Accounting and society means the practice of presenting and communicating environmental and the social impacts that an organization faces while conducting its business operations and in achieving its goals and objectives. It is seen as the leading international concern that describes the relationship between human behaviour and an accounting, structure of an institution and its processes and wide range of the social or political environment of the company. The present report is based on Metcash Limited, an Australia's leading distribution and the marketing enterprise that contains a specialisation in the grocery, liquor, automotive parts, hardware and the fresh food. Furthermore, the study includes an importance of the climatic based risk regarding disclosures and its impact on the stakeholders. Moreover, the report describes the challenges attached to the climate changes risk disclosures with an evaluation of the measures taken by the company to overcome such risk.
1. Importance of climate change related risk disclosures for shareholders
Climate change related risk disclosures matter for the shareholders to great extent. Shareholders are considered as real owner of the company because they make investment in the company. Top managers act as agent of the company or as a representative of the company. As shareholders are real owner of the company they would always like to know level of performance and work done by the top executives in multiple areas. In same way in current time period shareholders are taking more interest in knowing actions top managers are taking in order to protect natural environment or to reduce harm that business operations caused to the natural environment (Eriksen, Nightingale and Eakin, 2015). One of the main reason because of which shareholders are giving importance to the climate change disclosure is that risk in respect to climate change that firm may observed is high. Such kind of risk can be broadly classified in to three categories namely physical risk, technology/transition risk and regulatory risk.
It is observed that firms that are behind in respect to taking action against relevant risks usually find themselves exposed financially, legally and reputationally. In case of some industries which encompass extractive and automotive sectors, a high carbon emission is an existential threat for them in current time period. Reasons due to which shareholders are giving importance to the risk related disclosures by considering these broad categories is given below.Â
- Physical risk: Shareholders give much importance to the physical risk or the harm that factories caused to the natural environment. Government does not take action against each and every company but those firms whose business operations openly reflect harm to the natural environment quickly comes in eye of Government department and strict actions are taken against them. In such situation heavy amount of penalty is imposed and this factor create concern among shareholders (FÃ¼nfgeld, 2015). Mentioned entity due to this reason always like to view climate change related disclosures so as to measure such kind of risk and to make accurate decisions.
- Technological risk: Shareholders know very well that if technology get outdated then it emits more pollution then before. Consider another scenario where with passage of time many new upgraded versions of machine come in existence in terms of pollution control. If firm knowingly use outdated version then it can harm natural environment and Government may take strict action. Thus, because of technology risk shareholders like to obtain climate change related risk disclosures.
- Regulatory risk: Mentioned factor create more concern among shareholders that if Government take any strict action against company then in that case image of the company get tarnished among investors and business partners which ultimately lead to decline in the business revenue and profit.
2. Managerial branch of stakeholder theory and identification of two important stakeholders
Managerial branch of stakeholder theory predicts that there are number of stakeholders of any company and company management usually focus on meeting expectation of the shareholders that have great potential to influence firm capability to generate more revenue in the business. In other words, it can be said that management make discrimination among stakeholders in terms of power they have. Other important fact is that influence of stakeholders depends on the fact the extent of control they have on the company resources (Prokopy. and et.al., 2015). Company management identify most powerful stakeholder on basis of power, urgency and legitimacy. Stakeholders of the company are as follows.
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- Shareholders: These are considered as real owner of the company as play crucial role in making decisions. They have control on the company resources as they make investment in the company. In case firm revenue and profit decline then in that case shareholders are one whose interest highly get affected in the firm. Thus, these are one of the most important stakeholders also from climate change point of view.
- Creditor: These are those who lend money to the company and interested in its performance because if that will be good then in that case creditors will be able to receive debt amount on time (Gramberger and et.al., 2015). They also intend to know about measures firm take to protect environment because if suppose company is emit pollutant and Government take action against it then firm will need to pay penalty amount and, in that year, it will not be able to pay debt amount to shareholders. In such case creditor business get affected and due to this reason, it always like to know about efforts that are made by the firm in respect to control of pollution from its business.
- Employee: These are also stakeholder of the firm but they do not have any sort of power or control on company resources. Moreover, they also not give importance to the environment protection. Hence, due to this reason they cannot be considered as important stakeholder for the company from climate change disclosure point of view.
- Government: It is another entity that have interest in the company in respect to way in which company is following rules and regulations in its business and performing operations. Government also need to information about efforts that are made by the business firm to prevent harm to the natural environment.
Two main stakeholders are shareholders and creditors because in case any sort of strict action is taken against the business firm then in that case their interest will heavily get affected (Klenk. and et.al., 2015). Thus, climate change related risk disclosure heavily matters for the stakeholders because in case Government taken action against company it will need to pay large amount as penalty which will ultimately affect firm profitability. On basis of these disclosures stakeholders which are shareholder and creditor come to know to know direction in which efforts are made. In case they observe that efforts made are not sufficient considering present condition then in that case shareholders alert top management and creditors may give less debt to the company.
- Agency theory: This theory state that there are two sorts of entities namely principal and agent. Under this theory an agent is responsible to work on behalf of the principal and have some rights to make decisions. In the corporate there are principle which is shareholders and agent which are managers who make day to day decisions on behalf of principle. Under this theory it is responsibility of the managers to take some action to control pollution from the workplace so that harm to natural environment can be prevented. In case such kind of steps not take penalty can be imposed by government. Thus, under agency theory it is responsibility of managers as agent to take in interest of the shareholders who are real owner of the firm.
- Shareholder theory: This theory state that management must work for interest of shareholders of the business firm. Means that under this theory it is sole responsibility of the managers to generate maximum return for the shareholders. In case Government impose penalty because pollution spread by the manufacturing plan the in that case shareholders return will reduce. Hence, in compliance with this theory management must take strict action for pollution control.
- Legitimacy theory: This theory state that firm must implement and develop social and environmental disclosures. Means that firm must perform varied tasks that protect environment and must disclose all those activities in annual reports so that shareholders comes to know about efforts management made to handle situation.
3. Explaining mainly 3 challenges that Metecash Limited need to encounter relating to climate-changes in terms of risk disclosures
Metcash Limited has been stated three major challenges that are involves in climatic risk disclosures that are as follows-
Securing the leadership support- Board of directors and the leaders of the company might primarily make use of the reputation lens in order to consider the climatic risk attached with an entity's potential effect on an environment. They do not seek for full factoring in the long and short term links with that of the financial performance (Christophers, 2017). Thus, securing the support of the leaders is considered to be the major challenge as without their support effective strategies cannot be developed for the purpose of coping up with the risk associated to the climatic changes. It becomes essential for the company to attain shift in the corporate dial by creating wider strategies, driving top-down and is been supported by the strong governance and the leadership.
Â Overcoming the process the siloed management of risk- Metcash had developed a better understanding in mitigating the conventional risk that could be easily isolated and is addressed with the standard approaches of the risk management. However, in some of the cases that includes complex risks attached in an interconnected systems, like such that relates with the climatic risks and changes attached along with the transition to the low-carbon economy where the standard approaches do not work.
Limited and climate risk for short period analyses will not be counted as sufficient in providing a long range view to he investors, stakeholders and the investors in relation to the potential transitional and direct effect of the climate opportunities and risks. Moreover, managing the climate risks cannot be considered as the sole responsibility of the siloed group and individual within an enterprise like sustainability team.
Limited experience with the changes in climate scenario assessment â Company had faced wide range of the challenges and the roadblocks towards translating the climate scenarios to the integrated and useful financial assessment. There are different types of the climatic scenarios and the widely varied results that introduced an uncertainty on which the climatic conditions seems as adequate in using (Hahn, Reimsbach and Schiemann, 2015). Majority of the climatic scenario models are been developed for an academic and the economic use and not the financial one.
Metcash also require to make the decisions on the ways for integrating this type of analysis into an ongoing strategy and planning for risk assessment. Finally the firm will have to link the scenario effect to the future performance of the business. General lack of the empirical and the historical data link the climatic and an economic influence to the financial outputs.Â
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4. Evaluating climate based risk disclosures that are adopted by the company
Business operations of metcash and the strategic priorities were seen as subjected to the ongoing review and the development. Management of Metcash reviews its plans on regular basis against the market changes and develops necessary measures in modifying it (Elijido-Ten, 2017). Company's 3 years smarter programs had resulted in focusing on offering a significant level of the cost savings. An enterprise had now moved into the 5 year of its strategy phase while emphasizing on the cost and aiming in delivering the pathway to the sustainable growth in the long run period.
Metcash operations needs compliance with several regulatory needs that includes work safety measures, food safety, public liability, environmental regulations, privacy and security. Any kind of the regulatory breach could be having a negative influence on well-being, financial results and reputation of the Metcash and its stakeholders. An internal processes of the group are been regularly assessed and are tested as part of the robust risk and an assurance programs which provides for addressing the areas involving security, sustainability, quality of food, responsibility chain etc. Metcash maintains for a strong safety culture and had established the standards for identifying and managing the risk. However for overcoming such climate risk based disclosure, Metcash is been seen as committed to the championship of the successful independents which states that their operations are been conducted in socially responsible way. An entity aims in managing its compliance cost for ensuring that the cost does not affects its business.
Another major climate related risk relates to an inefficiency and the failure within their supply chain and in their major support systems that impacts the ability of the group in order to deliver their objectives (Gasbarro, Iraldo and Daddi, 2017). For addressing such business interruptions, Metcash has the comprehensive plans for business continuity and in eliminating the failures within an operational systems. Our ongoing monitoring and the strategic planning of the operations ensures that there support system are capable in responding to their business needs.
By summing up the above study, it has been assessed that it is important for an organization to seek corrective actions and develops programs for mitigating the risk associated with the climatic changes.
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