ACCT20071 The Relationship Between Financial Performance and ESG Perfo
- Part 1: The Written submission ‘The performance frontier: innovating for a sustainable strategy’ an HBR article asserts that “In the absence of substantial innovation, the financial performance of firms declines as their environmental, social, and governance (ESG) performance improves. To simultaneously improve both kinds of performance, they need to invent new products, processes, and business models”. Use peer reviewed academic literature to comment on above assertion and use Rio Tinto’s 2015 and 2018 sustainability reports to conclude the above by critically evaluating its environmental, social disclosures (Max. 2,000 words including introduction, conclusion and references).
Hint: You cannot simply repeat the information given in above resources. You must conclude the link between financial, social and environmental performance, and innovation based on substantial extended personal research and self-directed learning. Please explain your perspective fully. You are required to use quality peer-reviewed research to support your arguments and conclusion. You can also use some reputed financial media such as Australian Financial Review, The conversation, The Age etc. or websites of the professional accounting bodies (do not use random websites or Wikipedia). There is no need to use annual reports of the selected companies.
Part 2- The presentation You are required to submit a video presentation of 5-6 minutes duration based on part 1 of this assignment. This is an opportunity to talk about the main points in your written assignment above and will assist you in enhancing your communication and presentation skills. Groups using voice over or narrated power point shall receive only minimum marks in presentation style and quality criterion. All the group members must participate in the presentation (It is not enough that one person is presenting and others are just standing in the background). We will not mark any content beyond 6 minutes. Any video exceeding 6 minutes shall not qualify for selection of “Perfect video” purposes. Sample videos are available on Moodle site.
The students who are willing to get their video considered for “perfect video” must provide a statement on the cover page that “We are happy to let the unit use our video for educational purposes in this term or coming terms and permit its use on the moodle if your video is selected for uploading. No separate permissions to upload video will be requested.
Answer:
The introduction covers the following points on sustainable innovation:
- Sustainable innovation is an all encompassing innovative practice that leads to greater profits, better social results and less environmental consequences.
- It includes practices like changing consumer behaviors, using more renewable technologies etc.
- It facilitates change in business practices that leads to cost reduction and helping companies to grow and evolve.
Innovation and Performance
- Most multimillion companies disregard environmental implications over financial perspective. These implications are borne by the society which in turn benefits the shareholders.
- The relationship between financial performance and ESG performance can be shown with the help of a curve called the performance frontier curve
- The steeper the downward curve, the greater will be the negative impact that the ESG performance will have on the financial performance
- The steeper the upward curve, the greater will be the positive impact that the ESG performance will have on the financial performance.
Pushing the frontier
The major innovations require a business strategy that can help develop sustainable strategies:
- Identify material ESG issues- Material ESG issues include emissions, water and energy use ,employee safety procedures.
- Quantify relationship between financial and ESG performance- It is difficult to quantify ESG performance. Financial performance is however represented by net profit, gross revenue and other financial estimates which can be estimated fully.
- Innovate products, process and business models- The performance standards need to be met according to the benchmarks set. Innovations include reducing manufacturing waste, increasing efficiency that involves minor or moderate innovations
- Communicating the company’s innovation to shareholders- Shareholders need to be communicated effectively about the sustainable innovations practices. This will enable the firm to get long term investment.
Student 2
A discussion of the company Rio Tinto and its sustainable practices for the year 2015 will be delivered as follows:
Sustainability report for 2015
The company Rio Tinto faced lots of challenges in the years 2015 , because of reduced demand for its products. However it came out of those tough situations with a positive attitude.
Environmental disclosures-
The disclosures include:
- Energy usage- It introduced a program called Energy Leadership programme that is aimed to reduce environmental emissions.
- Water- the company has employed a Water management plan which monitors water usage .it is also aimed in improving water recycling ..
- Other emissions- the company has made significant advancement in removing the effect of ozone .
- Biodiversity- the company wants to make a positive contribution in terms of making sure that the region gets benefitted by its presence.
Social disclosures
The disclosures include:
- Occupational health and safety- this year they had achieved their best ever health and safety standards by achieving one million hours injury free
- Health- The company clinic provides exceptional clinic facilities to its employees. It also has active wellness educators that promote health education.
Sustainability report for 2018
The company advocated the need for operating their business in a sustainable manner and maintain safety and health standards of employees in a sustainable manner.
Environmental disclosure
The environmental disclosures include:
- Low carbon emissions- the company is aiming to reduce significant amount of energy emiisons.it further plans to decarbonize their business by 2050.
- Water-the water resource management program focuses on site related risks and managing water quality/
- Biodiversity-the company plans to minimize biodiversity loss and manage biodiversity management practices.it is aimed at rehabilitation and restoration practices that is aimed to compensate negative dangers to biodiversity.
Social disclosure
The social disclosures include:
- Occupational health and safety- as a result of an employee accident in Utah, the company redoubled their efforts in maintain safety of employees. They even physically inspected two sites, one in Australia and the other one in Canada.
- Mental health in the workplace- The company provides a facility of mental health and well being that aims to balance work life and personal life.
Conclusion
- ESG and financial performance are inversely related.-If one increases, the other one will decrease and vice versa.
- Sustainable innovation in products and processes can improve both financial and ESG performance at the same time.
- The company Rio Tinto has great CSR policies, with its primary focus on employee health and safety.
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