of coal or oil and industrial processes

Emissions to water

7. Nutrients and organic pollutants Civil services sector responsible for human sewage, crops and
animal production, food processing, and manufacturing of pulp
and paper, detergents and fertiliser

8. Metal emissions to water Mining of metal ores, coal and lignite; extraction of peat;
manufacture of chemicals and chemical products

Emissions to land

9. Pesticides and fertilisers Agriculture

10. Metal emissions to land Industrial processes and heavy metal leaching from mineral
wastes at mining facilities

11. Acids and organic pollutants Processes using oil-based fuels or lubricants, large amounts of
industrial acids or organic chemicals

12. Waste (recycling, recovery, landfill) All sectors produce waste to some extent

13. Radioactive waste Electricity, gas, steam, and hot water supply; manufacture of
coke, refined petroleum and nuclear fuel; medical sector and
research establishments
 150 | GLOBAL BUSINESS CONTEXT

KPIs Indicative industry sector

Resource use
14. Water use and abstraction Water/sewerage, industrial, chemical, and power firms

15. Natural gas Mining that extracts natural gas

16. Oil Mining that extracts crude petroleum and natural gas

17. Metals Mining of metal ores

18. Coal Mining of coal and lignite, and extraction of peat

19. Minerals Mining of minerals (other mining and quarrying)

20. Aggregates Mining of aggregates (other mining and quarrying)

21. Forestry Forestry, logging and related activities

22. Agriculture Agricultural production (fishing, aquaculture and service

activities incidental to fishing, growing of crops, market
gardening and horticulture, farming of animals)
MODULE 2

Source: Adapted from Department for Environment, Food and Rural Affairs (DEFRA) 2011,
Reporting Guidelines for Business on Environmental Key Performance Indicators: A Consultation on
Guidance for UK Businesses, pp. 66–74, accessed July 2015, http://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/69281/pb11321-envkpi-guidelines-060121.pdf.
Contains public sector information licensed under the Open Government Licence v3.0.

The general principles that give assurance to a firm and its stakeholders are transparency,
accountability and credibility. Transparency and report integrity are achieved through data
collection that includes ‘internal processes to manage and report risk’; ‘level of public disclosure’;
and a ‘clear definition of [the] boundaries of the company to which the report applies’
(DEFRA 2006, p. 15).

The importance of transparency in business is discussed in Module 5.

The accountability principle is taken into account with:

• ‘the definition, level and nature of stakeholder engagement’;
• the ‘quality of a third party assurance statement’;
• ‘integration of environmental reporting within the Annual Report and Accounts,
and Business Review’;
• success level of the communications strategy; and
• extent that data ‘is specifically identified and tailored to the needs of institutional investors’
(DEFRA 2006, p. 16).

Moreover, issues that are related to the principle of credibility are: having limited understanding
of the notion of sustainable development and how it applies to a firm; ‘a company’s procurement
policy and efforts to manage the impacts of its supply chains and products’; and ‘description of
an externally certified … environmental management system (EMS), and other related practices’
(DEFRA 2006, p. 16).

Recommended environmental reporting processes are depicted in Figure 2.10. It is important

that the disclosed KPIs and the strategy underpinning them are communicated and understood
across the firm. It is also critical for firms to have the appropriate systems and processes to ensure
that their KPI disclosure strategy can be sustained and any material departures explained.
 Study guide | 151

Figure 2.10: P
 rocess for reporting environmental KPIs for a typical service
industry firm

1. Determine relevant KPIs

by benchmarking against:
● Official guidelines
● Peers and sectors

2. Identify audience and decide on

4. Collect further data as necessary
reporting medium

3. Review data needs and sources

Environmental
Other data sources

MODULE 2
management system
Internal review

External verification

5. Report on relevant KPIs

Source: DEFRA 2011, Reporting Guidelines for Business on Environmental Key Performance Indicators:
A Consultation on Guidance for UK Businesses, p. 24, accessed July 2015, http://www.gov.uk/
government/uploads/system/uploads/attachment_data/file/69281/pb11321-envkpi-guidelines-060121.pdf.
Contains public sector information licensed under the Open Government Licence v3.0.

The five key steps for reporting on environmental KPIs illustrated by Figure 2.10 are:
1. Determine relevant KPIs. This ‘will depend on internal resources and expertise available’,
and whether the firm is experienced at reporting. Firms may ‘review what their peer companies
are reporting so that they have a good benchmark’ for their own reporting requirements.
2. Identify audience and decide on reporting medium. ‘Audiences can include shareholders,
employees, government, suppliers, clients, academics, the local community and NGOs’.
Hence, the firm must ensure that when reporting environmental performance, the KPIs
selected meet the expectations of the key audiences or stakeholders.
3. Review data needs and sources. Firms will need suitable systems for gathering
required data. ‘EMSs (ISO14001, EMAS and BS8555) … are a robust and effective way of
managing the data-gathering process to an appropriate standard’. It is also ‘possible to
collect information … such as fuel and electricity bills, to calculate environmental KPIs’,
using standard business systems.
4. Collect further data as necessary. If not all data are available, it may be necessary to
gather the additional data by enhancing the existing information-collection systems.
5. Report on relevant KPIs. Firms normally report environment KPIs annually (DEFRA 2006,
pp. 24–36).

Firms ‘that measure, manage and communicate their environmental performance … understand
how to improve their processes, reduce their costs, comply with regulatory requirements and
stakeholder expectations and take advantage of new market opportunities’. Operating in a
carbon-constrained economy means that there is an increasing demand for improved company
reporting that is well-defined and more focused on the key impacts on the business and on the
environment. Finally, the use of KPIs helps firms ‘manage and communicate the links between
environmental and financial performance’ (DEFRA 2006, p. 4).
 152 | GLOBAL BUSINESS CONTEXT

Since 2006, DEFRA has established an informal consultation process to ‘seek views on revised
voluntary guidance for how UK organisations should measure and report on their environmental
impacts. This is intended to replace the current guidance, which was published in 2006’
(DEFRA 2012b). In recognition of this, the UK government released the Natural Environment
White Paper (NEWP) in 2014.

You can read more at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/82551/consult-kpi-document.pdf.

➤➤Question 2.10
(a) How can reporting environmental performance be helpful to firms?
(b) Why use environmental KPIs?
(c) What are the three key principles in defining KPIs?
MODULE 2

Summary
Firms face regulatory requirements when operating in a carbon-constrained economy.
While there is some consensus around the world for a need to reduce human-generated
greenhouse gas emissions, each country perceives a different level of responsibility and
capacity, and regulations may change over time. For example, in Australia, the government
repealed the carbon tax in 2014. Government-initiated schemes usually result in a price
increase, either by the economic effects of carbon trading or carbon taxes. Some observers
also predict that, in time, there may be a system of rationing of carbon fuels. Hence, a scheme
that reduces uncertainty and permits firms to control energy costs must be a key aim of
government policy. On the other hand, firms must be proactive in reducing their exposure to
operating in a carbon-constrained economy. Firms will incur higher investment costs when
initially applying energy-efficient or renewable-energy solutions. However, in the long term,
these actions will result in savings, reduce  the firm’s risk exposure to a carbon-constrained
economy, and mitigate the risk of exposure to any resultant instability or carbon price increases.
 Study guide | 153

Part C: The changing population

Introduction
One of the key human resource issues that creates additional complexity in the workplace
is the changing workforce demographic. In this part, we describe the different categories
of demographics and how demographic changes are affecting business management and
performance. One particular issue is the change in the working age population in many
countries. This population is declining in Australia and some other nations where the workforce
is ageing, but increasing in others where more young people are entering the workforce.
The effects of different demographic groups working together are explored, with both the
benefits and challenges of this diversity evaluated.

Next, we look at the issues related to gender diversity in the workplace and consider the impacts
of discrimination on workplace effectiveness. This includes an examination of some legislative

MODULE 2
approaches to addressing these issues. Succession planning and business exit strategies as a
result of workforce ageing issues are then discussed. The role of the accountant in assisting the
organisation to address these demographic issues is explored.

Demographic overview
There are a variety of names and categories for age demographics; however, for the purposes
of this module we use the following categories and dates:
• mature workers (born 1927 to 1945);
• baby boomers (born 1946 to 1964);
• Generation X (born 1965 to 1981);
• Generation Y (born 1982 to mid-1990s); and
• Generation Z (born mid-1990s onwards).

As the workforce ages, mature workers and baby boomers drop out of the workforce and are
replaced by a greater proportion of Generation X, Generation Y and Generation Z workers.

Age demographics, while categorised as a social science, resemble more of a pure science in
that their predictive powers are almost as concrete (McArthur 2010, p. 30). Age demographics
predict a reshaping of the workplace in Australia. After the Second World War, there was a sharp
rise in the number births (as people got back to ‘normal life’, starting families after the war).
This increase in births was later called the ‘the baby boom’, and produced a large ‘baby boomer’
generation. When baby boomers became adults, they actually had fewer children themselves.
These lower birth rates, combined with higher levels of education as the norm (which delays
entry into the workforce), as well as the fact that people are living longer and healthier lives,
is producing the most age-diverse workforce we have ever had (ABS 2012).

Further, 2011 marked the year in Australia when the oldest baby boomers turned 65 and typically
became eligible for the government pension. This means that our dependency ratio (the ratio
of dependants, people younger than 15 or older than 64, to the working-age population of
those aged 15–64), is projected to worsen progressively each year as more baby boomers enter
retirement. This is expected to lower Australia’s growth potential as a direct result of reduced
expenditure, lower asset valuations and higher rates of taxation (United Nations 2012).

The dramatic nature of the change is illustrated in the projected population structure in
Figure 2.11. In contrast to the 2011 population age, which shows a relatively wide base and
middle with a sharply narrowing top, the 2061 age shows a relative narrowing of the younger
age population and a broadening at the older ages (ABS 2013).
 154 | GLOBAL BUSINESS CONTEXT

Figure 2.11 reveals that an issue of particular importance is the declining proportion of the
working-age population (i.e. people aged 15–64 years).
Changes in Australia’s age structure are reflected in the median age, which is projected to increase
from 37.3 years in 30 June 2012 to between 38.6 years and 40.5 years in 2031, and between
41.0 years and 44.5 years in 2061. Over the second half of the century, the median age is
projected to continue to increase, but at slower rates, to between 43.1 years and 46.2 years in
2101 (ABS 2013).

Figure 2.11: Projected population age: 2011 to 2061

Age group (years)

100+
95–99
90–94 2011
85–89 2061
80–84
MODULE 2

75–79
70–74
65–59
60–64
55–59
50–54
45–49
40–44
35–39
30–34
25–29
20–24
15–19
10–14
5–9
0–4
5 4 3 2 1 0 0 1 2 3 4 5
%
Males Females

Source: ABS 2013, ‘Population projections, Australia, 2012 (base) to 2101’, cat. 3222.0, accessed July 2015,
http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101.
Content available under a Creative Commons by Attribution 2.5 licence.

Note too that the ABS provides an interactive population tool, which can be found at:
http://www.abs.gov.au/websitedbs/d3310114.nsf/home/Population%20Pyramid%20-%20Australia.

There will be fewer people in the workforce to contribute taxes. At the same time, aged-care
costs will increase because more people will require services (due to the numbers of baby
boomers) and the wider ranges of services demanded as, thanks to medical technology and
improved diet, people live longer, healthier lives than previous generations (United Nations 2012).

These pressures provide a strong incentive for initiatives aimed at extending the working
lives of older people, encouraging them to remain gainfully employed and ensuring training,
development and support from organisations and fellow workers. These will be key strategies
in limiting the dependent component of the ratio (United Nations 2012).
 Study guide | 155

International demographic trends

Different countries will experience a variety of demographic issues over the next 30 years. India is
described as being about to receive a ‘demographic dividend’ as a significant number of young
people will enter the workforce, thus creating extra growth and economic development. At the
other extreme, Japan and several European countries are in significant decline, with low birth
rates meaning significantly fewer young people are entering the workforce compared to older
people who are retiring (which can lead to reduced economic growth and tax base).

For example, as shown in Figure 2.12, Japan’s population has changed dramatically over the last
60 years. In the 1950s, the Japanese population was very young. By 2005 this group had aged,
but had not been replaced by a younger generation. There are significantly more older people
who will not be working but will require more services such as healthcare. This decline in younger
workers appears set to continue with the 2055 forecast showing a very small base of young
people supporting an extremely old population.

This YouTube video provides an overview of the challenge of Japan’s ageing population:
http://www.youtube.com/watch?v=59tvl6mJGrQ.

MODULE 2
Please note that this resource is provided for additional information and is not examinable.

Figure 2.12: Japan’s population in 1950, 2005 and 2055

Source: Tricks, H. 2010, ‘Into the unknown’, The Economist, 18 November, accessed July 2015,
http://www.economist.com/node/17492860, based on National Institute of Population and
Social Security Research, Japan. © The Economist Newspaper Limited, London (2010).

Example 2.14: The effect of an ageing population in China

The Chinese population has been ageing rapidly over the past four decades, due at least in part, to the
country’s ‘one-child’ policy. Established in 1979, the policy has resulted in a slowing of population
growth and has enabled better access to vaccinations and disease treatment. Living standards have
also improved in China.

While the policy has assisted in slowing the birth rate, the population is ageing. It is expected that the
number of Chinese elderly (over the age of 65) will be over 300 million by 2050. Further, a number of
factors are working together to place great pressure on the country’s health care system. For example,
environmental pollution in China’s cities is causing far greater negative health impacts for the elderly
compared to younger members of the population. In addition, more Chinese elderly are developing
obesity-related diabetes and heart disease.
 156 | GLOBAL BUSINESS CONTEXT

Historically in China, the elderly rely on their children/families for support. An increasing trend for
younger family members to work and study outside the home, even abroad, has added to the pressure
on the healthcare system. Adding to these challenges, there is limited institutional care available in
China. Only 2 per cent of the elderly in China live in aged-care homes and those that do suffer from
relatively poor health.

Further complicating issues include low levels of health insurance coverage, over prescription of
medicines and health-care services being unaffordable for a large fraction of the Chinese population.
By 2030 older Chinese adults will account for two-thirds of the total disease costs in China. Reforms
in the delivery of a well-funded health care system, including for the Chinese elderly, are required.

Source: Population Reference Bureau 2010, ‘China’s rapidly aging population’

Today’s Research on Aging: Program and Policy Implications, accessed June 2015,
http://www.prb.org/pdf10/todaysresearchaging20.pdf.

There are a number of tools available that provide up-to-date population and workforce
projections. See for instance:
• The United Nations Department of Economic and Social Affairs (2012) of the United Nations
Secretariat 2012 Revision of the World Population Prospects (widely recognised as one of the
MODULE 2

most authoritative sources of international comparative data) at: http://esa.un.org/wpp/

• A 2015 World Population Data Sheet interactive map at: http://www.prb.org/Publications/
Datasheets/2015/2015-world-population-data-sheet/world-map.aspx#map/world/
population/2015.
• A 2014 Pew Research Center report on global public opinion at: http://www.pewresearch.org/
fact-tank/2014/02/03/10-projections-for-the-global-population-in-2050.

The effect of different generations in the workforce

Baby boomers are now entering the over-65 age group (the socially accepted age for retirement).
The Australian Bureau of Statistics (ABS 2013 a) predicts that there will be a shortage of labour
and skills in the coming years as baby boomers retire from the workforce. However, with the
advent of the Global Financial Crisis (GFC), many mature age workers are deferring retirement
in the hope of rebuilding their diminished superannuation funds (ABS 2012). Baby boomers
are often criticised for being workaholics, focusing on their work commitments ahead of family
and recreational activities (Collier 2009). However, this is often regarded as a positive feature by
employers, who are the beneficiaries.

Generation X represents approximately 60 per cent of the current workforce. This group is
described as the product of families where both parents work, hence the title ‘latch key kids’.
As a result, Generation Xers are independent and have acquired great technological expertise—
unlike their baby boomer co-workers. Generation X possess a different work ethic—thriving on
creativity, diversity and challenge compared with the baby boomers’ work ethic centred around
compliance with rules and regulations (Collier 2009).

Another perspective to the ageing scenario provided previously is the entry of Generation
Y into the workforce. Generation Y is even more comfortable with digital technology than
its predecessor, Generation X, and relies heavily on technology (e.g. email, Facebook,
mobile phones) to communicate.

Terjesen and Frey (2008, p. 66) report that characteristics attributed to Generation Y when
compared to Generation X and baby boomers include being more adaptable, confident, able to
multi-task and technologically savvy. The potential for a mismatch between what ‘Gen Y’ workers
(often also called ‘millennials’), want and what their managers expect is often attributed to:
Gen Y’s lack of certain ‘soft’ interpersonal skills, including prioritizing work, having a positive
attitude, and good teamwork skills … skills [that] are especially hard for millennials to master
because of their reliance on and constant interaction with technology (Giang 2013).
 Study guide | 157

According to the ABS:

A number of countries have taken various approaches to increase older worker participation,
including raising the official retirement age, anti-discrimination legislation, employer subsidy
schemes, and extensive awareness campaigns on the benefits of employing and retaining older
workers (ABS 2010).

Role of the accountant

Accountants must consider an organisation’s employees’ average age and review the age
demographics by generation. This is a necessary step for forward planning for knowledge
retention, skill development and leadership.

According to Collier (2009): ‘[w]ith an age gap of up to 50 years between the oldest and the
youngest employees in some organisations there is a broad range of perspectives, needs and
attitudes within the office’. Thus, age differences may yield positive effects in the form of diversity
in ideas leading to creativity, or negative effects when conflict arises as a result of that diversity.

MODULE 2
Some broad observations show that age may affect productivity in both positive and negative
directions. For example, research by Feinsod and Davenport (2006, p. 17) suggests ‘worker
productivity begins to decline between the ages of 30 and 40’. An alternative viewpoint
is presented in research carried out by Charness (cited in Feinsod & Davenport 2006),
which revealed that ‘Knowledge can compensate, at least partially, for age-related declines
in cognitive efficiency’ and concluded by stating that ‘[a] knowledgeable older adult will
outperform a computationally swift but less knowledgeable young adult’ (Feinsod & Davenport
2006, p. 17). This research highlights the potential for competitiveness between younger and
older workers and hence the possibility for dissension within the firm.

There are a number of important issues that arise from these shifting workplace demographics.
A key question is: ‘What implications do they have for the accountant in providing advice on
organisational strategy?’ Other questions are:
• Will there be a shortage of available talent? How will this talent be replaced?
• Will organisations need to consider training younger employees, hiring and retaining
older employees, or importing talented young employees?
• How do younger and older employees’ motivations vary?
• Does worker productivity decline as the workforce ages?
• If the average workforce age increases, will work life benefits such as superannuation,
long service leave and sick leave also increase? (Feinsod & Davenport 2006).

For more information about cross-generation differences among mature workers, baby boomers,
Generation X and Generation Y in core values, family background, educational background,
communication and media, preferences for dealing with money, and workplace characteristics and
behaviour (leadership style, interactive style, feedback and rewards, messages that motivate, and work
and family life), view this video from AG Careers: http://www.youtube.com/watch?v=UJi_SdRuJPs.

Please note that this resource is provided for additional information and is not examinable.

An ageing workforce strategy

Ageing workforce strategies need to consider the following:
• retaining knowledge, skills and experience;
• meeting multi-generational needs;
• rethinking retirement policies;
• supporting employee family needs, including caregivers and new/growing families;
• reviewing retirement trends—now and over the next five to 10 years; and
• reviewing age demographics data and identifying any potential lack of skills due to
pending retirement.
 158 | GLOBAL BUSINESS CONTEXT

Some strategies for addressing the management and sharing of knowledge possessed by older
workers leaving the workforce are discussed in Module 6.

What are the age demographics in your workplace? Is there good rapport between the age groups?
Is the experience of the more mature employees appreciated by other employees, or is there a
feeling of resentment towards this group of employees? Are young employees’ enthusiasm and
technological savvy harnessed productively towards organisational goals?

➤➤Question 2.11
What challenges does an age-diverse workforce present?

Managing the effect of an ageing workforce using peer mentoring

There are many positive impacts of an age-diverse workforce and organisations should ensure
they capture these by having policies and processes in place that facilitate communication and
knowledge transfer. This will enable older, more experienced staff to transfer their knowledge in
MODULE 2

a straightforward manner to younger employees. Advantages of doing this include:

• improved consistency in product or service delivery;
• lowered formal training costs; and
• greater likelihood of maintaining productivity over the long term, with increased productivity
in the short term.

We now turn to a second type of diversity in the workplace—gender diversity.

Gender diversity in the workplace

As new generations enter the workforce, expectations about how men and women should be
treated in the workforce are rapidly changing. In earlier decades, when the workforce was made up
of early baby boomers and mature workers, women were often assigned to temporary or part-time,
low-responsibility positions because it was felt that they would leave the workforce early to take
care of their family. Furthermore, women were perceived by some as less capable than their male
colleagues (Schwartz n.d.).

Extensive research and practical experience demonstrates that men and women are equally
capable. Meanwhile, women have joined the labour force in increasing numbers, especially in
the last three decades (ABS 2013b). Around the world, nations have adopted laws banning the
mistreatment of women.

Despite the considerable presence of women in the labour force, the introduction of gender
equality legislation and a change in attitude about the role of women in the workforce,
female workers continue to be paid, on average, 17.5 per cent less than their male co-workers.
This national gender pay gap has hovered between 15 per cent and 18 per cent for the past two
decades (Workplace Gender Equality Agency 2014). The AMP NATSEM report suggests one
result is an average lifetime earnings deficit for women of nearly $1 million—a figure that rises
up to $1.5 million for those with university degrees (AMP NATSEM 2009).

Women’s lower incomes also affects their ability to save for retirement, with figures from the
Association of Superannuation Funds of Australia showing that women’s average superannuation
balances are 45 per cent less than men’s (Association of Superannuation Funds of Australia 2015).

Learn more about pay equity at: https://www.wgea.gov.au/learn/about-pay-equity.

 Study guide | 159

Other statistics that support these findings include the following from the 2012 Australian Census
of Women in Leadership, which identified that women:
• held 3.0 per cent of chair positions in the ASX 200, and 2.6 per cent in the ASX 500;
• represented 3.5 per cent of CEOs in the ASX 200, and 2.4 per cent in the ASX 500; and
• accounted for 9.2 per cent of directors in the ASX 500.

Real-time statistics from the Australian Institute of Company Directors (AICD 2015) reveal:
• 21 per cent of directors in the ASX 200 are women, as of September 2015;
• women accounted for 31 per cent of new appointments to ASX 200 boards for the nine
months to September 30 2015;
• less than 15 per cent of ASX 200 companies do not have a woman on their board; and
• women held 39.1 per cent of federal government board positions as at June 30 2015
(Australian Government, 2015 and AICD 2015).

In Australia, the Workplace Gender Equality Agency (WGEA) provides a number of tools and
resources that may be useful to accountants offering advice and assistance to organisations.

MODULE 2
You can access the interactive data centre at: https://www.wgea.gov.au/interactive-data-centre.

You can access a range of fact sheets and statistics for all industries at:
https://www.wgea.gov.au/research-and-resources/fact-sheets-and-statistics.

The following video provides a perspective by Catherine Fox (Australian Financial Review columnist
and author of The Seven Myths about Women and Work) on women at work in Australia:
http://www.youtube.com/watch?v=BdXOqS0HwJM.

Note needs to be made of a 2014 development that has the potential to redefine standard
notions of the gender divide. A High Court decision in April 2014 formally upheld the right of
a transgender person to be registered as neither a man nor a woman with the NSW Registry of
Births, Deaths and Marriages. This means that gender is not only ‘male’ or ‘female’ and that this
should be recognised by the law and in basic legal documents (High Court of Australia 2014).
This decision already appears to be expanding the scope of the right to choose whether to
provide certain information on forms (and other documents requesting personal information).

The issue of gender diversity offers a changing and challenging area where the role of the
accountant, as a strategic business advisor, can provide a view that bridges the gap between
financial, human resource and wider social concerns.

What is the make-up of males and females in your place of employment? What is the ratio of
men to women occupying upper-management positions? What is the ratio of men to women
occupying middle-management positions? What is the ratio of men to women occupying lower-
management positions?
 160 | GLOBAL BUSINESS CONTEXT

Workplace issues and discrimination

Discrimination in the workplace may be based on colour, gender, race, ethnicity, religion,
pregnancy, age, marriage status, weight or sexual preference. Regardless of the form,
workplace discrimination should be prevented so that harmonious relationships may be
developed. Governments can take a number of initiatives to prevent discrimination in
the workplace. In Australia initiatives have included the formation of the Australian Equal
Employment Opportunity Commission, as well as enactment of various types of legislation to:
• prevent sexual harassment in the workplace (Sex Discrimination Act 1984 (Cwlth));
• promote fair pay and conditions through the Australian workplace relations system’s fair
pay and conditions standards (Workplace Relations Amendment (Transition to Forward with
Fairness) Act 2008 (Cwlth));
• enable fairness at work and protection of the rights of freedom of association and
representation at work (Fair Work Act 2009 (Cwlth)); and
• prevent discrimination due to age, disability and race (Age Discrimination Act 2004 (Cwlth),
Disability Discrimination Act 1992 (Cwlth) and Race Discrimination Act 1975 (Cwlth).

The Australian Human Rights Commission has prepared the following detailed reports and
MODULE 2

guidelines so that business enterprises may avoid breaking anti-discrimination laws:

• Ending Workplace Sexual Harassment: A Resource for Small, Medium and Large Employers.
• Supporting Working Parents: Pregnancy and Return to Work National Review—Report.
• Fact or Fiction? Stereotypes of Older Australians Research Report 2013.
• ‘Guidelines for writing and publishing recruitment advertisements’.
• Gender Equality Blueprint.
• The Equal Pay Handbook.
• Accelerating the Advancement of Women in Leadership: Listening, Learning, Leading.

These reports and more information are available on the commission’s website at:
https://www.humanrights.gov.au/our-work/legal/legislation.

Although these matters may be considered to be of more concern to human resource managers,
accountants must also be aware of these reports and guidelines when considering the employment
of new staff, promotional applications by staff and the general running of a business. With growing
awareness among employees, especially among knowledge workers, of equal opportunity rights,
it is essential that management applies these laws and regulations with due diligence to ensure the
smooth running of a business.

For recent findings of a report on workplace discrimination and gender pay inequality in Australia,
view this Press TV Melbourne video: http://www.youtube.com/watch?v=8wRfqAWPDaU.

Please note that this resource is provided for additional information and is not examinable.

Succession planning and business exit

It is inevitable that key people will leave the business. A succession or exit plan outlines who
will take over when someone leaves, as well as steps or actions that need to be taken in the
interim period to prepare the business for such a transition.

Succession planning is important to any business to ensure the smooth flow of business
activities in the event of staff leaving—whether planned or unexpected. The issue of an
ageing workforce—with the larger baby boomer generation starting to reach retirement age,
and concerns about the reduced numbers and skill levels of those who will replace them—
makes succession planning imperative.
 Study guide | 161

Knowledge management should be an explicit part of succession planning. Specific roles

should be identified, position descriptions documented, important files methodically stored
and work-in-progress constantly captured to ensure that important knowledge is not lost
upon the sudden or planned exit of staff. Succession planning also involves training some staff
in a particular area of expertise. Those staff can then take over from the trainer if necessary,
either in the short term (recreation leave or sick leave) or long term (resignation or retirement).
This ensures that the business continues to operate smoothly, with little disruption to other staff,
managers and clients.

Knowledge management and sharing strategies are discussed in more detail in Module 6.

A business should have a plan to cover the workforce demographic situations referred to
previously, which can occur at any time. This type of management falls under the category
of risk management. A well-run organisation will not remain in business, let alone prosper,
without this type of management in place (McKaskill 2009).

While we often think of the retiring baby boomer generation as employees of businesses, it is

MODULE 2
important to realise that many of these baby boomers are also business owners, making the
succession planning more complex. This situation raises issues such as whether the ownership
interests will also transfer and, if so, who will acquire those interests. Additional issues include
planning for any transitional arrangements, such as whether current owners remain as employees
(even if only part time) for a period after the ownership has transferred to ensure a smooth
transition for the business. While such planned transitions are preferable, it is important to also
have contingencies in place for unexpected business successions. Such contingencies would
include the implementation of a buy–sell agreement that states under which conditions business
owners or principals contractually agree to acquire the ownership interests of another principal
given a significant event, such as death, trauma or total and permanent disablement of a
principal (Allan & Moore et al. 2009, p. 448).

Owners are often advised to make their business plans with a successful exit strategy in mind.
A business exit or business succession is the term used when an owner leaves or transitions
out of the business (or closes it down). There are many reasons for exiting a business, such as
operating until a certain goal is achieved or a particular time has elapsed, or perhaps being
forced to because of economic conditions or a change in the personal situation of owners or key
personnel. An essential part of a successful business exit includes having plans and procedures
to cover the two main scenarios (planned or unplanned exit by the owner) in advance.

In the first scenario—where the owner’s exit from the business is planned—the business can
adopt a number of strategies:
• Sell the business on the open market and endeavour to obtain the best possible price.
Consideration must be given to how the proceeds of the sale of the business will be invested,
taking into account any taxation implications.
• Liquidate the business. This may come as a shock to clients and employees, so this is
not usually the most favourable exit strategy. Liquidation may ruin the reputation of those
running the business, reducing their chances of success in later business ventures.
• Sell to a selected buyer. This may be an individual or a group within the business with the
knowledge and expertise to pick up the running of the business and continue to operate it,
with customers and clients unaware of any change (Robbins 2009).
 162 | GLOBAL BUSINESS CONTEXT

In the second scenario—where a business exit is required because of unforeseen circumstances—

liquidation may be necessary depending on the financial status of the business. Again this creates
uneasiness among employees and clients, all of whom have concerns about how they may be
paid their entitlements and accounts. Where a forced sale of the business occurs, it is difficult to
negotiate a desirable sale price, with assets often being handed over to new owners at a ‘fire sale
price’—where little or no bargaining is possible.

In business successions and exits, the role of the accountant is typically in providing technical
information on the business’s current performance and projections for the future, as well as
advice on taxation and business structures. However, business successions and exits can be very
emotional. The business owner may have been working in the business for decades, often with
the significant support of family and friends who are also employees (or even part owners).
The accountant therefore also needs to have soft skills to recognise these emotional links and
inter-relationships, to ensure that communications are sensitive to the situation when gaining
the stakeholders’ acceptance of the accountant’s recommendations.
MODULE 2

Summary
In this section we have emphasised how the changing demographics of the workplace are
presenting both structural and philosophical challenges to organisations. The issue of an ageing
population is inextricably linked to the ability of an organisation to grow and make plans for
the future.

The effect of a large baby boomer workforce reaching retirement age has implications for the
long-term profitability and operations of businesses. The loss of knowledge highlights the
need for succession planning and knowledge management to become business priorities.
Despite legal gender equality in many countries, these societies have been shown to still be
grappling with the issue of equal pay for women. Added to the traditional notion of gender
being only a male/female issue is an emerging issue of no-gender or mixed gender that we
have yet to understand in terms of management implications.

It is essential that firms review the ages and other characteristics of their employees and identify
any potential lack of skills due to future retirements, as well as what policies they have to ensure
they can take advantage of the benefits of having a diverse workforce. This part has also noted
the very different workplace demographics around the world. We explored issues related to
workplace discrimination in terms of colour, gender, race, ethnicity, religion, pregnancy, age,
marriage status, weight and sexual preference. This discrimination should be prevented in
order to ensure a fair and harmonious work environment.

The role of accountants is an important one because the professional basis of their training
provides a key strength in not only gathering and understanding data but also in being able
to present it in ways that are useful to others in the organisation. Skills in data analysis as well
as presentation see accountants being able present and provide clear options and direction.
Accountants are well positioned to advise organisations on how best to adapt their operations
to the constraint of an ageing population and to the changing demographics of work.
 Study guide | 163

Part D: Offshoring
Introduction
This section deals with the issues associated with offshore business models. ‘Offshoring’,
also known as ‘offshore outsourcing’, is the relocation of certain business activities to foreign
host-country locations.

Terms in this area are often used interchangeably, but it is important to distinguish between them:
• Outsourcing is allocating part or whole of an operation to a third party. Outsourcing can
either be in the same country or a different country.
• Offshoring is conducted in a different country and may or may not be allocated to a
third party. For example, offshoring could be just moving operations to another country
(within the same company).

MODULE 2
Offshoring organisational activities, particularly those related to accounting and finance functions,
is a critical and sensitive issue for a broad spectrum of stakeholders. Interested groups include
governments, industry professional bodies and their members, large publicly traded firms,
SMEs, the media, academics and economists.

As accountants play an important role as ‘guideposts’ for managers from all sizes of business,
it is critical to understand offshoring as a business strategy—that is, definitions, the size
of the phenomenon, processes, business models, drivers, advantages, disadvantages and
implementation suggestions. The final part of this section is dedicated to an in-depth study
of Australia and offshoring.

Outsourcing
Outsourcing can be defined as the management (including routine execution) of a business
function by a third-party service provider. Business structures tend to go through cycles.
When transaction costs with external suppliers grow too high or when customers are making
greater profits on-selling goods and services, organisations prefer to start doing the work
themselves. This is often described as backward or forward integration in the supply chain.

The benefit of this is reduced transaction costs and greater opportunities to capture profits.
However, the side effect is a bigger, more complex organisation that has many more issues to
manage. As such, businesses have been encouraged to outsource non-critical areas in order
to focus on core competences (Khadem 2012).

The term ‘business process outsourcing’ (BPO) describes the management and optimisation
of business functions that have a predefined set of performance metrics. A specific example
or type of outsourcing may involve moving functions to another country. This is referred to as
‘business process offshoring’. Thus when the term ‘BPO’ is used, it is prudent to clarify the form
of outsourcing in question (local/offshore).

The terms ‘insourcing’, ‘re-insourcing’ or ‘back-sourcing’ have been used to describe the reversal
of outsourcing, when firms take processes back into businesses. The phenomenon of jobs being
transferred back to home-country locations has been termed ‘boomerang jobs’. There are many
different outsourcing models, including the outsourcing of these activities to firms in other
countries, called ‘offshoring’—the focus of this module.
 164 | GLOBAL BUSINESS CONTEXT

Types of offshoring
‘Offshoring’ is the relocation of certain business activities to foreign host-country locations.
An understanding of the following terms will ensure you have a good grasp of offshoring:
• back office activities
• build own operate transfer model
• business process offshoring (BPO)
• captive offshoring
• insourcing
• nearshoring
• offshoring.

Explanations for these and other terms are available from the CBI subject online glossary in
My Online Learning.

There are different types of offshoring. Offshoring generally refers to geographically remote areas,
while the term ‘nearshoring’ refers to transferring operations to a country that is usually in the same
MODULE 2

geographic region, such as Asia–Pacific/Australia/New Zealand. The term ‘re-onshoring’ describes

the reversal of offshoring, back to the ‘home’ country.

There are also several different offshore models. ‘Captive offshoring’, or ‘in-house offshoring’,
describes firms setting up their own operations in offshore locations. The ‘build own operate
transfer model’ (also known as BOOT) involves a (usually global) firm developing its own operation
and then handing it over to a local firm to run. Firms can also establish joint ventures with other
companies. Outsourcing, as previously defined, generally involves contracting these activities to
an external party. The two ends of the spectrum, captive offshoring and outsource offshoring,
have particular benefits and challenges.

Captive (in-house) offshoring

The key benefit of captive offshoring is total control over the cost and quality of services
and all other elements of the process. Furthermore, the information is handled in-house,
thus retaining talent and process knowledge. However, captive offshoring is not without its
challenges. First, there may be an increase in fixed costs due to the cost of non-core resources
and the investment in overcapacity. Also, the firm is entirely dependent on in-house talent
and must seek to retain and develop individuals while still trying to stay on top of global
best practices.

The captive model is illustrated in the many examples of accountants establishing offshore
locations. It is important that the risks as well as the advantages are recognised (Tarrant 2012).
This is particularly the case, since while there is evidence that there is a skills shortage in the
Australian accountancy (e.g. DEEWR 2011; CPA Australia 2010), increased migration of skilled
accountants and a larger number of graduates in recent years appears to be reducing the problem.

Outsource offshoring
The second model involves the complete outsourcing of all activities to a third-party offshore
vendor.

The primary benefits of this model include:

• enhanced visibility of costs (that were otherwise hidden in a captive set-up);
• the ability to use global best practices from vendors; and
• the ability to add new service lines and address new markets without making substantial
up front investments.
 Study guide | 165

The challenges of this model include:

• the risk of sharing confidential information, intellectual property and key knowledge;
• the possibility of resistance from staff who will be affected by the integration and
management of activities;
• the social and cultural differences between the client and the offshore service provider; and
• getting the level of service required from the offshore firm (Tarrant 2012).

For example, in the finance and accounting sector, the outsource offshoring model is commonly
employed in the case of tax returns:
• Client tax information is gathered by the CPA and scanned into an electronic file.
• The electronic file is uploaded to the facilitator’s/vendor’s website.
• The facilitator/vendor encrypts the files and makes them available to the CPA partner offshore.
• The offshore CPA prepares, reviews and posts the tax returns, work papers, notes and
reconciliations to the facilitator’s/vendor’s website.
• The CPA downloads the completed return and documents from the facilitator’s/vendor’s
website.
• The CPA reviews and signs the return and forwards it to the client for filing (Robertson &

MODULE 2
Stone et al. 2004, p. 2).

More recent research suggests this model is particularly attractive to sole practitioners, with the
example from BRW of Michael Adams showing how ‘outsourcing had enabled him to pick up
15 new clients and increase his fees by 30 per cent, ‘instead of getting bogged down in mundane
work’ (Adams cited in Tarrant 2012).

Offshore drivers
The increasing use of offshoring is part of the never-ending search for efficiency and cost-reduction
in firms. The trend is particularly prevalent in back office activities or support activities such as
payroll. These activities are not as customer-facing as other functions of the business, and are
therefore open to being located in lower-cost, non–customer-facing locations. Five key drivers
of finance activity offshoring have been identified:
1. automation;
2. disaggregation;
3. consolidation;
4. commercialisation; and
5. relocation (Evison & Birkinshaw et al. 2004, p. 39).

1. Automation
Automation involves ‘routine activities that can be done without human intervention’ being
mechanised, usually by computer. Business functions that can be easily automated, such as
payroll, are more likely to be outsourced and offshored to other providers, particularly if this
activity is not a core competence of the business (Evison & Birkinshaw et al. 2004, p. 39).

2. Disaggregation
This involves separating activities formerly performed by just one person into different tasks.
‘For example, an accountant could perform a broad range of tasks, from providing advice to
basic book-keeping’. Increasingly, accountants focus on higher-level advisory tasks, and the
more routine job tasks ‘are either automated or pushed into a shared service operation’
(Evison & Birkinshaw et al. 2004, p. 39).
 166 | GLOBAL BUSINESS CONTEXT

3. Consolidation
Consolidation or centralisation is where similar activities across business units are combined so
that they are conducted in one place, rather than each operating unit performing the same task
themselves. This provides greater economies of scale, efficiency and more systematic processing
without as many variations. In the case of offshoring, activities would often first be consolidated
in one location onshore then moved offshore (Evison & Birkinshaw et al. 2004 p. 39).

4. Commercialisation
Shared activities can be commercialised ‘either by making them into a profit centre within the
firm, or by spinning them off through an outsourcing arrangement’ (Evison & Birkinshaw et al.
2004, p. 39).

For example, Dairy Farm, a Hong Kong-based retailer, established a 50/50 joint venture with
Cap Gemini Ernst & Young. The joint venture, OneResource Group, provides accounting services
to Dairy Farm and other companies from two shared service centres (SSCs), one in Hong Kong
and the other in Guangzhou, China. Of the 200 employees—the same number employed
MODULE 2

originally in Dairy Farm’s finance and accounting group—just 90 are required for Dairy Farm.
The remaining 110 OneResource employees work for other firms in the SSC. Dairy Farm
estimates that it has saved 50 per cent of its costs and also minimised its capital outlays
(Accenture & EIU 2003, p. 13).

5. Relocation
Shared activities can be relocated to a ‘carefully-chosen place, typically selected on the basis of
cost or availability of employees, but sometimes for particular skills (e.g. language, data entry,
analysis)’ (Evison & Birkinshaw et al. 2004, p. 39).

The strength of these five drivers of offshoring has held over time. An HfS Research study of 209
European and American organisations found that six out of ten large enterprises (defined as over
5000 employees) were doing so ‘to achieve more effective global operations … to re‑engineer
their processes, and achieve greater effectiveness into the bargain’ (HfS 2011).

Selecting where to base the headquarters

of a company
Companies must consider a variety of factors when deciding where to locate their main base
of operation. At a broader level, these factors include the need for a neutral location to allow
companies from different parts of the world to come together and interact easily, and the
potential benefits of selecting a location with sufficiently flexible corporate and taxation laws
and enforcement regimes (The Economist 2014).

Considerations for selecting a company headquarters should include the need to find a suitable
work force, access better facilities (including lower-cost facilities) and the ability to utilise tax
concessions (Henricks 2015).

According to Jimenez (2012), companies should take various additional factors into account when
selecting (or moving to) a base, including transitional costs, change in workforce, impact on
business operations, operating costs and change in workplace culture.
 Study guide | 167

Implementing a successful offshore outsourcing

program and business partnering
Despite the best intentions and extensive resource investments, many offshore outsourcing
relationships fail. This may be due to a number of factors, including lack of internal stakeholder
support, lack of alignment in values or objectives between the parties, rising costs or service
provision below expectations.

This section addresses several key components of an implementation plan to increase the
probability of offshoring success. To successfully implement an offshore outsourcing program,
a CPA Australia report recommended the following 11 steps:
1. Gain support of leadership and management throughout the organisation.
2. Appoint a committed offshoring champion to drive the initiatives.
3. Seek alignment between business objectives and outsourcing objectives.
4. Understand technology and stakeholder requirements.

MODULE 2
5. Craft a careful risk mitigation strategy.
6. Identify baseline processes and clearly defined interfaces before offshoring.
7. Establish measures of business impact of offshoring.
8. Commit adequate and competent resources to support outsourcing.
9. Establish a change management, communication and implementation plan.
10. Develop a sound offshore vendor selection process.
11. Develop a complete contract to include pricing (fixed price plus any fluctuations), performance
and quality, full scope of costs, staff issues (employment, tax, pension, data protection laws)
and security environment (Terjesen 2010a).

While point 1 notes that it is necessary to ‘Gain support of leadership and management throughout
the organisation’, it is also beneficial to gain support more widely for the offshoring initiative.
Disgruntled employees were once seen as the greatest opponents to a corporate offshoring plan
(Conference Board 2005), but public pressure is now emerging as an increasingly important factor
for organisations to consider when moving work offshore. The Economist recently reported that
‘high levels of unemployment in Western countries after the 2007–2008 financial crisis have made
the public in many countries so hostile towards off-shoring that many companies are now reluctant
to engage in it’ (Booth 2013). Public concern is particularly important in cases where activities
that traditionally occurred in a corporate head office environment have been shifted offshore to a
different region.

➤➤Question 2.12
Why might some employees have a negative perception about a corporate offshoring plan?

Another important concern is evaluating the potential benefits and costs of offshore outsourcing.
Many firms fail to discover that the benefits also come with costs, some of which may outweigh
the benefits and make offshore outsourcing an unfeasible model. Table 2.8 provides an overview
of the generic benefits of offshore models and the costs associated with these benefits.
 168 | GLOBAL BUSINESS CONTEXT

Table 2.8: Generic benefits from offshore models

Benefit Description Costs associated with these benefits

Wage arbitrage The difference in salary costs per Redundancy costs

Full Time Equivalent (FTE)—including Transition costs to new location
additional payments such as overtime.

Labour consolidation The benefit created by doing the same Redundancy costs
efficiencies things in the same place and creating Transition costs to new location
critical mass around processes. This is Knowledge transfer
normally seen as a reduction in FTEs Change management
required to do the same amount of
work as was done before the shared
service centre was implemented.

Process Benefit of doing the same things in Redundancy costs

harmonisation the same way. This builds on labour Transition costs to new location
efficiencies consolidation efficiencies by adding Knowledge transfer
MODULE 2

process streamlining to build further Process harmonisation costs—

scale benefits and increased service including technology
quality … through having fewer process Process transformation projects
exceptions. Enhanced change management

Wage elimination The benefit created by automating Redundancy costs

activities. System implementation costs

Tax saving Any savings in taxation as a result of
implementing new trading relationships
e.g. commissionaire.
Redundancy costs (if relevant)
Transition costs to new location
(if relevant)
Legal costs for restructuring
Stock write-downs
Costs of engagement with tax
authorities
Write-off of tax losses not used
which cannot be transferred to
new entities

Source: Terjesen, S. 2010a, Offshoring: Impact on the Accounting Profession, p. 11, accessed September
2015, cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/
business/offshoring-impact-on-the-accounting-profession.pdf.

➤➤Question 2.13
What potential costs are associated with the benefit of labour consolidation?

Another important component of a successful offshore outsource model involves determining

which activities should be offshored. This is a balance between identifying non-core activities
and locating an outsourcing firm that meets the organisation’s requirements.

Key considerations when evaluating potential outsourcing firms include:

• range of services offered;
• service quality (check references and do a ‘test run’ before a contract is agreed);
• cost savings and benefits;
• communication;
• fit of business objectives; and
• technology.
 Study guide | 169

Using a consultant to establish the outsourcing contract can have significant benefits,
including better knowledge of regulations, lower negotiated prices, improved service level
agreements and ensuring partners have shared values and aligned objectives. According to the
Conference Board’s outsourcing trends study, 30 per cent of firms use consultants to facilitate
contract negotiation. Twenty-seven per cent reported using a consultant to help select the
outsourcers and 7 per cent reported using a consultant for oversight of contract performance
(Conference Board 2005).

A further consideration is the geographic location of offshore outsourcing, which can determine
access to communication (across time zones), basic costs (and benefits such as the potential for
reduced costs and the ability to focus on core activities) and general range of service offerings.
As shown in Figure 2.13, Sydney is a full-service, national location, in the ‘Strong local/national
centres’ cluster with Amsterdam, Edinburgh, Frankfurt, Paris and Toronto.

Figure 2.13: Categorisation of the world’s financial centres

Global players

MODULE 2
Strong local/national centres
Full service

London
Frankfurt B/I/F/L/A/IT
Edinburgh B/F New York
B/I/F B/I/F/L/A/IT
Toronto Sydney
B/I/F B/I/F Hong Kong
B/F
Amsterdam Paris Tokyo Singapore
B B/I/F B/I/F Strong, evolving
B/I/F and emerging
Other emerging
players Emerging gulf Shanghai Asian regional hubs
regional hubs Seoul B/F
B
Johannesburg
B/I Dubai Strong niche centres
Mumbai Qatar B
A/IT F
Bahrain
Moscow B Geneva
B B/F Zurich
Panama San B/F/I
B/F Francisco
São Paulo F Chicago
B B/F
Dublin Boston Key
B/F Luxembourg F
Guernsey B/F Industry sub-sector
B/F strength
Jersey (B) Banking
B/F (I) Insurance
Cayman Islands
F (F) Fund management
Bermuda (L) Law
I (A) Accountancy
Isle of Man
F Offshore centres (IT) IT services
Niche
Local
International
Established Evolving Aspirant

Source: Terjesen, S. 2010a, Offshoring: Impact on the Accounting Profession, p. 27, accessed September
2015, cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/
business/offshoring-impact-on-the-accounting-profession.pdf.

Obviously, there are different costs, especially salary calculations, across these countries.
 170 | GLOBAL BUSINESS CONTEXT

Professional recruitment company Robert Walters provides an annual global salary survey. To see
up-to-date international salary comparisons across 24 countries, request a free copy of the survey
from http://www.robertwalters.com.au/career-advice/salary-survey.html.

To stay up to date with rapidly occurring changes within the outsourcing landscape, there are a
number of online reports and resources that you can access. For example:
• Murphy (2011) provides a report on international outsourcing trends at: http://www.fr.capgemini.
com/resource-file-access/resource/pdf/Finance_Transformation__The_Outsourcing_Perspective.pdf.
• The Offshoring Research network at: http://www.globalorn.org/.
• The ISG Outsourcing Index at: http://www.isg-one.com/web/research-insights/.

Offshoring accounting and finance activities

The evolution of offshoring accounting and finance activities
Globalisation, stakeholder pressures, firm re-organisation and changes in the political and
MODULE 2

regulatory environment present challenges and opportunities to firms to improve the value-add
contributions from their finance and accounting functions. One such opportunity is the offshore
outsourcing of finance and accounting services (CPA Australia 2010, p. 3).

The business process offshoring (BPO) market has grown substantially over the last decade
and is expected to continue to increase (DiGregorio & Musteen et al. 2009; NASSCOM 2011;
KPMG 2013). Spending on finance and accounting BPO services was predicted to surpass
$25 billion globally in 2013, with an annual compound growth rate of 8 per cent through to
2017 (KPMG 2013). In finance and accounting activities, BPO has moved beyond basic cost
reduction motives to focus on value adding and moving into ‘under-penetrated markets as
well’ (Everest Group 2013). Further, the recent post-recession growth in accounting and finance
offshoring has been mainly in:
• small-scale projects;
• telecom/software/high-technology sectors;
• utility/energy/chemicals sectors; and
• banking/financial services and insurance sectors (Ferscht 2011; KPMG 2013).

The offshoring of finance and accounting activities is facilitated by firms of all sizes. Figure 2.14 lists
the major global suppliers in the offshoring of finance and accounting activities. The percentages
represent the degree of outsourcing of contracts undertaken by the suppliers.
 Study guide | 171

Figure 2.14: Major global suppliers in offshoring of finance and accounting

Overall market share as % of total contract value: All years to-date

TCS Ltd, 1%
EXL Service, 2% Cognizant, 0.4%
InfosysBPO, 2% Xchanging, 0.4%
Wipro, 2%
WNS, 3%
HP, 4%

Steria, 4% Accenture, 30%

Xerox, 5%

MODULE 2
Other, 9%

Genpact, 10% IBM, 15%

Capgemini, 11%

Source: Adapted from HfS 2013, Finance and Accounting BPO Market Landscape, 2013:
Market Evaluation, Forecast and Competitive Analysis, p. 30. © 2013 HfS Research Ltd.
 172 | GLOBAL BUSINESS CONTEXT

Table 2.9: Current market value and projected total contract value (TCV)

% market value
Service provider share TCV Projected TCV ($m)

Accenture 29.6 10 446.5

IBM 14.7 5 205.0

Capgemini 10.6 3 731.0

Genpact 10.2 3 621.0

Other 8.9 3 132.1

Xerox/ACS 5.4 1 894.0

Steria 4.4 1 550.0

HP 3.7 1 307.0

WNX 3.4 1 199.0

MODULE 2

Wipro 2.5 878.1

InfosysBPO 2.3 820.5

EXL Service 2.1 740.0

TCS Ltd 1.3 454.5

Cognizant 0.4 148.0

Xchanging 0.4 130.0

Serco 0.2 78.2

Sutherland 0.04 15.9

100 $35 350.7

Source: Adapted from HfS 2013, Finance and Accounting BPO Market Landscape, 2013:
Market Evaluation, Forecast and Competitive Analysis, p. 30, accessed October 2015,
http://www.kpmg-institutes.com/content/dam/kpmg/sharedservicesoutsourcinginstitute/
pdf/2013/hfs-fao-study-2013-competition-only.pdf. © 2013 HfS Research Ltd.

The first accounting and finance activities to be outsourced are generally transactional activities
(that are simple and easy to automate) such as payroll, followed by increasingly value-added
capabilities (Terjesen 2010b, p. 1858). Figure 2.15 illustrates the evolution of the offshoring of
finance activities.

Figure 2.15: Offshoring evolution of finance activities over time

Value–Added

Managerial Accounting & Budgeting

Fiscal Accounting
Tax
Internal Audit
Accounts Payable & Accounts Receivable
Payroll

Time

Source: Adapted from Terjesen, S. 2006, ‘Outsourcing and offshoring of finance activities’,
in H. Kehal & V. Singh (eds), Outsourcing and Offshoring in the 21st Century, Idea Group, London.
 Study guide | 173

The evolution across time is due, in part, to the extent to which the activity can be easily
automated. Payroll, accounts payable and accounts receivable can generally be processed
much more efficiently than managerial accounting and budgeting.

Table 2.10 shows examples of the range of services offered by one leading offshore provider
that targets the Australian market.

Table 2.10: Services offered by a leading offshore provider

Service Detail

Data processing Revenue processes (A/R processing, sales order processing, customer invoicing,
debt collection, account applications)

Disbursement processes (AP processing, travel and entertainment expenses

accounting, cash disbursement processes, processing letter of credit-related
documents)

MODULE 2
Cost and inventory accounting processes (maintain inventory records and
develop and update costs)

Financial reporting Preparing monthly, quarterly and annual management reports

and analysis
Financial analysis such as ratio analysis, break-even analysis, NPV and IRR analysis

Financial modelling—preparation of cash flow models, income statements and

balance sheet projections

Formulation of business plans (specialised service for small businesses)

Performing variance analysis of stock holdings and stock count figures

Payroll processing Creating and maintaining employee profiles on the payroll system

Managing time and attendance

Processing weekly/bi-monthly/monthly payroll from time sheets

Calculation of net pay cheques

Calculation of taxes

Producing payroll journals and payroll summary sheets

Research and analysis Industry market research

Company research

Business environment

Industry risk ratings

Source: CPA Australia 2015.

However, the extent of added value is important—transactional automated activities such as

payroll do not ‘add value’ to the business. More strategic activities such as financial accounting,
managerial accounting and budgeting can be used to create business wealth. For these reasons,
managers may be keener to keep these activities in-house rather than send them overseas to
another firm.
 174 | GLOBAL BUSINESS CONTEXT

The impact of offshoring accounting and finance activities on

the profession
The impact of offshoring on existing staff as well as on future graduate employment appears mixed.
While basic tax and accounting work is under intense price pressure (with offshore providers in
South-East Asia offering to do book-keeping for $8 an hour and self-managed superannuation fund
audits for $400), both the public and industry insiders are becoming increasingly concerned about
offshoring backfiring via a major data breach and lawsuit (King 2013). The impacts thus vary from
possible job loss and the disappearance of graduate positions, to providing ‘employees with more
time to do other work. For example, the offshoring of routine tasks frees employees to do more
complex strategic work, adding greater value to their employer’ (CPA Australia 2010).

CPA Australia has prepared a comprehensive report called Offshoring: Impact on the Accounting
Profession, which can be found at: cpaaustralia.com.au/~/media/corporate/allfiles/document/
professional-resources/business/offshoring-impact-on-the-accounting-profession.pdf.

Example 2.15: Deloitte—an example of offshoring

MODULE 2

India retained its spot in 2013 as the leading outsourcing destination—it has long dominated the
world market for offshore business processes (NASSCOM 2011; Tholon 2013). The Indian government
has been keen to develop India’s market for offshoring finance and other activities, with legislation
providing favourable taxes and other business start-up-friendly policies for multinationals establishing
their own centres in the country, as well as for multinational and Indian third-party providers of
outsourcing services. This occurs at both the national level and also the city and state levels, which
often compete for new business. The Indian government has also engaged in relationship building
at company, regional and country levels (CPA Australia 2010).

The incentives have proven remarkably successful. The example of Deloitte, as one of the first
multinational movers within the accounting and finance sector, testifies to the success of India as an
outsourcing destination.

First established in London in 1845, William Welch Deloitte went on to open a New York office in 1890.
With a long history of mergers and acquisitions (as well as name changes), the firm now commonly
known as Deloitte made the move to India in 2000.

As is common to many such moves, Deloitte has its own identity in India, where it is known as Deloitte
U.S. India (USI). The offerings of the company in India specialise in audit and enterprise risk, tax,
consulting and financial advisory services. The 2011 publication celebrating the tenth anniversary
of USI provides insight into both the ups and the downs of the move as it charts the growth from
50 professionals in 2000 to more than 13 000 in 2011.

Siva, a senior network engineer at USI, describes his first day in the year 2000 when, instead of walking
into mass of people hard at work:
‘What I found instead was a huge floor with absolutely nothing in it except a row of chairs
and tables and a few computers,’ Siva says. ‘I was not even given a computer, and there was
virtually no infrastructure’ (Deloitte 2011, p. 9).

Today, both infrastructure and people issues are resolved and USI has over 13 000 professionals across
all business functions, working in state-of-the-art work environments in four cities—Hyderabad, Mumbai,
Bengaluru and Gurgaon (Deloitte 2011, p. 10).

The reason for the move to India was the realisation that it provided not only the largest English-
speaking workforce in the world but also one that was young, ambitious and qualified. Hari Kumar,
regional managing partner of USI, also notes the impact on India—a place where ‘twenty-five years ago,
people wanted to leave. Now they want to come back’ (Deloitte 2011, p. 10).
 Study guide | 175

The incremental nature of outsourcing is also seen. Deloitte’s presence in India increased in 2004,
the year the organisation made the decision to make India a region within Deloitte. In announcing
the creation of ‘Region 10’, Global CEO at the time, Barry Salzberg, explained that the move was
made to improve Deloitte’s competitive position: ‘We evaluated 33 potential destination countries
and analyzed all elements in deciding where to locate’ (Deloitte 2011, p. 14).

The payoff has been dramatic with the company stating that:
USI provides services across all functions and enabling areas; it delivers services at the same
level of quality as the other regions in Deloitte; and it uses the same set of processes, tools and
systems, albeit at a distinctly competitive cost. USI currently accounts for just 4 percent
of Deloitte’s cost for doing business, but contributes 19 percent of the U.S. client service
hours. And the value is not just in low cost vs. high value, it’s also about winning more in the
marketplace through quality, scalability and innovation (Deloitte 2011, p. 15).

There is also excitement about the future, with expectations of continued growth across four cities
and the projection that:
USI will probably represent a third of Deloitte in both people and client service hours. When you
have one out of three Deloitte employees being a resident here, it means a change in the way

MODULE 2
we look at our business operations, the way we operate, and the way we allocate budgets.

Plans for growth as well as high levels of staff satisfaction see USI attracting job applicants from around
the world, a highly prized and competitive graduate program and a high demand from Deloitte staff
from other countries to be offered placement in the Indian offices. The move to India has proven
successful for not only the company and its clients but also for the country and Deloitte employees.

Sources: Adapted from Deloitte n.d., accessed November 2015,

http://www2.deloitte.com/in/en/pages/about-deloitte/articles/about-deloitte.html.

Hackett Group (2012) research indicates that by 2016 the total cumulative number of offshored
jobs will be 60–65 per cent of the total number of jobs with the potential to be offshored.
Service industries will continue to grow in India, China and other low-cost countries.

In Australia, there has been an increasing trend in the number of accounting roles being
transferred overseas, ranging from accounts payable to business analysis (Smith 2014).
Actuarial work is also being moved overseas from Australia (Drummond 2013).

If the current pattern of exports to Asia continues, total exports will reach AUD 268 billion
by 2020, comprising major components of mining (AUD 115 billion) with services exports
(including accounting) reaching AUD 91 billion (PWC, ANZ & Asialink Business 2015).

In the longer term, all indications are that foreign affiliates of Australian companies will continue
to play a critical role in providing income and employment benefits for Australia (Cornell 2015).
Asia is demanding high-quality services and it is expected that by 2030 Australia’s annual
services exports to Asia would be worth AUD 163 billion, supporting one million jobs—
compared in 661 000 jobs in 2014 (PWC, ANZ & Asialink Business 2015).

Summary
Part D provided an overview of the offshoring of a firm’s activities, including accounting and
finance. Offshoring is an important business strategy and involves the relocation of key firm
activities and sometimes personnel. Offshoring is driven by globalisation, stakeholder pressures,
organisational restructures and changes in the political and regulatory environments. Issues such
as unemployment and increasing local societal concerns with the effects of offshoring and
outsourcing add to the range of concerns that must be considered before an organisation
makes the decision to move any or all of its activities to foreign host-country locations.
 176 | GLOBAL BUSINESS CONTEXT

Review
This module addressed a number of major issues relating to the global context in which
organisations must operate today. Even though much of the information is non-financial,
awareness of these issues is critical to decision-making at all levels of organisations.

Both the economic and social impact of dwindling resources worldwide has been covered,
with a focus on oil, food, water and biodiversity. Part A highlighted the debate on ‘peak oil’
and how governments are reacting in terms of planning for ongoing energy security, including
the accelerated pursuit of alternative energy resources. Another aspect that was stressed is how
dwindling food and water resources and loss of biodiversity are inextricably linked and pose a
significant long-term risk to businesses, unless sustainable business practices are adopted on a
large scale and quickly.

Part B addressed the impact of global climate change and the changes that carbon mitigation
imposes on business. We began by highlighting Australia’s unfortunate position as the world’s
MODULE 2

leading country for carbon emissions intensity, driven by being the biggest exporter of coal
and a reliance on coal for 80 per cent of electricity generation. We then identified Australia’s
short- and long-term emissions targets as part of the Kyoto Protocol. We examined the
European Union Emissions Trading System and a brief history of emissions reduction efforts
in Australia. This section also outlined EU measures to ensure competitiveness, carbon tax
differences between states in the United States, and UK environmental performance reporting.

Part C considered the changing and evolving nature of the labour force and organisational
culture. As organisations have come to depend more and more on changing technologies
and the knowledge of their employees, management of organisations has become increasingly
complex. The implications of changing demographics and other human factors were also
discussed. This part of the module explored the ways in which people management is relevant
to the viability and profitability of an organisation, and the short- and long-term implications
of demographic changes to the workplace. The current workforce comprises four generations
(baby boomers and generations X, Y and Z), each with a different set of values and priorities.
Firms must develop workforce strategies that involve retaining knowledge, skills and experience,
meeting multi-generational needs, rethinking retirement policies, reviewing retirement trends—
now and over the next five to 10 years—and reviewing age demographics data and identifying
any potential loss of skills due to the impending retirement of older employees.

Part D looked at additional human resources issues, risks and complexities associated with
offshoring. Large multinational corporations, as well as small and medium-sized enterprises,
are increasingly ‘offshoring’ their finance and accounting activities. These moves are driven
by automation, disaggregation, consolidation, commercialisation and relocation. Typically,
highly automated activities such as payroll, accounts payable and accounts receivable
are among the first to be offshored. The module described several offshore models and
observations about the current state of offshoring in Australia.

These issues highlight the need for accountants to step beyond traditional financial matters
and consider a wider range of issues that have a significant financial effect on organisations in
today’s business environment.
 Suggested answers | 177

Suggested answers
Suggested answers

MODULE 2
Question 2.1
The BRIC countries all show significant growth in consumption over the last decade, with Russia
the lowest at 23.7 per cent and China the highest at 86.4 per cent. Brazil and India have had
significant growth rates in consumption (both around 50%).

Meanwhile, many developed countries have shown declines over the last decade. The United States
has reduced daily consumption by 5.7 per cent, with Germany and France reducing consumption
by 10.0 and 13.8 per cent respectively. The declines may be a result of lower growth due to
slow recovery from the GFC as well as the eurozone sovereign debt crisis, but they also reflect a
move away from oil to other fossil fuels, renewable energies and more energy-efficient activities.
Australia’s strong growth in consumption during the period (20.1%) was against the trend for
developed countries, and may be reflective of it remaining out of recession during the GFC.

Another interesting observation is that the US share of global consumption has fallen from
25 per cent in 2003 to 20 per cent in 2013. At the same time, China’s share has increased from
7 per cent to 12 per cent. This growth is reflective of both China’s massive population and its
growth in GDP over the corresponding period. It is also reflective of the United States’ shift
towards alternative fuels (e.g. natural gas).

Question 2.2
In a peak oil environment, an accountant would be expected to analyse the financial, operational
and environmental impacts on the business and proactively work to ensure the sustainable
future of the business.

For example, peak oil is of concern to an accountant in preparing forecasts of fuel expenditures
for staff cars, raw material input costs, production and manufacturing costs, and for distribution
of the organisation’s products. If the organisation’s products or services rely on oil, and supplies
become limited, this could severely restrict the ability of the organisation to operate. With limited
supply, the price of oil would be expected to rise, potentially causing the organisation to
become unprofitable.
 178 | GLOBAL BUSINESS CONTEXT

In addition to forecasting, the accountant’s role would be to help prepare and position
the organisation to continue as a sustainable operation. This may include analysis and
recommendations on new energy-efficient investments, alternative energy sources or even
the development of new product/service lines.

Question 2.3
There is no correct answer to this question, but it is important to consider the merits of
the alternatives.

The pure economic argument of letting markets determine supply and demand would suggest
that if cheap produce can be obtained from more efficient and less costly markets, then this
should be permitted, and protection via tariffs, quotas and other trade barriers should not
be used. The main benefit is that consumers are provided with greater choice at lower cost.
They are then able to buy more goods and services with a certain level of disposable income.
MODULE 2

However, this ignores several issues including ‘dumping’ of products (i.e. selling below cost,
or at artificially low prices due to foreign government support). When dumping occurs, local
industry can be permanently harmed as a result of distorted market behaviour at the source of
production. Another issue that must be carefully considered is food security. This is the need
for a nation to have enough infrastructure and farming capability to produce enough food
for its population in times of difficulty. Difficulties may include global drought, global price
increases that the local population cannot afford, and even disrupted supplies due to war.

Domestic producers are often powerful groups within countries and can use their political
power to lobby those in power to protect their incomes by ensuring foreign competitors face
greater barriers to entry.

Question 2.4
From a purely commercial point of view there does not seem to be an ethical dilemma involved
in outsourcing food production. Some countries have very little land available for agriculture,
or their climate does not support efficient production. The ability to outsource food production
to low-cost nations that have greater areas of arable land appears sensible.

However, it is important to consider how negotiations are conducted, and who they are conducted
between. In many instances, governments negotiate directly with each other. Some governments
are very powerful and are willing to exert this power to extract deals that are very beneficial to
themselves, and can be quite detrimental to the other party. Corruption also creates a significant
risk. Governments have been known to sell or lease land that was held by minority groups without
any consultation. This may also lead to forced relocation, or forced labour without compensation.
Companies that are aware of these issues need to acknowledge the ethical implications of their
decisions with regards to the effect on local communities, as well as the commercial side of
the decision.
 Suggested answers | 179

Question 2.5
According to the World Business Council for Sustainable Development (2009), things organisations
can do to alleviate water stress include:
• measure and monitor water use to develop an understanding of consumption;
• recycle and reuse water to minimise consumption;
• reduce the pollutants and chemicals that enter the water supply, thereby lowering toxic
and other contaminants;
• engage with suppliers and customers to adopt best practices;
• develop new water treatment technologies; and
• enter into partnerships with local government and the scientific community
(WBCSD 2009, p. 13).

Question 2.6

MODULE 2
(a) In Figure 2.5 we find that world domestic water use is 8 per cent, which increases to 11 per cent
for high-income countries. However, it is important to remember that this is just the percentage
comparison and does not reflect the total amount of water consumed by each person in
the high-income countries. The 11 per cent domestic use still represents a significantly
higher level of physical water consumption. However, because of the significant levels of
industrial and agricultural usage, the overall percentage has remained low. In high income
countries, the domestic use volume (and percentage) is likely to be higher due to better water
infrastructure, higher disposable incomes and less frugal use (e.g. watering gardens).

(b) The industries for low- and middle-income countries are still primarily agriculture-based.
Incomes tend to rise as countries move towards greater levels of industrialisation. It follows
that agricultural water use falls (as a percentage of total water use), while industrial water
use rises.

Question 2.7
Historically, the financial services sector has been seen as having a ‘low environmental impact’
given that it has little direct environmental impact—primarily, energy, water and paper for office
workers. As such, understanding the relevance of biodiversity, what it is and how it can affect the
sector, is often difficult.

However, indirectly, biodiversity is often of real relevance to the transactions or investments that
the sector is offering or advising on. Lenders, investment managers, insurers and advisory services
must understand biodiversity-related risks that might increase project costs and liabilities as well
as affect ability to secure a licence to operate in the future. Over the last decade or so, many of
these advisory services have included using scientific specialists as part of the service team or joint
venture arrangements to access the appropriate experts. These experts undertake an evaluation
of the transaction/investment and highlight compliance, reputation and environmental risks.
They then quantify these impacts financially and include them in the transaction (the figures are
generally not entirely accurate, as many impacts can only be estimated).
 180 | GLOBAL BUSINESS CONTEXT

Since 1996, not-for-profit organisations and civil advocates have also become involved in
monitoring the activities of the finance sector and in particular the funding of large projects with
adverse social and environmental effects. In 2003 the Equator Principles were established by
the International Finance Corporation. The principles are a set of voluntary standards designed
to help banks identify and manage the social and environmental risks associated with directly
financing large infrastructure projects like dams, mining and pipelines. Eighty financial institutions
around the world have adopted the principles, covering over 70 per cent of global project
finance debt in emerging markets.

Since then, BankTrack (http://www.banktrack.org), a global network of civil society organisations

and individuals, has emerged. It tracks the operations of the private financial sector (commercial
banks, investors, insurance companies, pension funds) and publishes reports and campaigns
on what they consider unsustainable investments. In 2007, BankTrack listed the Australian
Gunns Pulp mill proposal for Tasmania on the grounds that it:
• resulted in the destruction of old growth forests and their ecosystem;
• posed possible health impacts to those living in the region; and
• resulted in a violation of human rights and because of its impacts on Aboriginal culture
MODULE 2

and heritage.

BankTrack launched a global campaign against ANZ as the bank considered funding the
development. In May 2008, ANZ publicly announced that it would not fund the mill for
undisclosed reasons. Since then, the project has failed to secure funding. Although ANZ
did not disclose why it chose to not pursue the project, most certainly reputation and
biodiversity impacts played a significant role in the reduced financial viability of the transaction.
Since then, ANZ (n.d.) has publicly disclosed how it considers social and environmental
business lending decisions.

A more recent development is the Natural Capital Declaration (NCD), which is a finance sector
initiative to incorporate natural capital elements into decision-making. This includes applying
natural capital risks to the cost of capital of relevant projects and operations (‘natural capital’ is
discussed further in Module 4).

This analysis reveals the relevance and complexity of biodiversity issues within the financial
sector—whether for a bank directly funding a project, a superannuation fund investing in
the company undertaking the project or a legal firm advising on the transaction. Immediate
ecological impacts need to be considered, as well as community perceptions and possible
future political and regulatory changes.

Question 2.8
Governments can respond with a carbon tax or ETS (also known as ‘cap and-trade’). The following
is a summary of the current position of some countries (at the time of writing):

• Australia. Effective 1 July 2012, the Australian Government introduced a carbon tax for
entities emitting over 25 000 tonnes of carbon dioxide equivalent greenhouse gases
(although the transport and agriculture industries were exempt). The carbon tax had an
initial fixed price of $23 per tonne, rising to $24.15 for the following financial year, and it was
then planned to transition into an ETS for the 2015 financial year. However, with a change
of government in 2013, the carbon pricing scheme was out of favour and the carbon tax
legislation was repealed with effect from 1 July 2014.
 Suggested answers | 181

• Canada. At a federal level, a carbon tax was proposed in 2008. This proposal was to be a
revenue-neutral measure, with increased taxation on carbon being balanced by tax cuts for
individual citizens. The proposal is unlikely to be put to the vote due to a lack of support at
the national level. At the province level, British Columbia and Québec each have a carbon
tax. In 2008, Québec and Ontario agreed to collaborate on an inter-provincial cap-and-trade
system, although no such system has currently been launched.

• European Union. A proposal in the 1990s to initiate a carbon/energy tax was discarded after
strong industrial pressure. However, several countries took the initiative to apply a carbon
tax. For example, Denmark, Finland, Norway, Italy, the Netherlands and Slovenia applied a
household carbon tax that increases the cost of heating and electricity use. Other countries
with a carbon tax include Germany, Ireland, Italy, Switzerland and the United Kingdom,
although the various carbon tax schemes are not uniform across all sectors. In 2005,
the European Union Emissions Trading System was launched, providing a binding carbon
trading system on EU member states (with Norway, Iceland and Liechtenstein since joining).
The scheme sets a cap on the amount of certain greenhouse gases that can be emitted and
allows companies to trade allowances (e.g. to offset any emissions over the cap).

MODULE 2
• New Zealand. Originally, New Zealand proposed a carbon tax, but due to a lack of
support the proposal was discarded in 2005. This proposal has since been replaced by
the Climate Change Response (Emissions Trading) Amendment Bill, and the Electricity
(Renewable Preference) Amendment Bill, which were passed into law on September 2008.
The legislation establishes the framework for the New Zealand Emissions Trading Scheme.
Further amendments to the legislation were made in 2009 and 2012.

• United States. The federal government has a long history of trying to pass laws related to
climate change. The first attempt was in 1993, when President Clinton proposed a tax on all
fuel sources, except for alternative-energy sources (e.g. wind, solar, geothermal). Some states,
such as California, are considering the imposition of carbon taxes. In 2009, the House of
Representatives voted to reduce carbon emissions by 17 per cent from 2005 levels in 2020
and 83 per cent in 2050, and to begin a national cap-and-trade scheme. Other measures
approved by the house will require power companies to produce 15 per cent of their
electricity from wind and solar energy. The White House views these energy reforms as part
of a job-creation program. In 2009, the Senate passed the Clean Energy Jobs and American
Powers Act. Some cities and counties in the United States have carbon taxes. For example,
Boulder, Colorado, passed the first municipal carbon tax in 2006 and renewed it in 2012.
Boulder residents can receive deductions on their energy bill for using renewable electricity
sources. Maryland’s Montgomery County and California’s Bay Area also have carbon taxes.

• Rest of the world. There are very limited efforts in other regions of the world. India has a
carbon tax. There are carbon tax proposals in some Asian countries, most notably Taiwan.
There are no carbon taxes proposed or in place in the Middle East, and no likelihood of any
movement in that direction in the near future. The only Central or South American country
with a carbon tax is Costa Rica, and only for hydrocarbon fuels.
 182 | GLOBAL BUSINESS CONTEXT

Question 2.9
Most firms will have an initial transition cost to operate in a carbon-constrained business
environment. However, where an ETS or carbon tax is in place, costs are often offset by
bottom-line savings related to reducing GHG emissions, with the major savings being from
a drop in energy consumption. The savings will likely be compounded by rising energy
prices. Hence, carbon-constrained economy measures are likely to lower waste and increase
operational efficiency, raising long-term economic growth.

Proactive businesses that implement GHG-emissions measures early will gain a competitive
advantage through product differentiation, thereby increasing market share, reducing operating
costs and increasing profit margins. It is estimated that by 2050, markets for low-carbon
technologies could be worth at least USD 500 billion. Hence, a carbon-constrained economic
environment may provide an opportunity for innovative firms.

It is important to acknowledge that measures will certainly have a disproportionate effect on

certain individuals, firms and industries. For example, a carbon tax imposes a tariff at a fixed rate
MODULE 2

independent of income. This would mean that low-income earners (firms or individuals) are taxed
at the same rate as high-income earners. A carbon tax may also be excessive for some social
groups, particularly rural residents and the elderly. Environmental and social campaigners argue
that whatever type of method is applied, it must have regard for:
• equity considerations;
• individual and household welfare;
• the transition of labour from high- to low-emissions industries; and
• the guarantee of energy security.

Substantial government funding is needed to sustain research, growth and the economic
exploitation of carbon-reducing technology, plant and equipment.

All firms will be exposed to increased supply chain pressure for low-emissions products and
services, which initially could be more costly. There is likely to be a substantial increase in
business input costs (e.g. electricity, water, gas, diesel, transport, waste services, packaging).
There is also likely to be consumer pressure for low-emission goods and services, resulting in
disparity between supply and demand. There will be a need to incorporate carbon accounting
into business planning and operational process.

Question 2.10
(a) Reporting on environmental performance will aid firms in several key ways.
• It provides firms with management information to help them exploit cost savings that
good environmental performance typically generates.
• It gives firms the opportunity to set out what they consider to be significant in their firm’s
environmental performance.
• It helps firms prepare for the future as they understand their costs.

(b) The KPIs are a measurement tool to help firms communicate and manage the links between
environmental and financial performance. Environmental KPIs are based on quantifiable
metrics that reflect the environmental performance of a business in the context of reaching
its wider goals and objectives. KPIs help firms implement strategies by linking various
levels of a firm (e.g. business units, departments, individuals) with clearly defined aims
and benchmarks.
 Suggested answers | 183

Poor management of energy, natural resources or waste can harm performance. Hence,
failure to plan for a future in which environmental factors are likely to be significant may risk
the long-term value and potential of a business.

KPIs focus on ‘key’ measures. They provide the most important data for understanding the
factors that drive a business forward. Hence, KPIs lessen the need for lengthy reports on
a wide range of measures that may be less relevant.

(c) In addition to the general reporting principles, there are three key KPI principles.
1. KPIs should be measurable to facilitate action. ‘[F]or example, targets can be set to
reduce a particular emission if it is expressed in a quantitative term’.

2. A KPI must be relevant; that is, it should have a general narrative, explaining its aim and
impact. Each KPI is to explain the process undertaken, ‘the calculation methods and …
relevant assumptions’. Moreover, data linking environmental to financial performance
should be discussed.

MODULE 2
3. The final KPI-specific principle is comparability. Firms are ‘to report data in a comparable
format, so [that] users of reports can assess the performance of a single company over
time and relative to its competitors … [KPIs] should be expressed in absolute terms
that cover the entire business for each period of reporting, and related to a normalising
factor’. Typical ‘normalising factors are turnover and production output’, but others
may be relevant—for instance, ‘companies with offices may normalise to floor space …
This allows stakeholders to know how much environmental impact firms have relative to
a given amount of goods and/or services produced’ (DEFRA 2006, pp. 16–17).

Question 2.11
There are many potential challenges that an age-diverse workforce may present. They relate to
all age groups—from older workers feeling threatened by younger, potentially better educated
workers, to younger ones who feel resentment at older workers who ‘take up’ the positions to
which they aspire.

Age is just one aspect of diversity and often intersects with others. For example, age and gender
are often related issues for women, who may be perceived to have a lack of commitment to work
during their childbearing years (e.g. employers might fear that, having spent years training
female employees, they might leave to have children). This perception can restrict access to
promotion and opportunities. Despite decades of initiatives, women continue to earn less than
men and continue to be under-represented in senior positions. Flexible conditions to assist with
childcare can also create resentment from a variety of sources (e.g. from those who missed out
on such support and those who see it as favouring one group).
 184 | GLOBAL BUSINESS CONTEXT

Question 2.12
There are many reasons why an employee might have a negative perception about a corporate
offshore outsourcing plan. As mentioned in the study guide, CPA Australia members who judged
their offshoring to be successful noted that the support from internal employees in the finance
and accounting areas is deemed critical. This means addressing issues such as individuals being
anxious about a change in their or their fellow employees’ responsibilities as well as the security
of their jobs.

For reasons of security, patriotism or other, an employee may feel uncomfortable taking an
activity that was traditionally performed at ‘home’ and sending it overseas. An employee may
also have negative feelings about offshore outsourcing based on something they read in the
media or heard from someone in another organisation. For example, the most recent statistics,
from the National Secretary of the Finance Union in Australia, suggest that 6000 finance sector
jobs have been lost in Australia (Carter 2012).

There is a flip side to this in that negative perceptions may be held of Australia as a recipient of
MODULE 2

offshore outsourcing plans. As also noted in the study guide, a number of Australian industry
bodies, including Invest Australia and the Australia Financial Centre Forum, have promoted
Australia as a location for the offshoring of analytics capabilities. Axiss Australia’s (2006) report
Australia as a Hub for Analytics Offshoring laid out the case for making Australia an analytics
hub for activities such as equity research, corporate finance, mergers and acquisitions,
corporate credit, structured finance, project finance, retail banking, strategic functions and
actuarial services.

Question 2.13
Labour consolidation is considered a primary benefit of offshore outsourcing, although there are
several associated costs of attempting to do the same thing in the same place. These costs include:
• making individuals redundant (e.g. pay, benefits);
• transitioning to a new location (e.g. rent, sales, set-up);
• transferring knowledge to new employees (e.g. through tacit and explicit knowledge
management processes); and
• creating the change (e.g. establishing and communicating new systems and processes).
 References | 185

References
References

MODULE 2
ABC 2014, ‘Telstra confirms 670 Australian jobs will be shifted offshore’, 23 July, accessed
June 2015, http://www.abc.net.au/news/2014-07-23/telstra-to-move-almost-700-australia-jobs-
offshore/5619102.

Australian Bureau of Statistics (ABS) 2010, ‘Older people and the labour market’, accessed
September 2015, http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features30S
ep+2010.

Australian Bureau of Statistics (ABS) 2012, ‘Reflecting a nation: Stories from the 2011 census’,
2012–2013, cat. no. 2071.0, accessed July 2015, http://www.abs.gov.au/ausstats/abs@.nsf/Lookup
/2071.0main+features902012-2013.

Australian Bureau of Statistics (ABS) 2013a, ‘Population projections, Australia, 2012 (base)
to 2101’, cat. no. 3222.0, accessed July 2015, http://www.abs.gov.au/ausstats/abs@.nsf/
Lookup/3222.0main+features52012%20(base)%20to%202101.

Australian Bureau of Statistics (ABS) 2013b, ‘Employee earnings and hours, Australia, May 2012’
Quality Declaration, cat. no. 6306.0, accessed July 2015, http://www.abs.gov.au/Ausstats/abs@.ns
f/0/6F2D45E3B453FE4DCA25782300135880?OpenDocument.

Australian Government 2012, ‘Submission under the Kyoto Protocol: Quantified Emission
Limitation or Reduction Objective (QELRO)’, Department of the Environment, November,
accessed July 2015, http://dfat.gov.au/international-relations/themes/climate-change/
submissions/Documents/australia-qelro-submission.pdf.

Australian Government 2015, Gender Balance on Australian Government Boards 2014-2-015’,

Commonwealth of Australia, accessed November 2015, http://www.dpmc.gov.au/sites/default/
files/publications/gender_balance_aust_govt_boards_report_14-15.pdf.

Australian Institute of Company Directors (AICD) 2015, Statistics: Appointments to S&P/ASX 200
Boards, accessed November 2015, http://www.companydirectors.com.au/Director-Resource-
Centre/Governance-and-Director-Issues/Board-Diversity/Statistics BankTrack 2007, ‘Gunns pulp
mill proposal Tasmania Australia’, accessed July 2015, http://www.banktrack.org/show/
dodgydeals/Tamar_Valley_Pulp_Mill_Tasmania.
 186 | GLOBAL BUSINESS CONTEXT

Accenture & Economist Intelligence Unit (EIU) 2003, Outside Upside: Finding Focus through
Finance Outsourcing, Accenture, New York.

Accounting Standards Board (ASB) 2005, Reporting Standard 1 Operating and Financial Review,
Financial Reporting Council, London, May.

Acil Allen Consulting 2013, Emissions Reduction Fund: Efficient Lighting and Australia’s missions
Reduction Objective, 18 November, accessed July 2015, http://www.environment.gov.au/
submissions/emissions-reduction/green-paper/90-lighting-council-australia.pdf.

Allan, M., Moore, K. M. & Romaldi, M. 2009, ‘Questions & answers: Buy sell agreements’,
Taxation in Australia, vol. 43, no. 7.

AMP NATSEM 2009, She Works Hard for the Money: Australian Women & the Gender Divide,
accessed July 2015, http://www.natsem.canberra.edu.au/storage/AMP_NATSEM_22.pdf.

ANZ n.d., ‘Our approach to responsible business lending’, accessed July 2015, http://www.anz.
MODULE 2

com.au/about-us/corporate-responsibility/customers/responsible-business-lending/.

Association of Superannuation Funds of Australia 2015, ‘Help ASFA close the $92,000
superannuation gender gap this Women’s Day’, Media release, accessed July 2015, http://www.
superannuation.asn.au/media-release-27-february-2015.

Australian Association for the Study of Peak Oil and Gas (ASPO Australia) 2008, Peak Oil and
Australia’s National Infrastructure: Submission to Infrastructure Australia, ASPO Australia,
Brisbane, October, accessed July 2015, http://anz.theoildrum.com/files/ASPO_Infrastructure
Australia_Oct2008.pdf.

Australia Financial Centre Forum (AFCF) 2009, Australia as a Financial Centre: Building on our
Strengths [Johnson Report], Australian Government, Canberra, accessed July 2015, http://www.
fex.com.au/media/AFCF.pdf.

BankTrack 2007, ‘Gunns pulp mill proposal Tasmania Australia’, accessed July 2015, http://www.
banktrack.org/show/dodgydeals/Tamar_Valley_Pulp_Mill_Tasmania.

BankTrack 2008, ‘ANZ social and environmental management policy and guideline for forests:
ANZ forests policy’, accessed July 2015, http://www.banktrack.org/show/bankprofiles/anz#tab_
bankprofiles_policies.

Barroso, J. M. 2014, ‘Climate and energy priorities for Europe: the way forward’, Presentation of
J. M. Barroso to the European Council, 20–21 March, p. 1, accessed July 2015, http://ec.europa.
eu/clima/policies/strategies/2030/docs/climate_energy_priorities_en.pdf.

BBC 2009, ‘Madagascar leader axes land deal’, 19 March, accessed July 2015, http://news.bbc.
co.uk/2/hi/africa/7952628.stm.

Behrmann, E. 2011, ‘Australia’s carbon pricing threatens Anglo coal plan’, Business Report,
2 June, accessed July 2015, http://whoswho.co.za/company_articles/AGL?page=30&destination=
employees%2F1637%2Fdirector_news.

Biotechnology Industry Organization 2015, ‘What is biotechnology?’, accessed June 2015,

https://www.bio.org/articles/what-biotechnology.

Booth, T. 2013, ‘Here, there and everywhere’, The Economist, accessed July 2015, http://www.
economist.com/news/special-report/21569572-after-decades-sending-work-across-world-
companies-are-rethinking-their-offshoring#sthash.GEkuzqaG.dpbs.
 References | 187

BP 2015, BP Statistical Review of World Energy June 2015, accessed June 2015, http://www.
bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-
world-energy-2015-full-report.pdf.

Brightgreen 2015, accessed July 2015, https://brightgreen.com.

Business and Biodiversity Resource Centre n.d., accessed July 2015, http://www.businessand
biodiversity.org.

Carter, L. 2012, ‘Offshoring bank jobs costs more than money’, Sydney Morning Herald, 25 April,
accessed July 2015, http://www.smh.com.au/business/offshoring-bank-jobs-costs-more-than-
money-20120424-1xja7.html.

CBD (Convention on Biological Diversity) 2014a, ‘Fact Sheets of the Convention on Biological
Diversity’, United Nations Environment Programme, accessed July 2015, http://www.cbd.int/2011-
2020/learn/factsheets/.

MODULE 2
CBD (Convention on Biological Diversity) 2014b, ‘Introduction’, United Nations Environment
Programme, accessed July 2015, http://www.cbd.int/intro/default.shtml.

CBD (Convention on Biological Diversity) 2014c, ‘Strategic Plan for Biodiversity 2011–2010,
including Aichi Biodiversity Targets’, United Nations Environment Programme, accessed July
2015, http://www.cbd.int/sp/.

Chakrabortty, A. 2008, ‘Secret report: Biofuel caused food crisis’, The Guardian, 4 July.

Chapagain, A., Hoekstra, A. & Savenije, H. 2005, ‘Saving water through global trade’, Value of
Water Research Report Series, no. 17, UNESCO Institute for Water Education, September,
accessed July 2015, http://www.waterfootprint.org/Reports/Report17.pdf.

Climate Action 2015, ‘About us’, accessed September 2015, http://www.climateactionprogramme

.org/about-us.

Climate Action and UNEP 2015, ‘Find out more about COP21’, accessed June 2015, http://www.
cop21paris.org/about/cop21.

Climate Action Tracker 2015, ‘Australia’, accessed July 2015, http://climateactiontracker.org/

countries/australia.html.

Cobb, K. 2011, ‘Dramatic shift in the peak oil debate’, OilPrice.com, 19 January, accessed July
2015, http://oilprice.com/Energy/Crude-Oil/Dramatic-Shift-in-the-Peak-Oil-Debate.html.

Collier, E. 2009, ‘Workplace warfare: Baby boomers, Gen X and Gen Y’, Career FAQs, 7 July,
accessed July 2015, http://www.careerfaqs.com.au/employment-news/1311/workplace-warfare.

Cornell, A. 2015, ‘Offshoring the service sector is good for the economy – and jobs’, The Asian
Century, accessed September 2015, https://bluenotes.anz.com/posts/2015/04/offshoring-the-
service-sector-is-good-for-the-economy-and-jobs/.

Conference Board 2005, ‘Thinking offshoring through’, Conference Board White Paper,
February, accessed July 2013, https://www.conference-board.org/topics/publicationdetail.
cfm?publicationid=928.

Conniff, R. 2012, ‘A bitter pill’ Conservation, University of Washington, accessed June 2015,
http://conservationmagazine.org/2012/03/a-bitter-pill.
 188 | GLOBAL BUSINESS CONTEXT

Conversation (The) 2014, ‘China heads for price on carbon; energy market overhaul is next’
accessed June 2015, http://theconversation.com/china-heads-for-price-on-carbon-energy-
market-overhaul-is-next-31119.

CPA Australia 2009, ‘Climate change policy: Carbon tax versus an emissions trading scheme—
The debate between experts’, accessed July 2013, cpaaustralia.com.au/cps/rde/xbcr/cpa-site/
Climate-change-policy.pdf.

Deloitte n.d., ‘About Deloitte’, accessed June 2015, http://www2.deloitte.com/in/en/pages/

about-deloitte/articles/about-deloitte.html.

Deloitte 2011, 10+Years in India: Decade of Operations, accessed June 2014, http://www.deloitte.
com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_deloittelife_summer2011issue.pdf.

Department of Climate Change of National Development and Reform Commission (DCCNDRC)

2015, ‘On the basic conditions and work plan to promote the establishment of a nationwide
carbon emissions trading market’, China Economic & Trade Herald (1):15–16.
MODULE 2

Department of Education, Employment and Workplace Relations (DEEWR) 2011, ‘Skill shortages’,
Australian Government, accessed November 2015, https://www.employment.gov.au.

Department for Environment, Food and Rural Affairs (DEFRA) 2006, Environmental Key
Performance Indicators: Reporting Guidelines for UK Business, Queen’s Printer and Controller,
London.

Department for Environment, Food and Rural Affairs (DEFRA) 2011, Reporting Guidelines for
Business on Environmental Key Performance Indicators: A Consultation on Guidance for UK
Businesses, accessed July 2015, http://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/69281/pb11321-envkpi-guidelines-060121.pdf.

Department for Environment, Food and Rural Affairs (DEFRA) 2012a, Reporting Guidance for
Business on Environmental Key Performance Indicators: A consultation on Guidance for UK
Businesses, accessed July 2015, https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/82551/consult-kpi-document.pdf.

Department for Environment, Food and Rural Affairs (DEFRA) 2012b, Guidance for Business
on Environmental Key Performance Indicators, accessed September 2015, https://www.gov.uk/
government/consultations/guidance-for-business-on-environmental-key-performance-indicators.

Department of Resources, Energy and Tourism (DRET) 2009, ‘Preparing for a carbon-constrained
economy—The challenge of doing energy efficiency well’, Industry Insights, April, pp. 1–12.

DiGregorio, D., Musteen, M. & Thomas, D. 2009, ‘Offshore outsourcing as a source of international
competitiveness for SMEs’, Journal of International Business Studies, vol. 40, pp. 969–88.

Donilon, T. 2013, ‘Remarks by Tom Donilon, National Security Advisor to the President at the
launch of Columbia University’s Center on Global Energy Policy’, US Government, 24 April,
accessed July 2015, http://www.whitehouse.gov/the-press-office/2013/04/24/remarks-tom-
donilon-national-security-advisor-president-launch-columbia-.

Donnellan, A. 2015 ‘Nyrstar Smelter $500m redevelopment secures Port Pirie future, SA Premier
says during first visit’, ABC News, accessed September 2015, http://www.abc.net.au/news/2015-
06-24/sa-premier-tours-redeveloped-nyrstar/6570520.
 References | 189

Doswald, N., Barcellos Harris, M., Jones, M., Pilla, E. & Mulder, I. 2012, Biodiversity Offsets:
Voluntary and Compliance Regimes. A Review of Existing Schemes, Initiatives and Guidance for
Financial Institutions, UNEP-WCMC, Cambridge, UK. UNEP FI, Geneva, Switzerland, accessed
July 2015, http://bobbloomfield.files.wordpress.com/2014/04/biooffsets-unep.pdf.

Drummond, S. 2013, ‘New wave of jobs go offshore’, Financial Review, accessed July 2015,
http://www.afr.com/news/policy/industrial-relations/new-wave-of-jobs-go-offshore-20130619-ijdh0.

Earthwatch Institute, IUCN, WRI & WBCSD 2007, Business and Ecosystems: Ecosystem
Challenges and Business Implications, accessed July 2015, http://pdf.wri.org/business_and_
ecosystems.pdf.

ECOFYS 2010, ‘World GHG emissions flow chart’, accessed July 2015, http://www.ecofys.com/
files/files/asn-ecofys-2013-world-ghg-emissions-flow-chart-2010.pdf.

Economist [The] 2009a, ‘The parable of the sower’, 19 November, accessed July 2015,
http://www.economist.com/node/14904184.

MODULE 2
Economist [The] 2009b, ‘Socialism in Venezuela: Feeding frenzy’, 12 March, accessed July 2015,
http://www.economist.com/node/13278245.

Economist [The] 2011, ‘A special report on feeding the world: Plagued by politics—Biofuels are
an example of what not to do’, 24 February, accessed July 2015, http://www.economist.com/
node/18200668.

Economist [The] 2013, ‘The rice mountain’, 10 April, accessed July 2015, http://www.economist.
com/news/asia/21583281-increasingly-unpopular-government-sticks-its-worst-and-most-costly-
policy-rice-mountain.

European Commission 2011, Sustainable Industry: Going for Growth & Resource Efficiency,
ECORYS, Rotterdam, accessed November 2015, http://www.symbiosis.dk/sites/default/files/
brochure_sustainable_industry.pdf.

European Commission 2013, ‘2030 framework for climate and energy policies’, Green Paper,
Brussels, COM (2013) 169 final, 27 March, accessed July 2015, http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX:52013DC0169.

European Commission 2014a, ‘Competitiveness and Innovation Framework Programme (CIP)’,

accessed July 2015, http://ec.europa.eu/cip.

European Commission 2014b, ‘COSME (Competitiveness of Enterprises and Small and Medium-
sized Enterprise)’, accessed November 2015, http://ec.europa.eu/growth/smes/cosme/index_
en.htm.

European Council 2014, ‘Conclusions’, Brussels, 21 March, accessed July 2015, http://www.
consilium.europa.eu/en/workarea/downloadAsset.aspx?id=15235.

Everest Group 2013, Finance and Accounting Outsourcing (FAO)—Annual Report 2013:
Increasing Market Maturity Driving Cost+ Value Proposition, accessed July 2015, https://research.
everestgrp.com/Product/EGR-2013-1-R-0865a/Finance-and-Accounting-Outsourcing-FAO-
Annual-Report-2013-Inc.

Evison, A., Birkinshaw, J., Barden, R. & Terjesen, S. 2004, ‘Shifting strategic focus’, European
Business Forum, Autumn, vol. 19, pp. 38–42.
 190 | GLOBAL BUSINESS CONTEXT

Feinsod, R. R. & Davenport, T. O. 2006, ‘The aging workforce: Challenge or opportunity?’,
WorldatWork Journal, vol. 15, no. 3, accessed July 2013, http://www.horsesforsources.com/wp-
content/uploads/2011/07/HfS-2011-FABPO-Market-Landscape-Report.pdf.

Ferscht, P. 2011, ‘The F&A landscape in 2011: Re-emerging from the recession, re-focusing on
business outcomes’, HfS Research, accessed November 2015, http://www.horsesforsources.com/
wp-content/uploads/2011/07/HfS-2011-FABPO-Market-Landscape-Report.pdf.

Financial Sector Union (FSU) 2012, ‘Offshoring fact sheet’, accessed July 2015, http://www.
fsunion.org.au/Upload/Campaigns/Offshoring/offshoring_fact_sheet_2October2012.pdf.

Giang, V. 2013, ‘Why Gen Y workers have no idea what their managers expect from them’,
Business Insider, accessed July 2015, http://www.businessinsider.com.au/study-reveals-
expectation-gap-between-managers-and-their-workers-2013-9.

Gottlieb, B. 2012, ‘Hydraulic fracturing: How great is the risk to health?’ Environmental
Health Policy Institute, Physicians for Social Responsibility, accessed June 2015, http://www.
MODULE 2

psr.org/environment-and-health/environmental-health-policy-institute/hydraulic-fracking.
html?referrer=https://www.google.com.au.

Goldenberg, S. 2013, ‘Just 90 companies caused two-thirds of man-made global warming

emissions’, The Guardian, accessed September 2015, http://www.theguardian.com/
environment/2013/nov/20/90-companies-man-made-global-warming-emissions-climate-change.

GRI 2013, ‘G4 Sustainability Reporting Guidelines’, accessed November 2015, https://www.
globalreporting.org/standards/g4/Pages/default.aspx.

Hackett Group 2012, ‘Job losses from offshoring and productivity improvements far outpace
gains from economic growth’, accessed September 2015, http://www.thehackettgroup.com/
research/2012/offshoring-update/hckt2012-offshoring-forecast.pdf.

Hamelinck, C. 2013, Biofuels and Food Security: Risks and Opportunities, Ecofys, Project number:
BIENL13469, August, accessed July 2015, http://www.ecofys.com/files/files/ecofys-2013-biofuels-
and-food-security.pdf.

Henricks, M. 2015, ‘How to relocate your business’ Entrepreneur, accessed June 2015,
http://www.entrepreneur.com/article/81406.

HfS 2011, ‘Outsourcing: A symptom of a failing education system?’, accessed July 2015,
http://www.horsesforsources.com/outsourcing-education_042711#sthash.ZM65tYmq.dpuf.

HfS 2013, ‘Finance and accounting BPO market landscape, 2013 market evaluation, forecast and
competitive analysis’, accessed July 2015, http://www.kpmg-institutes.com/content/dam/kpmg/
sharedservicesoutsourcinginstitute/pdf/2013/hfs-fao-study-2013-competition-only.pdf.

High Court of Australia 2014, NSW Registrar of Births, Deaths and Marriages (Appellant) and
Norrie (Respondent), accessed July 2015, http://www.hcourt.gov.au/assets/cases/s273-2013/
Norrie_GenAgen.pdf.

High Level Group (HLG) 2006, Contributing to an Integrated Approach on Competitiveness,

Energy and the Environment Policies: Functioning of the Energy Market, Access to Energy,
Energy Efficiency and the EU Emissions Trading Scheme, First Report of the High Level Group
on Competitiveness, Energy and the Environment, June.
 References | 191

High Level Group (HLG) 2007, Contributing to an Integrated Approach on Competitiveness,

Energy and the Environment Policies: Ensuring Future Sustainability and Competitiveness of
European Enterprises in a Carbon and Resource Constrained World, Fourth Report of the High
Level Group on Competitiveness, Energy and the Environment, June, pp. 1–6.

Hirsch, R. L., Bezdek, R. & Wendling, R. 2005, Peaking of World Oil Production: Impacts,
Mitigation, & Risk Management, February, accessed July 2015, http://www.netl.doe.gov/
publications/others/pdf/oil_peaking_netl.pdf.

Hoffman, J. 2015, ‘Potential health and environmental effects of hydrofracking in the Williston
Basin, Montana’ accessed June 2015, http://serc.carleton.edu/NAGTWorkshops/health/case_
studies/hydrofracking_w.html.

Horses for sources 2013, ‘Around the world and back again’, accessed November 2015,
http://www.horsesforsources.com/wp-content/uploads/2013/07/Around-the-world-and-back-
again_The-future-potential-of-US-sourcing_HfS.pdf.

MODULE 2
Hubbert, M. K. 1949, ‘Energy from fossil fuels’, Science, 4 February, vol. 109, pp. 104–9.

Hubbert, M. K. 1956, Nuclear Energy and Fossil Fuels, Spring Meeting of the Southern District
Division of Production, American Petroleum Institute, 7–9 March.

Humphreys, J. 2007, Exploring a Carbon Tax for Australia—Perspectives on Tax Reform (14)
CIS Policy Monograph, The Centre for Independent Studies, St Leonards, NSW.

Institution of Mechanical Engineers 2013, Global Food: Waste Not, Want Not, Institution of
Mechanical Engineers, London.

International Energy Agency (IEA) 2013, ‘How will global energy markets evolve to
2035?’, World Energy Outlook 2013 Factsheet, IEA, Paris, accessed July 2015, http://www.
worldenergyoutlook.org/media/weowebsite/factsheets/WEO2013_Factsheets.pdf.

International Energy Agency (IEA) 2015, ‘FAQs’ accessed June 2015, http://www.iea.org/aboutus/
faqs/oil.

International Union for Conservation of Nature (IUCN) 2010, ‘IUCN Red List of threatened
species’, Version 2010.4, accessed July 2015, http://www.iucnredlist.org.

Jimenez, M. 2012, ‘5 reasons to think twice before moving your company’, Inc., accessed June
2015, http://www.inc.com/maya-jimenez/think-twice-about-moving-your-business.html.

Karlovsky, B. 2014, ‘Offshoring of Australian jobs leads to oversupply of ICT professionals:

Clarius’, ARN, accessed June 2015, http://www.arnnet.com.au/article/544607/offshoring_
australian_jobs_leads_oversupply_ict_professionals_clarius.

Khadem, N. 2012, ‘Benefits of offshore accountants’, BRW, accessed July 2015, http://www.brw.
com.au/p/sections/professions/benefits_of_offshore_accountants_z8jyi8TwasPeviRKj7XVHM.

King, A. 2013, ‘Accountants brace for upheaval’, Financial Review, 11 December, accessed July
2015, http://www.afr.com/p/national/professional_services/accountants_brace_for_upheaval_
tE2quuGPh3jEpjAWvflG4N.

KPMG 2011, Australia’s Climate Change Plan: How it Will Work and the Implications for Business,
accessed July 2013, https://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Lists/
Expired/Australias-Climate-Change-Plan-v3.pdf.
 192 | GLOBAL BUSINESS CONTEXT

KPMG 2013, ‘Global finance and accounting outsourcing will surpass $25 billion in 2013, according
to latest research from HfS and KPMG’, 4 April, accessed July 2015, http://www.kpmg.com/us/
en/issuesandinsights/articlespublications/press-releases/pages/global-finance-and-accounting-
outsourcing-will-surpass-$25-billion-in-2013,-according-to-latest-research-from-hfs-and-kpmg.aspx.

McArthur, J. 2010, ‘Aging population—Age of reason’, INTHEBLACK, March.

McKaskill, T. 2009, ‘The importance of succession planning’, Smart Company, accessed July
2015, http://www.smartcompany.com.au/leadership/management/10685-20090828-develop-
succession-planning.html#.

Main, A. 2009, ‘Oil age still has some time to run’, The Australian, 15 June, p. 20.

Mitchell, D. 2008, A Note on Rising Food Prices, The World Bank, Development Prospects Group,
Policy Research Working Paper 4682, July, accessed July 2015, www-wds.worldbank.org/external/
default/WDSContentServer/IW3P/IB/2008/07/28/000020439_20080728103002/Rendered/PDF/
WP4682.pdf.
MODULE 2

Moll, E. 2013, ‘Energy-efficient bulbs: Halogen vs fluorescent vs incandescent’, SFGate,

Home Guides, accessed July 2015, http://homeguides.sfgate.com/energyefficient-bulbs-
halogen-vs-fluorescent-vs-incandescent-78832.html.

Monsanto 2012, ‘Do GM crops increase yield?’, 26 November, accessed July 2015, http://www.
monsanto.com/newsviews/pages/do-gm-crops-increase-yield.aspx.

Murphy, C. 2011, The Finance Transformation—The Outsourcing Perspective, accessed July 2015,
http://www.fr.capgemini.com/resource-file-access/resource/pdf/Finance_Transformation__The_
Outsourcing_Perspective.pdf.

Museum of Unnatural Mystery 2013, ‘Who invented the lightbulb?’, accessed July 2015,
http://www.unmuseum.org/lightbulb.htm.

NASSCOM 2011, ‘Indian BPO industry: A transforming landscape’, accessed July 2015,
http://www.nasscom.org/indian-bpo-industry-transforming-landscape.

Nehamas, N. 2012, ‘What country will get fracked next?’ Latitude News, accessed June 2015,
http://www.latitudenews.com/story/what-country-will-get-fracked-next.

Obama, B. 2013, ‘President Obama’s plan to fight climate change’, Office of the President,
White House, June, Washington DC, accessed July 2015, http://www.whitehouse.gov/share/
climate-action-plan.

Osborne, H. 2006, ‘Stern report: The key points’, Guardian, 30 October.

Pacific Institute 2009, Water Scarcity & Climate Change: Growing Risks for Businesses & Investors,
Pacific Institute, Oakland, California, accessed July 2015, http://pacinst.org/wp-content/uploads/
sites/21/2014/04/growing-risk-for-business-investors.pdf.

Population Reference Bureau 2010, ‘China’s rapidly aging population’, Today’s Research on
Aging: Program and Policy implications, accessed June 2015, http://www.prb.org/pdf10/
todaysresearchaging20.pdf.

Productivity Commission 2011, ‘Carbon emissions policies in key economies’, Australian

Government, Canberra.
 References | 193

PWC, ANZ and Asialink Business 2015, Australia’s Jobs Future: The Rise of Asia and the Services
Opportunity, accessed September 2015, http://asialink.unimelb.edu.au/__data/assets/pdf_
file/0010/1401688/Australias-Jobs-Future-The-rise-of-Asia-and-the-services-opportunity-Asialink-
Business.pdf.

Qantas Airways Ltd 2000, 2000 Annual Report, accessed July 2015, www.qantas.com.au/
infodetail/about/investors/2000AnnualReport.pdf.

Qantas Airways Ltd 2014a, 2014 Annual Report, p. 28, accessed July 2015, http://qantas2014.
reportonline.com.au/download.

Qantas Airways Ltd 2014b, 2014 Longreach Review, accessed July 2015, http://www.qantas.com.
au/infodetail/about/investors/longreach-review-2014.pdf.

Queensland Government 2015, ‘Water markets and trading’, Department of Natural Resources
and Mines, 26 March, accessed November 2015, https://www.business.qld.gov.au/industry/water/
managing-accessing/markets-trading.

MODULE 2
Robbins, S. 2009, ‘Exit strategies for your business’, Entrepreneur, accessed July 2015,
http://www.entrepreneur.com/article/78512.

Robertson, J., Stone, D., Niederwanger, L., Grocki, M., Martin, E. & Smith, E. 2004, ‘The coming
accounting revolution: Offshore outsourcing of tax return preparation’, Working paper,
8 September, accessed July 2015, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=588381.

Rosenbaum, L. 2015, ‘Keep tap water safe: Don’t frack the Delaware River Watershed’, accessed
June 2015, http://keeptapwatersafe.org/global-bans-on-fracking.

Rosenthal, E. 2012, ‘Carbon taxes make Ireland even greener’, The New York Times, accessed
July 2015, http://www.nytimes.com/2012/12/28/science/earth/in-ireland-carbon-taxes-pay-off.
html?pagewanted=all&_r=0.

Schade, C. & Pimentel, D. 2009, ‘Population crash: Prospects for famine in the twenty-first
century’, Environment, Development and Sustainability, vol. 12, May, pp. 245–62, accessed July
2015, http://www.springerlink.com/content/tv12170j576675l5/fulltext.pdf.

Schwartz, F. n.d., ‘Gender diversity in the workplace’, accessed July 2015, http://www.analytictech.
com/mb021/gender.htm.

Smith, M. 2014, ‘Can Australian accounting graduates survive offshoring?’, People2People Blog,
accessed July 2015, http://people2people.com.au/blog/can-australian-accounting-graduates-
survive-offshoring.

Stern, N. 2006, Stern Review on the Economics of Climate Change, Her Majesty’s Treasury,
London, accessed July 2015, http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.
gov.uk/sternreview_index.htm.

Suwannakij, S. 2014, ‘Price war seen as Thai rice glut swamps market: Southeast Asia’,
Bloomberg, 3 April, accessed July 2015, http://www.bloomberg.com/news/2014-04-02/price-war-
seen-as-thai-rice-glut-swamps-market-southeast-asia.html.

Tarrant, D. 2012, ‘Outsourcing: The pros and cons of going offshore’, INTHEBLACK, September,
accessed June 2014, http://www.itbdigital.com/tools-of-the-trade/2012/09/24/outsourcing-the-
pros-and-cons-of-going-offshore.
 194 | GLOBAL BUSINESS CONTEXT

Terjesen, S. 2006, ‘Outsourcing and offshoring of finance activities’, in Kehal, H. & Singh, V. (eds),
Outsourcing and Offshoring in the 21st Century, Idea Group, London.

Terjesen, S. 2010a, Offshoring: Impact on the Accounting Profession, CPA Australia, accessed
September 2015, cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-
resources/business/offshoring-impact-on-the-accounting-profession.pdf.

Terjesen, S. 2010b, Outsourcing and Offshoring Finance Activities, Queensland University of

Technology, Australia, accessed June 2015, http://www.irma-international.org/viewtitle/36250.

Terjesen, S. & Frey, R. 2008, in Vaiman, V. & Vance, C. (eds), Smart Talent Management: Building
Knowledge Capital for Competitive Advantage, Edward Elgar Publishing, Cheltenham,
United Kingdom.

Tholon 2013, ‘2013 top 100 outsourcing destinations rankings and report overview’, accessed July
2015, http://www.cuti.org.uy/documentos/Tholons__Top_100_Ranking_2013.pdf.
MODULE 2

Unilever 2014,‘Water use’, accessed July 2014, http://www.unilever.com/sustainable-living-2014/

reducing-environmental-impact/water-use.

UN Framework Convention on Climate Change (UNFCCC) 2011, ‘Framework convention on

climate change’, accessed July 2015, http://unfccc.int/2860.php.

United Nations (UN) 1987, Our Common Future: Report of the World Commission on
Environment and Development [Brundtland Report], UN, Oslo.

United Nations (UN) 2012, World Population Prospects Economic and Social Affairs: The 2012
Revision Highlights and Advance Tables, United Nations, New York, accessed June 2014,
http://esa.un.org/wpp/documentation/publications.htm.

United Nations (UN) 2015, ‘FAO Food Price Index’, Food and Agriculture Organization of the
United Nations, accessed July 2015, http://www.fao.org/worldfoodsituation/foodpricesindex/en.

United Nations Department of Economic and Social Affairs 2012, ‘World population prospects:
The 2012 revision’, United Nations, New York, accessed June 2014, http://esa.un.org/wpp/
documentation/publications.htm.

United Nations Economic Commission for Africa (UNECA) 2010, Outcome of the Africa Regional
Preparatory Meeting for the Fourth United Nations Conference on the Least Developed
Countries’, United Nations Economic and Social Council Economic Commission for Africa and
African Union Commission, 25–8 March, Malawi, accessed November 2015, http://www.un.org/
en/conf/ldc/pdf/arr%20final%20document.pdf.

United Nations Environment Programme Finance Initiative (UNEP-FI) n.d., ‘Biodiversity &
ecosystem services’, accessed July 2015, http://www.unepfi.org/work-streams/biodiversity.

United Nations Environment Programme Finance Initiative (UNEP-FI) 2008, ‘Biodiversity and
ecosystems services: Bloom or bust?’, accessed July 2015, http://www.unepfi.org/fileadmin/
documents/bloom_or_bust_report.pdf.

United Nations Educational, Scientific and Cultural Organization (UNESCO) 2012, Managing
Water under Uncertainty and Risk: Overview of Key Messages, UNESCO, World Water Assessment
Program, accessed July 2015, http://unesdoc.unesco.org/images/0021/002154/215491e.pdf.
 References | 195

United States Environmental Protection Agency (EPA) 2012, ‘Hydraulic fracturing background
information’, accessed June 2015, http://water.epa.gov/type/groundwater/uic/class2/
hydraulicfracturing/wells_hydrowhat.cfm.

United States Energy Information Administration (EIA) 2015a, ‘International Energy Statistics’,
accessed November 2015, http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=57
&aid=6&cid=regions&syid=1992&eyid=2015&unit=BB.

United States Energy Information Administration (EIA) 2015b, ‘Short-term energy outlook:
Global petroleum and other liquids’, accessed June 2015, http://www.eia.gov/forecasts/steo/
report/global_oil.cfm.

United States National Intelligence Council (NIC) 2012, Global Trends 2030: Alternative Worlds
accessed October 2015, http://www.dni.gov/files/documents/GlobalTrends_2030.pdf.

Wachovia 2006, ‘Outsourcing trends from leading advisor’, Equity Research, 26 October.

MODULE 2
Walt, V. 2008, ‘The breadbasket of South Korea: Madagascar’, Time, 23 November,
accessed July 2015, http://www.time.com/time/world/article/0,8599,1861145,00.html.

Water Accounting Standards Board (WASB) 2012, AWAS 1: Preparation and Presentation of
General Purpose Water Accounting Reports, Bureau of Meteorology, Australian Government,
accessed July 2015, http://www.bom.gov.au/water/standards/documents/awas1_v1.0.pdf.

Water Accounting Standards Board (WASB) 2014, AWAS 2: Assurance Engagements on General
Purpose Water Accounting Reports, Bureau of Meteorology, Australian Government, accessed
July 2015, http://www.bom.gov.au/water/about/publications/document/awas2.pdf.

World Economic Forum 2013, Lessons Drawn from Reforms of Energy Subsidies, accessed
September 2015, http://www3.weforum.org/docs/GAC13/WEF_GAC13_LessonsReforms
EnergySubsidies_Report.pdf.

World Economic Forum (WEF) 2015, Global Risks 2015, accessed June 2015, http://www3.
weforum.org/docs/WEF_Global_Risks_2015_Report15.pdf.

Workplace Gender Equality Agency (WGEA), accessed July 2015, ‘Fact sheets and statistics’,
https://www.wgea.gov.au/research-and-resources/fact-sheets-and-statistics; ‘About pay equity’,
https://www.wgea.gov.au/learn/about-pay-equity; ‘Interactive data centre’, https://www.wgea.
gov.au/interactive-data-centre.

World Bank 2010, ‘World development report: Carbon intensity’, World Bank, Washington, DC.

World Business Council for Sustainable Development (WBCSD) 2009, ‘Water: Facts and trends’,
Version 2, WBCSD, Geneva, accessed July 2015, http://www.wbcsd.org/Pages/EDocument/
EDocumentDetails.aspx?ID=137&NoSearchContextKey=true.

Worldwatch Institute 2012, ‘California passes law to cap CO2 emissions’, accessed July 2015,
http://www.worldwatch.org/node/4499.

World Wide Fund for Nature (WWF) 2014, ‘How many species are we losing?’, accessed July 2015,
http://wwf.panda.org/about_our_earth/biodiversity/biodiversity.
 196 | GLOBAL BUSINESS CONTEXT

Wright, C. 2011, ‘Aussie light bulbs slash power bills … and step ladder usage’, The Age, 15 July,
accessed July 2014, http://www.theage.com.au/digital-life/computers/blogs/bleeding-edge/aussie-
light-bulbs-slash-power-bills--and-step-ladder-usage-20110715-1hgwx.html#ixzz1SAXeuZyo.

Zhang Z. X. 2011, ‘Assessing China’s carbon intensity pledge for 2020: stringency and credibility
issues and their implications’, Environmental Economics and Policy Studies, vol. 13, no. 3,
pp. 219–35.

Zhang Z. X. 2015, ‘Programs, prices and policies towards energy conservation and environmental
quality in China’, in: Shunsuke S (ed.) Handbook of Environmental Economics in Asia, Routledge,
London and New York, pp. 532–51.
MODULE 2