The Role of Management Accountants Regarding Climate Change: The Case of Turkey
ISBN: 978-1-83753-803-4, eISBN: 978-1-83753-802-7
ISSN: 2043-0523
Publication date: 6 September 2023
Abstract
This study aims to reveal the perspectives of the management and senior accountants on the subject regarding the effects of climate change on the business world, within the framework of utilisation of tools like strategic cost management and strategic management. An electronic form was sent repeatedly to the e-mail addresses of public companies listed on the Borsa Istanbul (BIST), which were obtained from the Public Disclosure Platform (PDP), between June 2018 and June 2019. According to the data obtained from the survey of this study, it is not possible to comment that these tools are effectively utilised in Turkey. Besides, it is also early to say that top management is fully aware of the need to manage climate change. This study contributes to the literature by revealing the view of management accountants and finance experts in Turkey on climate change.
Keywords
Citation
Kesimli, I. (2023), "The Role of Management Accountants Regarding Climate Change: The Case of Turkey", Crowther, D. and Seifi, S. (Ed.) Achieving Net Zero (Developments in Corporate Governance and Responsibility, Vol. 20), Emerald Publishing Limited, Leeds, pp. 25-55. https://doi.org/10.1108/S2043-052320230000020002
Publisher
:Emerald Publishing Limited
Copyright © 2023 by Emerald Publishing Limited
Introduction
Uncertainty and volatility are the new normal.
Ng Boon Yew FCCA, Executive Chairman Accountancy Futures Academy.
It was suggested in 1827 by the French scientist Joseph Fourier that gases in the atmosphere could be responsible for trapping energy from the sun (Pierrehumbert, 2004; Peterman, 2017). It took a long time for the physics science to show an interest in greenhouse gases. Today, greenhouse gases are seen as one of the important causes of climate change. At the point reached by science, of course, a lot of new information has been reached, yet the subject is still being studied. There are many publications that deal with the technical aspects of the subject. This study aims to deal with the subject from the point of view of accounting at the level of the top management of enterprises.
As Ng Boon Yew states, uncertainty and volatility are the new normal of our era. In the foreword to the Future of Accounting Academy's report 100 Drivers of Change for the Global Accountancy Profession, Yew points out that the global panorama will be continually reshaped by a combination of market volatility, globalisation and climate innovation. Meanwhile, wealth and power changes, economic uncertainty and political transitions are also experienced (2012). These challenges are compounded by rapid advances in science and technology, demographic changes and the emergence of new business models. As witnessed social and economic environments shift. Thus, all of these coinciding phenomena will have a serious impact on businesses and the accountancy profession (Pierrehumbert, 2004; Peterman, 2017). At this point, the question arises whether accountants are ready for upcoming radical changes occurring simultaneously. Again, accountants are expected to understand how the new, reshaping future will affect the organisations they serve. According to Riva, one of the managers of Siemens Financial Services in England; energy and business data can be aggregated into financial metrics that can appeal to influential stakeholders in an organisation. Currently, most accountants act as bridges between those responsible for sustainability in the business and the management team (2015). Rapidly changing business environments will require updating some accounting and auditing standards; this will require retraining of accountants and auditors for new standards and/or changing legislation. Not only the role of financial managers but also the reporting processes will change drastically. The next generation of accountants will need to be reformed. In this chapter, the answer to the question of whether accountants are ready for radical changes will be sought within the framework of climate change, which definitely will change the needs of businesses.
Concepts
Climate change is the change in climate as a result of human activities that directly or indirectly degrade the composition of the global atmosphere, in addition to natural climate change observed over comparable time periods (www.enerji.gov.tr, 2022). Just talking about weather does not mean that climate issue is addressed. The National Geographic Society emphasises the reality that weather is one of the components of climate. Climate change is the alteration of temperature and typical weather patterns in a place in the long run. These alterations may cause weather patterns to be less predictable, which in turn makes it difficult maintaining and growing crops in farming-dependent regions. Damaging weather events like hurricanes, floods, downpours and winter storms are also said to be connected to climate change (www.nationalgeographic.org, 09.04.2022). The issue of climate change can be considered a relatively new topic for the accounting community. For this reason, the concepts that are frequently used when climate change and accounting come together are discussed in detail here. Clarifying the concepts in the research is important in terms of better understanding the study and revealing its contribution to the literature. Climate change, emissions, carbon footprint, sustainability and cost analysis from different perspectives are some of them.
Climate Change Initiative
Climate Change Initiative (CCI) that seeks reinforcing the scientific, mitigation and adaptation capacities of countries and communities, which are most vulnerable to the effects of climate change, was launched by the Director-General of UNESCO, Irina Bokova, in 2009 (www.unesco.org, 17.09.2020). This initiative is not to be confused with UMass Lowell's CCI that is a university research centre informing and supporting evidence-based climate action (www.uml.edu, 09.04.2022). Among others, some climate change programmes listed by search engine are (1) US Global Change Research Program, (2) Climate Program Office, National Oceanic and Atmospheric Administration (NOAA), (3) National Extension Climate Initiative (NECI), (4) NASA Harvest (Food Security and Agriculture Program), and (5) Climate Adaptation Science Centers, United States Geological Survey (USGS).
Emission
Emission defined as an amount of a substance that is produced and sent out into the air that is harmful to the environment, especially carbon dioxide (dictionary.cambridge.org, 09.04.2022), has long been seen as a problem with vital consequences for humanity. The United Nations Framework Convention on Climate Change and the Kyoto Protocol, the aim of which is to stop the greenhouse gas accumulations in the atmosphere at a level that will prevent the human-induced danger on the climate system, are the most important steps in the historical process (Elitaş, Çonkar, & Karakoç, 2014, p. 46).
Carbon Footprint Calculation – Carbon Accounting/Budgeting
Carbon emission accounting is the calculation of the carbon footprints of the greenhouse gases released into the atmosphere, their tracking, recording and reporting, as well as the calculation of their costs to the business (Elitaş et al., 2014, p. 47). Assuming carbon accounting is part of the business's sustainability plan; (1) Green House Carbon (GHC), (2) formerly Carbon Disclosure Project (CDP®), newly named Disclosure Insight Action (CDP®), (3) Science Based Targets initiative (SBTi) and similar institutions and organisations gain importance. Carbon footprint calculations are based on information about the buildings the enterprise powers, its flight routes, fuel consumption of vehicles like cars, vans, trucks etc., usage of public transport – buses, trains, taxis and the like. At this level, direct and indirect emissions are taken into consideration. Calculated carbon footprint may be disclosed and/or benchmarking tools may be used in order to compare and learn from similar organisations with the aim of improving it (https://sustainabletravel.org, www.carbonfootprint.com, 09.04.2022).
Preparing and Monitoring the Business for the Climate Change Initiative
The prerequisite for preparing the business for the CCI requires setting targets and preparing strategies and plans. The report prepared by the Center for Climate and Energy Solutions (C2ES) in 2006 describes the various components of the climate-related strategy, with eight steps classified into three phases. These are as follows (Hoffman, 2006, p. 5):
Phase I: Developing a climate strategy
Step 1. Evaluating the emission profile
Step 2. Anticipating and measuring risks and opportunities
Step 3. Evaluating options for technological solutions
Step 4. Setting goals and targets
Phase II: Focussing inwards
Step 5. Developing financial mechanisms to support climate programmes
Step 6. Engaging the organisation
Phase III: Focussing outwards
Step 7. Formulating a policy strategy
Step 8. Managing external relations
Strategies should be determined by following the steps mentioned above and the business should be prepared for climate change. Finance and climate change management information systems should be integrated. After the strategy is formulated and the ways to be followed are determined, climate change performance measurements should be monitored on the basis of key performance indicators (KPIs). In addition, compliance with climate change policy and legislation should be monitored.
Total Cost/Life Cycle Assessment Calculations
The theoretical foundations for carrying out environmental and economic analysis across the life cycle of a product are based on environmental Life Cycle Assessment (LCA) and Life Cycle Costing (LCC) (Miah, Koh, & Stone, 2017, p. 848). The LCA implementation consists of four phases as defined by ISO 14040 and ISO 14044: (1) goal and scope, (2) Life Cycle Inventory, (3) Life Cycle Impact Assessment and (4) interpretation. There are three different LCA methods applicable within the framework of the International Standards Organization (ISO): (1) Process LCA (P-LCA), (2) Economic-Input-Output (EIO) LCA and (3) hybrid LCA. Life Cycle Costing (LCC) is the consideration of all costs that will arise and accrue during the life of a product, business or service (ec.europa.eu/environment, 18.09.2020). These may be: (1) The purchase price and all associated costs (transport, installation, insurance etc.), (2) Operating costs, including energy, fuel and water use, spare parts and maintenance, (3) Decommissioning, end-of-life costs such as disposal, and residual value – that is, income from the sale of the product. LCC may also cover the costs of externalities such as greenhouse gas emissions. LCC may include cost stages, estimation of costs and risk/sensitivity analysis (Miah et al., 2017, p. 848). Next to the LCA and LCC methods, Social Life Cycle Assessment (S-LCA), a four-stage method similar to LCA, that evaluates the social effects of the product throughout its life cycle, has been added (Özdemir, 2019, p. 166). The equation [Life Cycle Sustainability Assessment (LCSA)] developed to support the decision-making process in the development of a new product and assessing sustainability impacts throughout its life cycle is as follows (Özdemir, 2019, p. 178):
While there is no software specifically developed for S-LCA so far [as of June 2018], there is a database of environmental LCA software based on a static input–output model used to provide industry- and country-specific forecasts of activity in product supply chains (Özdemir, 2019, p. 179).
Sustainability
In a very simple definition, sustainability means meeting our own needs (today) without compromising the ability of future generations to meet their own needs (in the future) (University of Alberta, 2013). Embedding sustainability requires integrating environmental, health and social values into the core of the business, without expecting anything in return and without sacrificing quality (Laszlo & Zhexembayeva, 2011, p. 100). Sustainability accounting, also referred to as social accounting, social and environmental accounting, corporate social reporting, corporate social responsibility reporting or non-financial reporting, is considered as a sub-branch of financial accounting that focusses on the provision of non-financial information about the firm's performance to external stakeholders (www.en.wikipedia.org, 15.09.2020). Economic, social and environmental fields form the basis of sustainability. Sustainability accounting provides a useful tool for identifying, assessing and managing social and environmental risks by identifying resource efficiency and cost savings, and linking social and environmental improvements with financial opportunities. It also allows for comparison and benchmarking of performance and identification of best practice (Constructing Excellence, 2004).
Sustainability Reporting
A sustainability report is a self-published report on the economic, environmental and social impacts of the day-to-day activities of the business or organisation. In addition to revealing the organisation's values and governance model, it also demonstrates the link between the organisation's strategy and its commitments towards a sustainable global economy. The sustainability report is the key platform where sustainability performance and positive/negative impacts are communicated. Sustainability reporting, also known by many different names like Non-financial reporting, Triple-Bottom-Line (TBL) reporting, Corporate Social Responsibility Reporting etc., is also an internal element of integrated reporting that combines financial and non-financial performance (www.globalreporting.org, 17.09.2020). Issues covered in a sustainability report would be as listed below (www.globalreporting.org, 2022):
| Material Topics | Energy | Training and Education |
| Economic Performance | Water and Effluents | Customer Privacy |
| Indirect Economic Impacts | Biodiversity | Non-Discrimination |
| Procurement Practices | Emissions | Local Communities |
| Anti-Corruption | Effluent and Waste | Child Labour |
| Anti-Competitive Behaviour | Materials | Marketing and Labelling |
| Tax | Employment | Security Practices |
| Supplier Environmental assessment | Occupational Health and Safety | Rights of Indigenous Peoples |
| Supplier Social Assessment | Public Policy | Customer Health and Safety |
| Forced or Compulsory Labour | Diversity and Equal Opportunity | Freedom of Association and Collective Bargaining |
The diversity of issues listed above shows the depth and width of sustainability. In fact none of them is new to business administration. One of my favourite topics enjoyed in classes is the stakeholders of business. As well known, there are nine stakeholders for any business entity. These are shown in Fig. 1. Not all arrows showing relationships between stakeholders are shown to avoid confusion. However, each stakeholder has bounds to all others. Furthermore, each arrow had to show two-way relations among each stakeholder, including the entity itself.
It is apparent that the Fig. 1 and list of sustainability report issues are linked; the figure displays them and the list induces the management to care for each so that the report reflects its conduct.
Managerial Accounting or Management Accounting
Although demanded and used by managers as well, financial accounting, also known as general accounting, reports on all the activities of the business and often to outside stakeholders who want information about the economic development of the business. The information contained in the reports is open to the public and therefore accessible to competitors. Management, which has the liability and responsibility to make decisions on behalf of the business, needs the information produced by the branch of accounting called managerial accounting or management accounting, which has a different perspective from financial accounting. Essentially, management accounting relies on the records kept and reports produced by financial accounting; however, far from being publicly available, this information is protected as company's secret (Bierman & Drebin, 1978, p. 5; Johnson & Gentry, 1980, p. 16). Management Accounting includes four main tasks. These are (Drebin & Bierman, 1978, p. 1) (1) Determining cost, (2) Cost control, (3) Evaluate performance, (4) Provide information for planning and specific decisions. Managerial Accounting is the identification, measurement, analysis, interpretation and presentation of financial information to management in order to achieve the objectives of the enterprise. It varies from financial accounting with the goal of assisting internal people in making well-informed business decisions (www.investopedia.com, 14.09.2020). Those who work in this field of accounting are called managerial accountants. As can be seen, despite four decades between the two definitions, there is no change in the definition of managerial accounting. However, the tools and methods managerial accountants use have diversified, changed and are enriched over time.
In fact, there are too many new concepts to count on the subject. The concepts discussed above are only a part of them. However, it is anticipated that this study will help to better understand and illustrate the diversity of tools available to management accountants and management in general.
Literature
The issue of climate has, of course, been on the agenda of the world of science for a long time. When a full-text search is superficially made in peer-reviewed journals using the terms ‘climate change effects’ on EbscoHost, it is seen that there are 636 publications between 1971 and 1999, 4,005 publications between 2000 and 2009 and 16,658 publications between 2010 and 2020. When the search is repeated in the similar way using the terms ‘climate change impact’ instead, it is seen that the first publication dates back to 1911, there were no other publications until 1971. There were 586 publications between 1971 and 1999, 5,078 between 2000 and 2009, and 21,821 between 2010 and 2020. It cannot be assumed that all of the aforementioned publications are in the field of social sciences, and it can be assumed that some of them appeared in both surveys. It can be predicted that older publications are not listed in the aforementioned database. When the search in the database was done by adding the term ‘finance’, publications on various topics were reached.
Binboğa's study in which international carbon trade is handled from Turkey's perspective (2014); study of Elitaş, Çonkar and Karakoç examining accounting for emission rights (2014); the study of Çetintaş and Türköz, in which the role of carbon markets in the fight against climate change is discussed (2017); Fidancı and Yükçü's study, which deals with the philosophy of sustainability in the management of carbon costs (2018); evaluation of Türk, Uslu and Ertaş on environmental accounting within the framework of the law (2019) can be counted among the publications in this group.
Some of the publications are on climate finance, which has been increasingly used in climate change governance since the 1990s (Bracking, 2019). Consumption-based carbon dioxide accounting within the framework of sustainable development goals (SDGs) is handled by Spasier et al. (2019). Kumarasiri and Jubb (2017) in their research based on the results of a 2009 study on Australian companies examined the relationship between management accounting practices regarding carbon emissions, climate change perception and accounting use, and also whether companies consider the effects of climate change as a threat or an opportunity. They found that accounting practices in the management of carbon emissions remained limited. Duus-Otterstroöm (2016) worked on the distribution of climate adaptation finance to countries and the control of these recipient countries on the issue. Giannarakis, Zafeiriou, and Sariannidis (2017) examined the effects of carbon performance on climate change explanations. Salk, Jonas, and Marland (2013) emphasised that consistent and accurate accounting will reduce carbon emissions on a local scale through flexible practices, thus contributing to success on a global scale. Linnenluecke, Birt, Griffiths, and Walsh (2015) argued that accounting will support the business in the climate change adaptation process, thanks to the risk assessment function, the function of evaluating the adaptation costs and benefits, and the function of explaining the risks associated with the effects of climate change. The research of Ratnatunga and Balachandran (2009), which deals with carbon business accounting, the cost of global warming and its effects on the management accounting profession, has the closest content to the present study. According to the authors; the existence of carbon allocation and trading has potential implications for organisations' business strategies, financial performance and ultimately value. Therefore, accountants and other information providers need to consider strategies and measures outside of traditional paradigms (Ratnatunga & Balachandran, 2009, p. 336).
Research and Findings
As stated on the website of the Ministry of Foreign Affairs, Turkey has no digitised emission limitation or reduction commitments in the Kyoto Protocol (mfa.gov.tr, 26.01.2020). However, if the strategies to be developed have the potential to make positive differences on the value of the business, it would be a proactive approach not to expect an implementation to be compulsory. The critical importance of gaining competitive advantage is clear. This situation constitutes a reasonable justification for revealing the perspectives of the management staff of the enterprises that are important for the country's economy. The aim of this study is to reveal the perspectives of accountants on the subject within the framework of the effects of climate change on the business world. For this purpose, a questionnaire form has been prepared. The survey was inspired by a report published by the Chartered Institute of Management Accountants (CIMA) in February 2010. As stated in the report, management accountants have a key role in making sustainable strategic and operational decisions. However, the Institute's researches reveal that even in activities involving finance teams in climate change-related activities, the issue is handled on an ad hoc basis. In the report it is emphasised that management accountants are equipped with tools and techniques that can enable businesses to understand the scale of the problem; they can produce workable solutions and ensure that the solutions are applied appropriately. Also, it has been stated that management accountants have an important role in providing business intelligence to support strategy and influencing decision-making, and it has been emphasised that the above-mentioned situation should change. The Institute's survey got answers from 883 management accountants who participated in international platforms (CIMA, 2010).
The Public Disclosure Platform (PDP) is an electronic system in which the notifications required to be disclosed to the public in accordance with the capital markets and exchange legislation are transmitted and announced to the public with electronic signature. In addition to Borsa Istanbul (BIST) companies, the system also lists companies whose PDP membership has expired, other PDP members and companies that are not traded. The number of companies in the aforementioned lists is not fixed values and may change over time. The questionnaire, inspired by the study conducted by CIMA, was sent electronically to the e-mail addresses of 602 1 companies, most of which are still listed on the BIST, in 2018 and 2019, at various intervals, between June 2018 and June 2019. The questionnaire was asked to be answered only by those who are senior managers in the entities or those who are directly interested in the subject. Changes in addresses and related managers during the process necessitated the constant updating of these e-mail addresses, and submissions were made to up-to-date addresses.
In addition to demographic information, 20 yes/no questions about the subject and three questions, where more than one option can be selected, were asked in the survey. The survey was answered by 49 managers.
61.2% of the respondents are male and 38.8% are female; 61.3% are in the age range of 44–68, the remaining 38.7% are in the age range of 28–43. Regarding the education levels, 63.3% of the respondents are undergraduates, 32.7% are graduates and 4.1% are associate degree graduates. While the rate of those who are single and have children is 8.2%, the rate of those who are married and have children is 67.3%; 18.4% of the respondents are single and childless, and 6.1% are married and childless. Graphic 1 and Graphic 2 display demographic data.
While 44.9% of the respondents stated that they are accountants, financial advisors, independent accountants and auditors as a profession; 28.6% of them declared that they are managers. The rate of those who state that they are finances and bankers is 10.2%, and engineers make up 6.1%.
Those who have spent more than 20 years in the profession make up 65.3% of the respondents, 20.4% of those between 10 and 19 years, while the total percentage of those with tenure of less than 10 years is 14.3. When it comes to tenure at the current company, the total percentage of those with tenure of less than 10 years is 38.7, while those with tenure of 10–19 years are 30.6%, and those with tenure of more than 20 years constitute 30.6% of the respondents. The Graphic 4 shows both tenures.
When the positions of the respondents in the institutions they work for are analysed, those who are chairman/member of the Executive Board, chairman/member of the Board of Directors and general managers constitute 20.4% of the total. While the ratio of those who are finance managers/financial affairs managers is 30.6%, managers/assistant managers and department managers make up 28.6% of the respondents.
The distribution of the current position is displayed in Graphic 5. When the department they work in is analysed, 59.2% of the respondents who work in the accounting, internal control and finance departments constitute 22.4% of the employees in the management. The 8.2% response comes from the public relations departments of the companies, as can be seen in Graphic 6.
The size of business entities is determined by a combination of qualitative and quantitative determinants. These might be the company's legal type, number of employees, number of board members, foreign trade structure, machinery, raw material processed, energy used etc. The present study tries to gauge the size and impact of the entities through foreign trade and the number of employees it has. When the foreign trade levels of the businesses in which the 49 participants who participated in the survey are analysed, it comes to be that 8.2% of them are global companies and 36.7% are national companies. Companies that are national but have foreign trade make up 38.8% of the respondents, and international companies make up 16.3%.
Regarding the number of employees, it is seen that 49% of them are enterprises that are defined as large enterprises because the number of employees including the employer is more than 250. Enterprises with 50–249 employees, including the employer, are classified as medium-sized enterprises in our study, and enterprises in this group constitute 32.7% of the respondents. Micro enterprises with 1–9 employees including the employer, and small enterprises with 10–49 employees including the employer make up 18.3% of the respondents. Graphic 7 displays them in a combined way. The slices of the two pie graphs resemble each other; however, it seems that only medium size company slice coincides with ‘national-has foreign trade’ labeled slice on the next pie. It can be concluded from here that these might be the SMEs. Sometimes, high-tech companies with few and highly qualified employees are categorised as small, but they may be international. This is also to be taken into consideration when assessing the data.
When the sectors in which the participants' companies operate are analysed, it has been determined that the highest participation with 16.3% is from banks and special finance institutions and financial leasing and factoring companies. Companies in the paper and paper products, printing and publishing sector constitute 8.2% of the respondents. In total, respondents contribute to the research by representing 27 different sectors. While 24 of the companies, the members of which participated in the survey, operate in a single region, 11 companies operate in seven geographical regions of Turkey. Turkey is divided into seven geographical regions: Marmara, Aegean, Black Sea, Central Anatolia, Eastern Anatolia, South-eastern Anatolia and the Mediterranean regions. When the geographical regions in which the enterprises participating in the survey operate are examined, the Marmara Region alone has the highest rate with 30.6%, followed by the Aegean Region with 10.2% without combining with any other region.
When the data presented so far are analysed collectively, it is possible to say that the companies listed on BIST are represented in the survey with a wide participation in terms of sector distribution, geographical distribution, different sizes and various other aspects. Therefore, it is meaningful to evaluate the responses obtained. Wherever possible, the obtained results will be compared to the data and the results of the CIMA report, which is the inspiring and motivating thing regarding the present research.
In addition to the above questions, respondents were asked whether their role in the company is related to sustainability and/or finance. The role of 95.9% of the respondents in their organisation has a relationship with finance. The rate of those whose role is related to sustainability is 83.7%.
The existence of a relationship between the role assumed in the institution and sustainability and finance is shown in Graphic 8.
In addition, questions were also asked whether climate change poses a risk to their institutions and whether adapting to climate change increases costs. A portion of 44.9% is formed by those who state that climate change poses a significant risk to their institution. A significant majority is of the opinion that adapting to climate change will increase costs – 69.4%.
Graphic 9 displays the answers of questions trying to find out whether climate change poses a significant risk to respondents' company and whether adapting to climate change would increase costs. The majority does not believe that climate change would pose a significant risk to their company. Even this alone is the proof that climate change is not well understood, and there is a long way to go no matter how short time humanity has. However, when cost is the question, they very well know that adapting to climate change would impose costs. This is very normal because respondents are mainly members of accountancy profession or they are managers, both playing with numbers all day long. The next section deals with comparisons among CIMA report and the present research's findings.
Comparison With CIMA Report Data
Respondents were asked whether sustainability is one of the strategic goals of their institutions. In addition, whether their businesses are well positioned to deal with climate change; whether they took the necessary measures to mitigate climate change; and whether they showed the necessary initiative to adapt to climate change. When these four questions are evaluated together as a bundle, Graph 10 comes forth.
When the CIMA report data, which is the source of inspiration, are evaluated as the equivalent of the above given four questions, the following graphic emerges. The chart (Graphic 11) is reproduced using data from the original report (CIMA, 2010, p. 3).
The total number of responses in the Turkey-related survey is 49. While stating that sustainability is not one of the strategic goals of their institutions, the only company that answered positively to the questions about measures, initiative and positioning distorts Turkish setting. Out of 49, 46 business managers who answered the questionnaire stated that sustainability is one of the strategic goals of their institutions, while three businesses did not affirm this question. An enterprise's representative, who stated that sustainability is not one of the strategic goals of their institution, answered the other questions positively. When focussing on the answers of businesses that have placed sustainability among their strategic goals, it is seen that 47.83% take the necessary measures to mitigate the effects of climate change, 50% show the necessary initiative to adapt to climate change, and 36.96% position their businesses well to cope with climate change.
The graphs (Graphic 12) show the proportions of the answers given to these questions among all positive/negative answers. The ratio of respondents stating that they are well positioned against climate change is 53.1%, and the ratio of them stating that they show the necessary initiative is 49%.
Although the rate of respondents stating that they do not take the necessary initiative to encounter climate change is 51%, as can be seen from Graph 13, it is understood that those who participated in the survey from BIST companies somehow took initiative to encounter climate change. Those, who do not take any initiative, make up 34.7% of respondents.
When evaluated together, regulatory compliance and compliance with the law are the most important motives with 28.6%; this is followed by 22.4% with the motive of gaining competitive advantage; it is understood that improving the performance is also a strong reason.
A similar result was found in the CIMA research. When the answers of all participants are evaluated; the ratio of management accountants who show compliance and performance together as the main reason for taking initiative is 44% – 42.9% in Turkish setting. The rate of those who cited competitive advantage and performance combination as a reason is 29%; the rate of those who show regulatory compliance and compliance with the law combination as a reason is 20%. The present research also revealed that regulatory compliance and compliance with the law are the most important determinants of taking CCIs. Furthermore, according to CIMA report, the total rate of those who stated that only performance or only competitive advantage was the sole and most important motive was 29%. For example, while this rate remains at 14% in Australia, competitive advantage and performance motive increases to 64% for Chinese managers (CIMA, 2010, p. 5). It might be that the considerable difference between development levels of countries or varying cultural values impact their preferences. According to the research results that form the basis of our study, the combined ratio of performance and competitive advantage is 36.7%.
According to CIMA report, the rate of respondents stating that they have taken measures to mitigate the effects of climate change is 56%; the rate of those who think that sustainability is among the strategic goals of the enterprise is one-third (CIMA, 2010, p. 3). According to the findings of the present research, it is understood from Graph 14, that the ratio of respondents who state that they take measures to mitigate the effects of climate change is 46.9% and that the ratio of those who declare sustainability is among the strategic goals of their business is 93.9%.
CIMA research revealed that management accountants are focussed on short-term thinking, with 37% of managers agreeing (CIMA, 2010, p. 7). On the other hand, 75.5% of the company executives in Turkey think that management accountants are skilled in risk management in terms of supporting long-term strategic decision-making.
While the managers who stated that climate change is not on the agenda of their institutions constitute one-fifth of the participants in the CIMA research, in Turkish setting this rate is 55.1%. While those who state that climate change is of central importance for their institutions in Turkey make 20.4% of respondents, this rate is 58% in the CIMA survey (2010, p. 3). Pie charts related to this are given in Graphic 16.
The rate of those who state that climate change is integrated with the overall business strategy of their organisation is 26.5%, and the rate of those who think that their organisation is determined to mitigate the effects of climate change is 42.9% in the Turkish setting. Responses to the same questions are 33 and 56%, respectively, in the CIMA survey (2010, p. 3).
The percentage of managers, who believe that the participants in the research can do more to reduce the negative effects of the institution they represent on the environment, is 63% (CIMA, 2010, p. 3). A similar rate was also found in the research conducted within the framework of this study – 74.4%. Those who think their business is well positioned to deal with climate change make up 38% of the CIMA survey respondents (CIMA, 2010). In the Turkish setting, this rate is 36.7%.
In the research conducted in Turkey, those who think that sustainability as a strategic goal in climate change management can get ahead of financial return problems accounted for 36.7%; those who declared that they would cut environmental programmes in times of economic crisis constitute 36.7%. This is consistent. Of course, the number of people who answered the questionnaire is the foremost limitation of the study. The result of the CIMA study, which was conducted with 883 participants worldwide, naturally seems more meaningful. It is understood that the participants, who are aware of the fact that sustainability should come to the fore as a strategic goal, logically concluded that even if there are economic difficulties, environmentalist expenditures should not be cut.
No event remains exclusive to any country it happens; due to the levels of globalisation, it becomes an issue of all nations. For example, in the future the human race will witness the consequences of COVID-19. Corona virus caused 98,409 deaths in Turkey, and the world death toll is 6,181,180 as of 10 April 2022. Almost 500 million people got infected. Factories were shut down, supply chains were broken and productivity fell. Yet, new variants are continuously arising. Inman from The Guardian wrote in early months of the year that the world would grow 1.3% less than expected in 2020 (19.02.2020). Day-by-day increasing inter-dependency of the nations, either intentionally or unavoidably, that is, as a natural consequence of globalisation, is one of the main reasons why many factories in the aforementioned countries stopped production and orders could not be fulfilled. To draw a similarity, climate change will also have negative consequences that cannot be reversed after a while. The closest example to this is the Australian bushfires, which could not be prevented in the last three or four months of 2019. According to the news of Roach, the damage caused by the bush fires that started in September 2019 had exceeded 100 billion dollars as of January 2020 (AccuWeather, 08.01.2020). To state again, if climate change is not properly managed, it will be inevitable not to have negative impacts on the values of companies, let aside the negative consequences on economies of countries as a whole.
An answer to this question was also sought in the present research. In the survey, it was asked whether the value of the company would increase as a result of handling climate change with a proactive approach and good positioning. Out of 49 respondents, 69.4% gave the answer ‘yes’ to this question. What seems interesting is that 38.8% of respondents believe that a bad positioning in the face of climate change and therefore falling behind on this issue will not decrease the value of the company—Graph 20.
Finances' Concern with Climate Change Issues
CIMA research – sought to uncover the reasons why the finance function is not currently involved in climate change issues or is only involved on an ad hoc basis – asked questions about this to the participants. Since this study was inspired by the CIMA research, the same questions were asked to the participants and the answers given in Graph 21 were obtained. Noting that more than one option can be selected, the following options are presented in the survey of the study:
(1) Finance team doesn't have sufficient time to get involved in climate change initiatives; (2) Finance do not have the relevant knowledge and skills on this subject; (3) Finance is focussed more on short-term budgets and targets; (4) The climate change agenda does not fit with the role of finance; (5) The corporate responsibility team or the climate change team has not consulted with the finance team; (6) There is insufficient communication between different teams; (7) Finance team is not interested in climate change agenda, and the choice (8) Other.
Respondents were also asked whether their current position in the business is related to sustainability and/or finance. Responses to the eight options mentioned above were matched and compared with responses about sustainability and/or finance relatedness.
The majority of executives have integrated themselves into both the sustainability and finance roles. While the least popular answer in CIMA's research was ‘Other’, this option occupied a significant percentage in the study applied in Turkey. In CIMA's research, insufficient time, lack of skills and short-term focus were close to each other. In Turkey, the justification for insufficient time has not been popular. Lack of communication between teams, lack of climate change in the finance team's agenda and lack of skills were the most popular answers given by managers whose role was sustainability – 39.02%. The answers given to the option ‘the climate change agenda does not fit with the role of finance’ in Graph 21 are supported by the answers given to the ‘finance team is not interested in climate change agenda’. When the two are evaluated together, the rate rises to 60.97%.
In the research conducted abroad, the sum of these two ratios was 60% (CIMA, 2010, p. 8). Percentages are calculated over the ratios of managers with a sustainability role.
Finances in Turkey with 38.3% think that they do not have the relevant knowledge and skills on this subject, 34.4% think that communication between teams is insufficient, and 31.91% think that climate change is not the job of finances. Finances around the world with 41% think that they do not have sufficient time, and 36% think that they lack the knowledge and skills required to conceive climate change subject. On the other hand, 34% state that neither the corporate responsibility team nor the climate change team did consult with them (CIMA, 2010). These are shown in Graph 22. Valid for all questions, there is no significant difference between the distribution of the answers of the finances and the answers of those who deal with sustainability in the study conducted in Turkey.
When answers of finance role versus sustainability role holders are compared, there is a 10-point discrepancy between respondents' answers to question (5), and 11 points for the answers to question (7). Finally, in Turkish setting, regarding all questions, there are no significant differences observed between the distribution of the answers of the finances and those who deal with sustainability. However, as stated above there are some discrepancies to certain question. The only question the answers of which are closest to each other is (1) Finance team doesn't have sufficient time to get involved in CCIs.
Management Accounting Tools and Techniques
There are management accounting tools and techniques that businesses can use to manage the environmental impact they create. In CIMA's research (2010), this question was asked and the tools and techniques were listed. Cost-benefit analysis and profitability forecasting techniques – 68% and investment appraisal – 68% are the most frequently used techniques among management accountants who contributed to this research. It is almost a constant that a group of management accountants who do not have a hint about the technique presented here are 5–10% of respondents. Those who already know and use the tools listed make up 4–8% of respondents.
The tools and techniques presented to the respondents in the study are as follows: (1) Cost-benefit analysis/profitability forecasting, (2) Investment appraisal (e.g. to include environmental consideration), (3) Environmental cost accounting (e.g. identifying, tracking and allocating environmental costs), (4) Balanced scorecard (e.g. by integrating environmental KPIs), (5) Whole life costing/LCA, (6) Activity-based costing (e.g. for profiling energy use), (7) Transfer pricing (e.g. for energy or water costs).
Within the framework of this study, the participants of the survey conducted in Turkey were asked about the areas that finance would and/or should be included in, and it was stated that they could tick more than one option. The options presented in the survey are as follows: (1) Preparing the business case for CCIs, (2) Carbon footprint calculation, (3) Tracking climate change performance measures/KPIs, (4) Monitoring compliances with climate change policy and regulation, (5) Integration of financial and climate change management information systems, (6) Carbon accounting or budgeting, (7) Sustainability reporting (external), (8) Sustainability reporting (internal), (9) Whole costing or LCA calculations.
As listed above among nine options presented in the survey, the manager, who stated that finance should only deal with external sustainability reporting, is left alone. Maximum seven options are selected out of the nine. The manager, who stated that there are seven areas that finance should be involved in, is left alone, too. While the numbers of options chosen vary, on the average, three options have been the number of interest areas managers generally ascribe to finance. Whole costing/LCA calculations has been the choice of 33 out of 49 executives. This is followed by Sustainability reporting (internal), the choice of 26 managers, and Sustainability reporting (external), the choice of 24 managers. The least marked finance interest areas are Preparing the business case for CCIs, marked by six managers, and Carbon footprint calculation marked by seven administrators. The ratios related to this are given in Graph 24.
There is no exact equivalent for this part of the questionnaire to be compared in CIMA's research (2010). In the aforementioned research, participation in the options in the survey of the study was studied to reveal opinions of management accountants with formal roles versus ad hoc role. Graphic 25 displays and compares the two.
According to the CIMA survey, the areas that finance is, or could be, involved as undertaking its formal role in are as follows: (1) Preparing the business case for CCIs – 34%, (2) Carbon footprint calculation – 29%, (3) Tracking climate change performance measures/KPIs – 30%, (4) Monitoring compliances with climate change policy and regulation – 32%, (5) Integration of financial and climate change management information systems – 31%, (6) Carbon accounting or budgeting – 32%, (7) Sustainability reporting (external) – 30%, (8) Sustainability reporting (internal) – 36% and (9) Whole costing or LCA calculations – 38%.
As can be seen from Graphics 24 and 25, some of the preference rates of the options are quite close to each other for Turkish setting and the international one. With 32.65% Carbon accounting or budgeting and with the same ratio Integration of financial and climate change management information systems are very close with CIMA results. The rest differs a lot. It might be due to the fact that there is no differentiation of Turkish managers regarding their formal versus ad hoc role related to climate change. For example, the total of ad hoc climate change role and formal role holders' answers to Whole costing/Life cycle assessment calculations is 71% in CIMA survey and 67.35% in the Turkish setting.
Conclusions
Ratnatunga and Balachandran emphasised that the view, that a measurable direct correlation can be established between environmental efficiency and economic results in some enterprises, has become popular (2009, p. 342). The instruments that will help to achieve this are strategic cost management and strategic management accounting tools. According to the data obtained from the survey of the study, it is not possible to say that these or similar tools are used effectively in Turkey. It is not possible to proceed in this regard without fully understanding the effects of the steps that businesses can take on climate change and, therefore on environmental issues, on the financial results of the business. For example, life cycle cost analyses are handled; it is observed that the subject is almost exclusively handled within the framework of engineering, architecture and design, and not viewed as related to accounting. However, accounting does not only calculate the cost of a product or service until it reaches the point of sale, but it should also consider all carbon costs incurred before and after the manufacture or service performance.
Although there are similarities between the results of CIMA's research, the results of which were shared more than a decade, and the situation determined by Turkish study, there are also obvious differences. It is clear that the reporting processes, as well as the roles of financial managers, will change drastically in the near future if not changed already. It is important that those who practice the accounting profession alter their vision and improve themselves, not only in terms of adapting to the changes that will be caused by climate change but also in keeping up with various other developments in the world. This study is a situation determination for Turkey, and the deficiencies identified within the framework of the study have been revealed. In future studies, it may be suggested to propose solutions in line with the findings obtained in this study, to consider the tools and methods mentioned here and to repeat similar studies. In the short run, this study points to radical changes, need of modernisation and improvements in accounting curricula.
Net zero is beyond the scope of both CIMA's research and the present study. CIMA report does not even mention it. Since the present study is designed to duplicate CIMA research for Turkish setting, it does not handle the issue either. However, the results of both point to net zero in an implicit way. Unless management is aware of climate change issues, and start calculating the recurred costs, business side of the fight against climate change would be missing. The study is limited to in several perspectives. It focusses on the role of management accountants in managing the impacts of climate change on the business world. Therefore, such kinds of issues like actions companies take, the effects of actions accounted for, one-time large purchases of fixed assets that are to be used for revenue generation over a longer period – capital expenditures, short-term expenses that are used in running the daily operations – revenue expenditures and externalities, i.e. costs and/or benefits stemming from the production and/or consumption of goods and/or services are excluded. In future studies, integrated reports of companies can be analysed and matched with performance data, and some questionnaires may help in attaching consumer/customer attitude towards the analysed companies' products and services.
Discussions
The most valuable and sustainable actions companies would take are those that are taken voluntarily and are resulting from internalised motives. However, mostly companies postpone the expected or desired actions until regulations make it compulsory or they sense that customers and/or consumers are about to get organised and boycott their products/services. Non-governmental organisations (NGOs) are another stakeholder group armoured with the power to force them to do so. For example, one of the issues to be covered in a sustainability report is child labour, forced labour and compulsory labour. The Trafficking Victims Protection Reauthorization Act (TVPRA) requires the United States Department of Labor's (USDOL) Bureau of International Labor Affairs (ILAB) to prepare a list of goods produced by child labour or forced labour and publish it. According to 2020 List, child labour is employed in production of 68 goods in agriculture sector, which also uses forced labour in 29 goods. Manufacturing sector employs children to produce 39 goods, and forced labour is used in the production of 20 goods. Child labour is also employed in production of 32 mining/quarrying goods, which also exploits forced labour to produce 13 goods. Both children and forced labour are the victims of pornography sector. From another perspective the numbers are as follows (www.dol.gov, 03.05.2022, 25): (1) in 22 countries child labour and in five countries forced labour are employed in production of gold, (2) bricks production uses child labour in 19 countries and forced labour in 9 countries, (3) in 18 countries child labour is employed in sugarcane production and in five countries forced labour is used, (4) coffee producers and tobacco producers in 17 countries employ child labour, (5) in 15 countries cotton producers employ child labour, and forced labour is used in eight countries, (6) in 12 countries children and in five countries forced labour are employed by cattle owners, (7) fish is another product child labour is used in 11 countries, and forced labour is used by fish producers in five countries, (8) garments in eight countries welcome child labour and seven countries use forced labour in garment production, (9) cocoa producers employ children in seven countries and (10) children are victims of pornography in seven countries. For example, according to the report, goods child labour is employed in Turkey are citrus fruits, cotton, cumin, footwear, furniture, garments, hazelnuts, peanuts, pulses and sugar beets. In cases, where the companies employing children are micro companies, it is not even considered as an illegal act, for thousands of years children worked along with their families. It is all family business, and nobody expects business owners to report about child labour. In fact a closer look at the countries that use child labour shows that these are mostly undeveloped, developing or less-developed countries. Correlation analyses would display this.
In my opinion, child labour issue is as important as climate issue. For countries that are not developed, it seems to be luxurious to bother people with these issues. Under circumstances where poverty is the foremost problem, climate is not an important issue. Same is valid for countries where purchasing power is under desired levels. The priority would not be climate or environmental issues. Fight for life would stay as the priority for near future. Child labour issue is used here in order to make an analogy with climate change issue.
The International Labour Organization (ILO) estimates that 170 million are engaged in child labour, with many making textiles and garments to satisfy the demand of consumers in Europe, the United States and beyond (https://labs.theguardian.com, 03.05.2022). Chocolate companies like Nestle, Hershey's, Mars, Archer–Daniels–Midland Company (ADM), Cadbury, Kraft, Fowler's, Crunch, Kit-Kat and Aero had been on lists in the past. Fashion brands like H&M, Forever 21, GAP, Nike, Zara, Urban Outfitters, Aldo, Primark, Adidas, Walmart, Uniqio, Victoria's Secret, Aeropostale, and La Senza were on the lists as well. In addition to these, Apple, Disney, Philip Morris and Toys R are some other brands that were on the lists (Reddy, 2022). Among these we all remember Walmart hit the headlines. For example, 1,127 garment workers were killed in a building collapse in Bangladesh in 2013. They were making cheap and fast clothes for wealthier nations like United States (Smith, 03.05.2022). Whether any of the above-mentioned companies get impressed, from the customer pressure or not, would be a good research topic, which is beyond the scope of this chapter.
Therefore, in order to better assess the situation, cultural factors along with economic position need to be taken into consideration. Thus, it seems to be that customer pressure is something developed countries may benefit from in the short run, whereas regulations and monitoring are better tools for the rest of the countries. This does not mean that customer pressure will never work; there will be a time lag between developed and developing and/or undeveloped countries. This is why initiatives taken by managers mean a lot.
During the data collection phase of this study, the data of 602 companies in the above-mentioned categories were accessed, and the time and numbers stamps of messages sent are available at the researcher.
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- Prelims
- Part 1 Net Zero and Sustainability
- Steps on the Journey to Net Zero
- The Role of Management Accountants Regarding Climate Change: The Case of Turkey
- Sustainability Rhetoric in Modern Times
- Part 2 Regional Studies
- Going Beyond the COVID-19 Pandemic: Climate Change Remains the Biggest Threat for Small Island Developing States
- Waste Management and Sustainability: A Case Study in Angola
- A Case Study of the Inter-Stakeholder Participatory Structure in the Solid Waste Governance of the Small Island Developing State of Mauritius
- Part 3 Sectoral Studies
- Determining the Nexus of Energy Efficiency and Sustainable Development in Nigeria: Time Series Analysis
- Just Transitions From Fossil Fuels to a Regenerative and Renewable Future: Challenges and Opportunities
- Energy Consumption for Transportation in Sub-Saharan Africa
- Taking Off for Net-Zero Aviation: Sustainability Policies and Collaborative Industry Actions