Question

Case study 22.2: Costs and benefits of environmentally friendly business practices

The directors of Broome Ltd are concerned about the increased costs proposed by the company in adopting new, more environmentally friendly technology. Management has argued that the company was ‘always going to pay a price for carbon reduction’ but contends the short-term costs will be outweighed by the long-term benefits.

Required Explain what benefits management might be referring to.

Answer 1

The adoption (purchase) of new technology with lower GHG emissions is a strategy of the company which results in immediate (short-term) costs.

However, this strategy presents potential ongoing (long-term) financial benefits (presuming the company operates in a jurisdiction which has a carbon tax or ETS), as decreased emissions will result in lower carbon tax or permit costs.

This strategy also presents long-term benefits for the environment (reduced pollution), as well as potential benefits for the company where stakeholders respond positively to the company’s environmentally aware decisions (e.g. increased share price, increased customer base).