The commercial companies’ reason to exist is profit. Various economics scholars express different views about the circumstances of social-economic environments in which the profit occurs and what makes it socially acceptable. Note that the democracy is linked to free market economy and thus to profit making. This fact is on crucial importance in understanding the commercial companies and in working with them towards local sustainable development.
Read and understand the relation between the main features of a commercial company: Profit (P), Business Plan (BP), Environmental Cost Accounting (ECA), The Corporate Social Responsibility (CSR).
Applying a win-win strategy to promote the Green Deal objectives is a rewarding approach and ensures a long-lasting cooperation of all local and supra-local stakeholders. The roadmap to this outcome is presented below.
Fig.1 Factors to green the Firm’s competitiveness and its impact to company (original)
A) Green business planning framework, costs, revenues, profit, and taxes
Descriptive Business Plan
Before engaging in complex planning endeavor, fill in a one-page description of the business you want to start or develop. Make sure you fully understand what is the product or service to sell.
If you want to analyze a commercial stakeholder in view of involvement in your advocacy campaign, either in support of the given cause or as a target, take time to draw a picture of the business.
Often companies have secondary products or services that they sell along with the main product or service. Make sure you include those one in the picture.
Know the business before talking to business!
Example (hypothetical)
Problem: The young owners of a brick-and-mortar Coffee Shop near a railway station experience a dramatic drop in selling, being close to go bankrupt. The shop received claims for not being environment-friendly. It looks like the traditional way of doing business can no longer ensure the desired turnover and profit, because of changes in costumer’s profile.
A Youth Worker from the Railway Neighborhood wants to turn this business into a sustainable one, while preserving or even increasing the profit margins, by a win-win strategy. He/She reviewed the situation, discuss with costumers and with the owners and then included the Coffee Shop in the draft Sustainable Development Plan of the Neighborhood. The review and the solution are depicted in the table below.
Be honest to yourself and avoid formal exercise!
No matter how good is the plan or the picture of the stakeholders’ business, to engage into a discussion about adopting sustainable practices requires a basic understanding of the financial performances of a company. The main tool to achieve this is the Cash Flow projection, either as a forecast or as an approximation of the status-quo. An example follows.
Remember that any business attempts to gain more than from keeping funds in bank deposits, so compare the net profit to the average interest rate. The net profit is the amount remaining after paying taxes on gross profit.
Business wants to increase the cash in and decrease the cash out. Therefore, if the cost with environment is perceived and accounted as a cost only, the company will naturally try to minimize it. Also, if the environment has no cost attached or the costs is to low compared to the lowering in natural assets economic value, then the expected trend will be to damage the environment and therefore to jeopardize the chances of sustainable development.
To your best knowledge and effort, devise a financial picture of the enterprise to take on board as partner or to go against, as the case may be.
Remember the reason to exist for an enterprise is making profit, except social enterprises.
A cash flow takes into account the cash only, and not the debts. Small and medium size companies are very sensitive to cash shortages, thus their focus is on cash.
Financial Vocabulary
We all use the environment as a free good in a certain extent. For a company, this status of environment as a common means a tragic negative impact. One of the ways to minimize this effect is to use internalization of the environmental costs.
https://www.h2020prospect.eu/glossary-financial-terms
B) Internalization of environmental costs
Internalization of environmental costs consists in including the environmental costs (such as the pollution costs) in the production costs and therefore in the product’s price. This way, the environment is considered a resource similar to capital or labor.
Environmental accounting typology: Environmental Financial Accounting (EFA), Environmental Cost Accounting (ECA), Environmental Management Accounting (EMA).
EU achievements: Natural Capital Accounting, Ecosystem Accounting. Natural Capital Accounting is consists in physical accounts of the annual service flow to which it is assigned a monetary valuation to selected services on an annual basis.
The Youth Worker can use basic Environmental accounting and Natural Capital Accounting to help scaling up the advocacy campaign at supra-local level.
Whenever the agent wants to reach a commercial stakeholder for the advocacy campaign, he/she shall gather information about the stakeholder’s accounting practices with regard to social and environmental issues. If no such policy exists, the agent may explore the idea to draw the attention on the advantages of applying such practices, if appropriate. As a minimal information, find out the environmental and social items included in the accounts (what such items the company pays for).
- Typology of the Environmental accounts:
- Enterprise level: prevention costs, detection costs, internal failure costs, and external failure costs.
- National (EU) Accounts level: “The environmental goods and services sector (EGSS), sometimes called ‘eco-industries’ or ‘environmental industry’, comprises all entities in their capacity as environmental producers, i.e., undertaking the economic activities that result in products for environmental protection and resource management = framework to collect data on value added and employment for the environmental sector” (Eurostat)
- Internalizing environmental externalities- Carbon pricing: a cap-and-trade system that allows firms to buy and sell permits for emissions, with the goal of reducing greenhouse gas emissions.
A good place to start is to study what are the typical costs with the environment of a business in the category of your stakeholders. Such costs chapters may be:
- a) Water abstraction costs
- b) Additional tax on land
- c) Taxes to be paid to the Natura 2000 Administrators or local Protected areas Administrators
4) Costs with environmental conformity such as waste processing and dumping
Then identify environmental resources the company uses for free, such as:
- a) Waste and waste water receivers, in case no treatment is deemed by law
- b) Air cleanness
- c) Pressure on land use by internal roads, cemented surfaces that harm the soil biodiversity
Remember that in absence of a command and control mean (laws and standards), one can only rely on the good will, personal care and the on the potential profit from respecting certain ethical standards.
It may be difficult to attempt persuading people about necessity to internalize the environmental costs, in absence of a state law providing for it.
C) Corporate Social Responsibility (CSR)
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An integrative approach to sustainable development is the Corporate Social Responsibility. The corporate social responsibility (CSR) is the main pillar to build the bridge towards involving commercial companies in the advocacy endeavors, on your side. The CSR is the strategy, par of corporate governance that drives the company’s operations in a way which is ethical and beneficial for society.
One step forward in the direction of enhanced contribution of the commercial company to the local sustainable development on long term is greening its relation to the market. D) Green marketing and advertising Go for simple, yet effective marketing and advertising methods to reveal the green side of the business, or support companies in doing so: Advocate legislation to mitigate commercial practices that are against the sustainable development: Large corporations can afford green marketing practices better than smaller businesses. E) Green Deal impact to enterprise The Green Deal impact to enterprise consists mainly in the following trends:
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