Corporate strategy and accounting for sustainability in investment appraisal

Abstract

This paper reports on an exploratory study that sought to understand how environmental and social factors are included in capital investment appraisal. Views were gathered from CFOs and sustainability managers of large Australian companies. The focus of the study was on the links between sustainability, strategy, employee expertise and influence in accounting system design. Investment appraisal that that does not incorporate environmental and social factors could pose potential governance risks for senior management, even legal ramifications for organisations that appear to be ignoring or ‘greenwashing’ their activities. The potential disconnect between widely applied discounted cash flow methodology and the principles underlying accounting for sustainability is discussed in light of investing scarce resources to support corporate strategy. Early findings suggest the emphasis on traditional DCF and NPV and how it is used alongside the harder-to-quantify sustainability issues, still needs further investigation. We need to better understand the extent to which the complex qualitative sustainability factors are being modelled and included in cash flows and to what extent the qualitative narrative takes precedence in decisions