11.3 Appreciate the role of sustainability value chains and its link to management accounting

The value chain represents a set of progressive, interdependent activities depicted by linkages within the value chain. These interrelationships mean the value created by one activity bears a cost or impact to performance on another in the chain.[1] An additional insight is the corporate culture, found in the human resources practices of the support activities, which provides a basis to establishing a highly effective value chain.[2] All of the business activities detailed in Porter’s Value Chain provide opportunities for adding value to goods or services not only within the organisation’s operations but externally as well.

Given that organisations might be responsible for external costs that are not ordinarily acknowledged within traditional financial reporting methods as prescribed by accounting standards, the traditional value chain put forward by Porter (1985) might not sufficiently explain the true costs incurred and value contributed by organisations. To this extent, sustainability value chains have been developed to better capture these effects. The notion of sustainability considers the idea that business success and societal welfare must coexist.[3] This recognises an organisation’s need to embed TBL into their processes not only considering economic, environmental and social impacts of their operations from an internal perspective, but also impacts to the environment and society at large.[4] Some multinational firms have resorted to building their own value chains, incorporating sustainability related elements alongside the more traditional value chain categories described by Porter (1985). In essence, sustainability value chains attempt to show how organisational sustainability activities can lead to superior business outcomes.

Hasan et al. (2019) developed a framework for a value chain incorporating support activities – Green Management, Green information, Green technology, Green Accounting, Green 3R – reduce, reuse and recycle – and Green marketing, which supports the supply chain – product/service design, purchasing, production and logistics, as depicted in the diagram below, providing interconnection of the value chain across the organisation from a sustainability perspective across all stages :

We can see the value chain is cutting out non-value adding activities to become more sustainable across the activities in the diagram above. Reducing excess water consumption, recycling, increased training, improved performance through innovations and lowering energy consumption. As we can see from this framework the sustainability value chain can convey organisational sustainability strategy in a simple, easy to understand method to provide an organisation-wide approach to improved sustainability practices. A sustainability value chain incorporates organisational practices that can improve sustainability performance and provide systems and processes that can accurately capture performance data for reporting purposes. Communications lead to a more informed organisational workforce, improved performance, greater efficiencies, and better overall outcomes. Linking these factors to employee remuneration, which may be embedded in Key Performance Indicators, will provide a higher likelihood of better sustainability outcomes for businesses.