Accountants can balance the environment

The president of the world’s largest alumina producer has challenged accountants to help the resources industry come to grips with the concept of the environmental balance sheet.

B Michael Baltzell, president of Alcoa World Alumina Australia, told a Perth conference that triple bottom line accounting was the great new challenge for business in the new millennium.

Mr Baltzell, speaking at the CPA Resources Convention held at the Hyatt Regency, said triple bottom line accounting was an increasingly popular idea where industries had to consider environmental and social, as well as financial, outcomes.

He said industry needed the help of accounting professionals to come to grips with the concept.

“The environmental balance sheet is imperfectly understood – the environmental cost of business is being fiercely debated and even the most environmentally responsible corporations, among which I count Alcoa, are looking for signposts,” Mr Baltzell said.

“If you look at any environmental report produced by major Australian resource companies, including the report we are soon to publish, you will find them full of data.

“Much of that data relies on the establishment and maintenance of internal reporting and auditing systems that treat environmental impacts in much the same way as capital expenditure.

“The critical challenge for your profession is to help us develop an understanding of what environmental assets are worth and how they should be valued.”

Mr Baltzell also warned that the “biggest crunch” in terms of valuing environmental costs would come as a result of the Kyoto protocol on greenhouse emissions.

He said the signs emerging from Canberra pointed to an increased cost for business.

Indeed, one consulting firm estimated the cost of coal-generated electricity could double and that increased costs could close down some energy-intensive sectors of Australian industry.

Mr Baltzell said Alcoa had long realised it could not simply add value to its balance sheet by extracting ever-higher prices from ever-diminishing reserves of minerals.

The company had, therefore, looked at other ways of adding value to its balance sheet, in particular through its ‘people assets’.

“I am not the first to emphasise how important people are to adding value, to maximising opportunities, to ensuring that non-people assets will be utilised to their maximum,” Mr Baltzell said.

“However, time and time again, as we look to capital to solve our competitive challenges, we miss the point that without people it will never work and that they need to be conserved with the same care as every other resource available to the enterprise.

“There is ample evidence that removing people from the payroll and replacing them with contractors can be counter-productive to both a corporation’s cost efficiency and to the retention of its knowledge base.

“In a high technology business such as alumina refining and aluminium smelting, the expertise of highly experienced employees is an off-balance asset that is too often overlooked.

“Without informed and motivated people there is little chance of adding value. People are often surprisingly cost-efficient compared with capital or technology.”

Alcoa’s initiatives in managing its people assets included annualised wage agreements and diversifying its employee profile by improving the gender and ethnic mixes.

He said Alcoa had also been a strong sponsor of the Scitech Discovery Centre in West Perth as a way of attracting a new generation of students to a career in science.

• In a submission earlier this year, the Society of CPAs called on the Government to develop guidelines that would encourage companies to manage and report environmental and social costs and revenue in their day to day management.