TABLE 

11.1 Overview of selection indicators

Group Indicator

Trade, investment and linkages • Total revenues

• Value of imports versus exports
• Total new investments
• Local purchasing

Employment creation and • Total workforce with breakdown by employment type, employment
labour practices contract and gender
• Employee wages and benefits with breakdown by employment type
and gender
• Total number and rate of employee turnover broken down by gender
• Percentage of employees covered by collective agreements

Technology and human • Expenditure on research and development

resources development • Average hours of training per year, per employee broken down by
employee category
• Expenditure on employee training per year, per employee broken
down by employee category

Health and safety • Cost of employee health and safety

• Work days lost to occupational accidents, injuries and illness

Government and community • Payments to government

contributions • Voluntary contributions to civil society

Corruption • Number of convictions for violations of corruption related laws or

regulations and amount of fines paid/payable

Source: Adapted from UNCTAD 2008.

The International Organization for Standardization (ISO) has developed standards dealing with a
range of issues. Of relevance to sustainability reporting is the ISO 14000 series on environmental man­
agement and the ISO 26000 guidance standard on social responsibility. ISO 14001 requires management
to develop a policy of communication of environmental performance. ISO 26000, which was issued in
2010, requires organisations to demonstrate their accountability by reporting significant impacts related
to social responsibility to concerned stakeholders.35
The Sustainability Accounting Standards Board (SASB) — an independent non‐profit US entity —
has developed a range of standards to assist US companies provide disclosures adequate to meet 10‐K
and 20‐F requirements. They are not mandatory but are provided to give guidance on disclosing material
sustainability information. The SASB has provided sustainability accounting standards for 79 industries
across 11 sectors.
The most widely recognised guidelines globally, however, are provided by the Global Reporting
­Initiative (GRI).

Global Reporting Initiative

GRI was launched in 1997  as an initiative to develop a globally accepted reporting framework to
enhance the quality of sustainability reporting and is a joint initiative of the Coalition of Environmen­
tally Responsible Economies (CERES) and the United Nations Environment Program (UNEP).36 The
aim is to enhance transparency, comparability and clarity, among other principles.
Sustainability reports based on the GRI Framework can be used to ‘demonstrate organizational com­
mitment to sustainable development, to compare organizational performance over time, and to measure
organizational performance with respect to laws, norms, standards and voluntary initiatives’.37 GRI
provides a framework of principles and performance indicators that organisations can use to measure

322  Contemporary issues in accounting

and report their economic, social and environmental performance. The cornerstone of the framework is
the Sustainability Reporting Guidelines (the Guidelines). While the initial guidelines were produced in
2000, the fourth generation guidelines (G4) were issued in May 2013, with reports to be presented in
accordance with the standards from 31 December 2015. The aim was to make the standards applicable
to both beginner and experienced reporters.
The G4 Guidelines are designed to align, as much as possible, with other internationally recognised
standards including the United Nations Global Compact’s Ten Principles, the OECD’s Guidelines for
Multinational Enterprises and the UN’s Guiding Principles on Business and Human Rights.38
The G4  Guidelines are more accessible than previous documents. They comprise two parts: Part 1
presents the reporting principles and standard disclosures — what should be reported — and Part 2 is
the implementation manual, which explains how the entity should report against the criteria. Rather than
expecting entities to report on all topics, the G4  Guidelines guide reporters to focus on what matters,
where it matters, providing guidance on selecting material aspects and the boundaries within which
these occur. This encourages entities to provide information that is critical to the business and stake­
holders. This is likely to lead to reports that are more focused and strategic. An organisation determines
the content of the sustainability report by:

• identifying relevant topics and assessing their effects on its activities, products, services and relation­
ships, regardless of whether these impacts occur within or outside the organization, or both;
• identifying the boundaries that determine whether the impacts occur within the organization or out­
side it;
• determine which aspects should be reported and how much coverage should be given to each one; and
• disclosing the management approach and the indicators related to the material Aspects.39

The G4  Guidelines include guidance for reporting on human rights, local community impacts and
gender. GRI has also produced G4 Sector Disclosures, which provide guidance to specific sectors, pre­
senting tailored guidelines to assist companies in these sectors to prepare relevant sustainability reports.
Sector Disclosures are provided for the following sectors: airport operators, construction and real estate,
electric utilities, event organisers, financial services, food processing, media, mining and metals and
non‐governmental organisations.
With G3, the GRI implemented an application levels system to allow entities to indicate the extent to
which the Guidelines had been applied in sustainability reporting. There were three different application
levels: A, B and C, with the opportunity to also indicate if reports had been assured, reflected by the use
of ‘+’. The application levels have been removed with G4, following stakeholder concern that the appli­
cation level reflected the quality of the report or sustainability performance. The Guidelines now provide
two options to demonstrate the extent to which a sustainability report complies with the ­Guidelines: the
core option and the comprehensive option.
The core option contains the essential elements of a sustainability report. Under the core option, an
entity must report at least one indicator for all identified material aspects. The comprehensive option
builds on the core option, by requiring a number of additional disclosures about the entity’s strategy
and analysis, governance, ethics and integrity. Under the comprehensive option, an entity must report
all indicators for each of its material aspects.40 An entity can choose whichever option it deems most
appropriate to its reporting needs. New reporters may start with the core option and expand this to the
comprehensive option over time, however, this is not necessarily the expectation of the GRI. An entity
can only claim that its sustainability report has been prepared in accordance with the G4 Guidelines if it
fully meets the requirements of either the core or comprehensive options.
The G4  Guidelines provide new and updated general and specific disclosure requirements, beyond
those required under G3.1 in the following areas: supply chain, governance, ethics and integrity, anti‐
corruption and public policy, and GHG emissions and energy. A generic Disclosure on Management
Approach (DMA) provides the entity with the opportunity to explain how and why certain aspects are
deemed to be material and how the entity manages these material impacts. The new guidelines also link

CHAPTER 11 Sustainability and environmental accounting  323

to integrated reporting by providing guidance on presenting sustainability reports in different report for­
mats, be they annual reports, stand‐alone sustainability reports or integrated reports.
Recognising its desire to provide rigorous global standards for sustainability reporting, in 2014 the GRI
instituted a new governance structure. Among other things, an organisational firewall was set up between
standard‐setting activities and other organisational activities of the GRI; the Global S
­ ustainability Stand­
ards Board (GSSB) was set up, to develop and approve sustainability standards; a Due Process Oversight
Committee, whose aim is to oversee the due process protocols required for independent standard setting
was instituted, and an independent funding mechanism to fund standard‐setting activities was set up. In
October 2016, the GSSB released ‘new’ GRI Sustainability Reporting Standards (GRI Standards), which
will replace the G4 Guidelines for reporting periods from 1 July 2018. While the GRI Standards incor­
porate all the same principles as the G4 Guidelines, they are reorganised into modules, aimed at ease of
navigation and comprehension. Moving to a more formal standard provides greater clarity of language
and will allow the GRI to be more formally referenced by governments and regulators. There are three
standards, or modules, that are to be used by every entity: 101 Foundation, 102 General Disclosures and
103 Management Approach. Each entity will then choose from topic‐specific standards to report on its
material aspects. These encompass: 200 series on economic aspects, 300 series on environmental aspects
and 400 series on social aspects.

Mandatory sustainability reporting requirements

There are increasing instances of mandatory ESG reporting requirements around the globe. KPMG, in its
recent review of regulatory instruments relating to sustainability, identified nearly 400 instances of reg­
ulatory instruments across 64 countries in 2016 — an increase from 180 instruments applicable across
44 countries in 2013.41 KPMG reports that the growth has been particularly strong in Latin America, the
Asia Pacific and Europe.42 Reporting presents a critical bridge between the goals set out in this regula­
tory agenda and progress that has been made to meet these goals. In this section we consider some of the
mandatory reporting requirements across a number of jurisdictions globally.
Australia
The Corporations Act 2001  requires directors to outline the company’s performance in relation to
environmental regulations. In November 2005, the parliamentary Joint Committee on Corporations and
Financial Services and the Corporations and Markets Advisory Committee conducted enquiries into the
desirability of mandatory reporting of social and environmental impacts. While a report was released this
has not resulted in increasing mandatory reporting requirements.43
The National Greenhouse and Energy Reporting Act 2007 (NGER Act) introduced a national frame­
work for reporting and dissemination of information about greenhouse gas (GHG) emissions and
energy use by certain corporations.44
The Australian Securities Exchange (ASX) has issued Listing Rule 4.10.3, which requires companies
to annually disclose the extent to which they have followed the recommendations set by the ASX Cor­
porate Governance Council and which include the establishment of a code of conduct on issues related
to the community, pollution and environmental controls and how sustainability considerations have
been integrated into the company’s risk management process. The ASX Corporate Governance Council
recommendations are discussed further in the chapter on corporate governance.
Canada
The Canadian securities regulators require public companies to produce an Annual Information Form
that reports on the current and future financial and operational effects of environmental protection
requirements. In addition, some companies are required to report information about pollutant emissions,
which are included in a National Pollutant Release Inventory.45 This is required under the Canadian
Environmental Protection Act 1999 (CEPA 1999). From 2004, CEPA 1999 set up the Greenhouse Gas
Emissions Reporting Program which requires large emitters to report GHG emissions.46

324  Contemporary issues in accounting

 Effective from January 2015, companies must disclose information relating to the representation of
women on boards of directors and in senior management.47
Denmark
The Danish Act of 16  December 2008  requires Denmark’s largest companies to include their ESG
activities in their annual reports or justify the absence of this information. This requirement relates to
state‐owned public companies and large listed companies.48
In 2013 and 2015 additional expectations were implemented, requiring companies to report on climate
change, impacts on human rights, anti‐corruption, environment, social and labour relations, and that
they include, not only policies, actions and results, but also risks due diligence processes and KPIs. If
companies do not have policies in place for any of the issues, they should explain why this information
is missing. Companies are also required to set targets for the underrepresented gender on the board of
directors and to implement a diversity policy to increase the share of the underrepresented gender at
other management levels.49
Norway
The Norwegian government issued a white paper titled Corporate social responsibility in a global
economy, which announced the government’s intention to propose that large companies should report
their social and environmental performance to stakeholders.50 The resulting legislation was enacted
by  the Norwegian parliament in April 2013, when it passed the Act, amending the Accounting Act
and certain other Acts (social responsibility reporting). The Act introduces provisions requiring large
companies to provide information in the annual report about what they do to integrate a range of sus­
tainability considerations, including human rights, labour rights and social issues, the environment and
anti‐corruption in their business strategies, in their daily operations and in their relations with their
stakeholders. As a minimum, reporting on this must contain information about policies, principles, pro­
cedures and standards that are followed to integrate these considerations.
United States
The US Environmental Protection Agency proposed a mandatory GHG reporting rule, which became
effective on 29  December 2009. It requires reporting of GHG emissions information by facilities that
emit GHGs and for supplies of fuel and industrial gases.51 In addition, the Securities and Exchange
Commission (SEC) requires disclosure of some general information, including disclosure of capital
expenditure for environmental control facilities, and about environmental claims.52

11.4 Stakeholder influences

LEARNING OBJECTIVE 11.4 Evaluate the range of stakeholders that can influence sustainable business
practice, and how entities can engage with these stakeholders.
An understanding of why entities adopt sustainable reporting practices can be gained from examining the
range of organisational stakeholders and how they have changed. Traditionally, shareholders were seen as
the primary stakeholder, where entities run a business with the sole objective of maximising profitability
and shareholder value. Contemporary entities now consider a range of stakeholders in their decision
making. These might include employees, customers, suppliers, the media, government, superannuation
funds and other institutional investors, lenders and community groups. Entities following GRI are required
to undertake stakeholder assessment as part of their reporting process. Similarly, businesses as a matter of
course identify and engage with stakeholders as a means of reducing risk and managing reputation.
Figure 11.3 reflects AGL Energy Ltd’s approach to stakeholder engagement and is reflected in its
sustainability report.
Stakeholders are increasingly concerned with issues of sustainability. Growing recognition of climate
change and the impact corporations have on global warming has likely led to this increase. Accounting
for the issues resulting from climate change is addressed later in this chapter.

CHAPTER 11 Sustainability and environmental accounting  325

 FIGURE 11.3 AGL Energy Ltd’s approach to stakeholder engagement

Stakeholder engagement
Engaging in constructive dialogue with stakeholders keeps us responsive to issues important to our customers,
employees, investors, regulators and the wider community.
  The diagram below outlines how AGL incorporates the AA1000 principles of inclusivity, materiality and
responsiveness into our business and sustainability strategy.

AGL approach to integrating the principles of inclusivity, materiality and responsiveness

into business practices
Materiality
AGL identifies relevant and
significant sustainability
challenges and opportunities.

Material
AGL sustainability
issues
strategy
Stakeholder AGL integrated
• Long-term goals
engagement business strategy
• Strategies
process • Objectives and targets

Identification of Internal
performance
indicators External

Stakeholder
• AGL customer council
identification
• AGL climate change
council Regular
Internal
performance
measurement and
External
management
Regular disclosures
(e.g.):
Stakeholder • Annual sustainability
feedback report
• Annual report & AGM
• Investor presentations

Inclusivity
Responsiveness
AGL identifies and engages with
AGL addresses material issues
key stakeholders to identify
through its sustainability strategy.
issues and find solutions.

AA1000 accountability principles

• Inclusivity: An organisation shall be inclusive.
• Materiality: An organisation shall identify its material issues.
• Responsiveness: An organisation shall respond to stakeholder
issues that affect its performance.

Source: AGL Energy Ltd 2009.53

Table 11.2 provides examples of stakeholders and why they might be interested in corporate
sustainability.

326  Contemporary issues in accounting

 TABLE 11.2 Stakeholder interests in corporate sustainability

Stakeholder Interest in corporate sustainability

Shareholders Sustainability can improve entity value. Others consider sustainability issues
in their investment decisions.

Customers Some customers are interested in the source of products and actively seek
‘green’ or ‘fair trade’ products.

Fund investors Some investors invest in funds that make investments on socially responsible
grounds.

Community groups These groups are invested in services and facilities offered in the local
community, as well as job creation, health and emissions information.

Media The media can voice concerns of other stakeholders as well as set the public
agenda relating to corporate sustainability issues.

Government and regulators In some jurisdictions government and regulators are required to monitor
mandatory reporting of sustainability or environmental issues.

Creditors or banks Financial institutions need to consider the environmental impacts of projects
they fund.

The relationship between organisations and their stakeholders is considered in stakeholder theory. The
extent to which an organisation will consider its stakeholders is related to the power or influence of those
stakeholders. Managers need to determine which stakeholders they should consider in their actions and
manage these competing interests.
A stakeholder’s power is related to the degree of control they have over resources required by the
organisation.54 The more necessary to the success of the organisation are the resources the stakeholder
controls, the more likely it is that managers will address the stakeholder’s concerns. One of the major
roles of managers is to consider the relative importance of each of their organisational stakeholders
in meeting their strategic objectives, and manage these relationships accordingly. Hedberg and Von
­Malmborg found that Swedish companies produce social and environmental information to satisfy
powerful stakeholders in the form of their financiers.55 Orij also found stakeholders influenced corporate
social reporting, particularly in countries where there was a close relationship between organisations and
their stakeholders.56 In a case study exploring the management of stakeholder relationships and the chal­
lenges associated with implementing corporate social responsibility (CSR) initiatives by an Australian
firm in the extractives industry, Dobele, Westberg, Steele and Flowers note that ongoing stakeholder
prioritisation and communication is very important. They also demonstrate the key role of commitment
by both senior management and front‐line employees, and the importance of a CSR champion.57 Stake­
holder theory is considered in more detail in the chapter on theories in accounting.

Ethical investment
Ethical investment and ethical investment funds pose a growing influence on corporate sustaina­
bility performance and reporting. Entities are challenged by the social, environmental and regulatory
pressures  as  institutional investors increasingly voice their concerns about the economic, financial and
regulatory risks of global warming. Many institutional investors have increased their demand for sustain­
ability reporting by becoming signatories to the Carbon Disclosure Project (CDP). The CDP repre­sents
several large institutional investors, holding assets of over US$71 trillion, such as the Investor Group on
Climate Change, Goldman Sachs, JB Were, Catholic Super, and Booz and Company. These investors are
concerned about the risks associated with climate change, and thus are calling for more information about
how companies are addressing the challenges of climate change. The CDP questions companies about
their policies, particularly in regard to lowering emissions and climate change resilience.58

CHAPTER 11 Sustainability and environmental accounting  327

 The CDP is a voluntary effort to encourage standardised reporting procedures for companies to pro­
vide investors with relevant information about the business risks and opportunities from climate change.59
Recent research shows that the CDP has influenced corporate GHG disclosure. For example, Okereke
observed that the top UK companies began to disclose their actions to reduce GHG emissions as a result
of increased pressure from powerful institutional investors supported by institutions such as the CDP, the
Sustainable and Responsible Investment (SRI) Fund and the Institutional Investors Group on Climate
Change (IIGCC).60 Using global governance, institutional and commensuration theories, Kolk et al. ana­
lysed company disclosures of GHGs in response to the CDP questionnaire for years 2003–2007. They
found responses to the CDP are growing and corporate GHG disclosure has achieved some progress in
technical terms, but acknowledge the problems of self-reporting, the lack of rigorous GHG disclosure
guidelines and associated global regulation.61
The UN also produced Principles for Responsible Investment aimed at integrating social and
environmental factors into financial practices. Signatory companies, usually institutional investors, are
required to communicate their application of the Principles annually to the UN.25 The six Principles Of
­Responsible Investment are as follows.

1. We will incorporate ESG issues into investment analysis and decision‐making.

2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the principles.
6. We will each report on our activities and progress towards implementing the principles.62

Investors can choose to invest in an ethical investment fund or can identify investments from bench­
mark indices that categorise stocks on the basis of sustainability in addition to financial performance.
Often referred to as ‘green’ or ‘ethical’ funds, the choice of investment is based on a range of social,
environmental or other social criteria. Investment decisions by fund managers are made in a number of
ways, such as excluding certain investments that are engaged in activities or industries which do not
align with the ethos of the fund (e.g. tobacco manufacture); or actively seeking out investments that play
a positive role in ESG activities (e.g. renewable energy).
To identify individual firms, investors often look to indices that track firms based on ESG and finan­
cial performance. Launched in 1999, the Dow Jones Sustainability Indexes (DJSIs) track the financial
performance of the leading sustainability‐driven companies worldwide.63 Based on the cooperation of
Dow Jones Indices and Sustainable Asset Management (SAM) — an international investment group —
the DJSIs provide asset managers with reliable and objective benchmarks to manage sustainability port­
folios. In addition to providing information to investors, the DJSIs provide feedback to participating
companies on their sustainability performance, and how they rank when compared to industry averages.

11.5 Environmental and social management

systems
LEARNING OBJECTIVE 11.5 Explain how entities can use environmental management systems to
improve environmental performance and reporting.
In conjunction with increased interest in sustainable reporting, interest in systems, often referred to as­
environmental management systems (EMSs), that allow companies to measure, record and manage
their social and environmental performance has also intensified. Implementation of an EMS suggests
an organisation’s commitment to better monitor, manage, measure and report environmental matters.
An EMS not only provides organisations with an environmental management tool, but also facilitates
the organisation’s communication to stakeholders. Systems that measure and allow organisations to
manage their environmental and social performance contribute to the key foundations of companies’

328  Contemporary issues in accounting

overall management control systems,64 allowing monitoring of performance and motivating employees
to achieve company goals.65
Malmborg emphasises that the EMS is a tool, important not only for an organisation’s environmental
management tasks, but also to assist with communication and organisational learning. An essential role of
the EMS is to provide information that can enhance communication regarding a company’s environmental
and sustainable development in response to community concerns.66 Reporting about social and environ­
mental performance indicators to external stakeholders in sustainability reports is likely to be ineffective
if the data are not used for internal decision-making and control purposes.67 Lisi proposes that companies
which implement social measurement and management systems do so for three main reasons.
1. They expect to receive some competitive advantage.
2. Managers perceive stakeholder concern for social performance.
3. Top management has a commitment to social and/or environmental issues.68
An EMS should assist organisations in conducting cleaner production and better management of
carbon emissions.69 Those firms with an EMS and associated cleaner production also shape public per­
ceptions about their activities to reduce climate change. They are also in a better position to address
business risks associated with climate change.70 Rankin, Wahyuni and Windsor found that organisations
which disclose greenhouse gas emissions information are more likely to have also implemented an EMS,
in addition to other governance systems.71
The international standard ISO 14001 Environmental management, which governs EMSs, was
released in 1996. This standard relates to the development and audit of EMSs and requires certifying
companies to establish and maintain communication, both internally and externally. It requires com­
panies to develop policies, objectives and targets, and assess environmental performance against these
requirements.72 Patten and Crampton provide evidence that companies who certify their EMS using ISO
14001 have a higher level of environmental disclosures. Having a certified EMS is also more likely to
address risk concerns of stakeholders.73

11.6 Climate change and accounting

LEARNING OBJECTIVE 11.6 Evaluate the implications of climate change for accounting.
One of the most pressing sustainability issues is climate change. The United Nations Framework C ­ onvention
on Climate Change (UNFCCC) has developed a framework for international action designed to reduce
­climate change. It was launched in 1992 at the Earth Summit in Rio de Janeiro. Recognising a need for
greater action, countries negotiated the Kyoto Protocol in 1997.74 The Kyoto Protocol is an agreement
that commits signatories to achieve GHG or carbon emissions reduction. As part of this endeavour, sig­
natory countries committed to achieving specific GHG emissions reduction targets. The Paris Agreement,
reached in December 2015, commits countries to further reductions by 2020. It should be noted that Australia
agreed to a reduction of 25–28% below 2005 levels by 2030. This target is between 5% below and 5% above
1990 levels, which has been criticised as inadequate to meet global climate challenges.75
In this section we will examine emissions schemes that are increasingly being used to reduce the
impacts of climate change, and the accounting issues that stem from climate change and ­emissions trading.

Emissions reduction schemes

One response that is being used around the globe to mitigate or reduce climate change is the develop­
ment of emissions reduction schemes. These can be in the form of either an emissions trading scheme
or a carbon tax. An emissions trading scheme (ETS), often referred to as a cap and trade scheme, is
a system that is designed to control emissions by allowing participants to trade excess emissions per­
mits. Emissions trading schemes work differently in different jurisdictions, but essentially governments
create tradeable emissions permits which are based on the Kyoto target. Permits are either given to
business, sold or auctioned. A cap or limit is set on the level of emissions organisations are permitted.

CHAPTER 11 Sustainability and environmental accounting  329

Organisations are required to obtain permits that equal the amount of their emissions. If their emissions
levels exceed the amount of permits they hold, they are required to buy additional permits to avoid sub­
stantial fines. This has led to the creation of secondary markets where GHG permits can be bought or
sold, where the price is determined by demand and supply in the market. Over time governments can
lower the cap, thus moving towards achieving the national emissions reduction target.
The alternative is the application of a carbon tax based on the amount of emissions or GHGs. There is no
cap set on the level of emissions and it is thought by some that a carbon tax is less likely to lead to a reduc­
tion in emissions because of this.76 However, the alternative view is that a carbon tax sends an immediate
price signal to the market which addresses the externality imposed on society by the polluter.77
The most established ETS is the European Union Emissions Trading Scheme (EU ETS), which com­
menced in January 2005. A mandatory ETS commenced in New Zealand on 1 July 2010, with Canada intro­
ducing a compulsory scheme for electricity and energy‐intensive industrial sectors in 2011. In 2013/14 China
launched a pilot carbon trading scheme in seven provinces and cities: Beijing, Shanghai, Chongqing, Hunan,
Guangdong, Shenzhen and Tianjin. South Korea also launched an emissions trading scheme in 2015, which
covers the country’s greatest emitters.78 Japan has had a voluntary scheme in operation since 2005 and in
2010 commenced a mandatory cap and trade system, which is applied to large factories and offices in Tokyo.
In addition to participating in the EU ETS, the United Kingdom introduced of the CRC Energy Efficiency
Scheme (formerly known as the Carbon Reduction Commitment) to apply across public sector entities not
currently covered by the EU ETS. The United States government also proposed the introduction of an ETS in
the 2010 budget, but it was never passed by the Senate.
The New Zealand ETS was progressively introduced with a government review being undertaken
from 2015. It commenced with the forestry sector, but now also includes electricity, industrials and
transport. Agriculture has commenced reporting under the scheme, but had not at the time of writing
been required to surrender obligations. The New Zealand government has pledged to cut GHG emissions
by 10–20% on 1990 levels by 2020.79
The Australian government proposed the Carbon Pollution Reduction Scheme (CPRS) originally devel­
oped by respected economist, Professor Ross Garnaut.80 The proposed CPRS is a market‐based solution
designed to encourage business to invest in GHG reduction.81 The CPRS had many detractors however,
particularly from the powerful mining and energy lobbies which argued that their industries would lose
competitive advantage if GHGs were priced.82 When the coalition government were elected, they intro­
duced what they refer to as a ‘direct action’ approach, with The Emissions Reduction Fund at its centre.
This $2.55 billion fund is aimed at funding businesses and communities to undertake projects that reduce
or avoid greenhouse gas emissions. The funds are distributed via a ‘reverse auction’, where the Clean
Energy Regulator, acting on behalf of the government, buys greenhouse gas emissions reductions through
a competitive tender process.83
While emissions trading schemes generally target high emitters, it is anticipated that every business
is affected in some way, through increased power or transport costs for example. There is an increase in
demand by some businesses for products to be carbon neutral, or for suppliers to disclose their carbon
footprint. Contemporary issue 11.1 presents an example of the New Zealand wine industry making
moves towards carbon neutrality.

11.1 CONTEMPORARY ISSUE

Perfect timing for world’s first carbon neutral winery

In September 2006, the New Zealand Wine Company Ltd (NZWC) announced that it had been inde-
pendently certified as ‘carbon‐neutral’, the first winery in the world to get such certification. Its timing
was impeccable. The world was becoming increasingly concerned about carbon emissions. Millions of
people had already seen Al Gore’s movie ‘An Inconvenient Truth’. And a month later, the Stern Review
was released in the UK, prompting widespread concern about the economic effects of climate change
and issues such as ‘food miles’.

330  Contemporary issues in accounting