- 5 Marks
Question
a) The Climate Adaptation Summit (CAS 2021) sought to tackle head on, the imminent catastrophe, which, the unattended climate change can unleash on the world. This is perceived to be more disastrous than the COVID-19 pandemic. So far, accountants have not agreed on how to quantify damages caused to the environment by a company’s operations in the accounts unless they come in the form of a fine.
Required:
Identify and explain FOUR (4) consequences of environmentally unfriendly practices of corporate entities that may negatively influence their profits. (5 marks)
Answer
Consequences of environmentally unfriendly practices:
- Fines imposed when pollution levels are exceeded: Companies may face significant financial penalties for exceeding legally established pollution limits.
- Lawsuits for breaching emission levels: Breaching environmental regulations can lead to costly legal actions, which may result in heavy compensation payments or settlements.
- Environmental taxes: Governments may impose additional taxes on companies that engage in practices harmful to the environment, increasing operating costs.
- Loss of customers: Consumers are increasingly favoring environmentally conscious companies, leading to potential loss of market share and reduced sales for companies with poor environmental records.
- Damaged corporate reputation: Negative publicity related to environmental harm can damage a company’s reputation, affecting brand value and long-term profitability.
- Reduced land value: Environmental degradation caused by a company can lead to reduced property values, impacting the company’s assets and overall financial standing.
- Inability to attract expertise: Companies known for poor environmental practices may struggle to attract top talent, particularly those who prioritize working for socially responsible organizations.
- Inability to attract funding from potential investors: Investors are increasingly considering environmental, social, and governance (ESG) factors in their investment decisions. Companies with environmentally unfriendly practices may find it difficult to secure funding.
- Tags: Corporate Social Responsibility, Environmental impact, Profit Impact
- Level: Level 2
- Topic: Other Aspects of Performance Measurement
- Series: MAY 2021
- Uploader: Dotse
