Academic journal article Journal of International Business Research

Is It Beneficial to Incur Environmental Cost? A Case Study of Toyota Motors Corporation, Japan

Academic journal article Journal of International Business Research

Is It Beneficial to Incur Environmental Cost? A Case Study of Toyota Motors Corporation, Japan

Article excerpt

BACKGROUND OF THE STUDY

Environmental accounting concept and practice has evolved from sustainability reports and the broader concept of corporate social responsibility. In this age when globalization and the growth of multinational enterprises have been blamed for environmental neglect and depletion of natural resources, it is but relevant to highlight the activities companies engage in to preserve and repair its natural environment. Senge (2008) calls for a 'necessary revolution' in the way businesses are conducted--a new business rationale of sustainability. Porter (2008), updates his views on competitive advantage with green solutions on resource productivity to societal problems.

Sustainability reporting, particularly, environmental accounting has been advocated by Japanese companies and the government since 1999. This is in response to the absence of generally accepted standards on environmental reporting and a move to further advance the Global Reporting Initiative of 1997.

Globally, companies in the computers & electronics and automotive manufacturing have been the leaders in sustainability reporting next to pharmaceutical companies. The highest growth in reporting has taken place in Japan, France and the U.K. followed by Germany. Standardization has been observed to increase quantity and quality of reporting particularly in Japan due to the government's regulation and encouragement (Kolk 2003).

In the Philippines, there is no set standard that provides for the consistency and comparability of environmental disclosures within firms because it is left to the discretion of management (Aquino 2009). It is therefore, important to study the environmental accounting and reporting practices of Japan because it may influence the same practices in its subsidiaries in developing countries like the Philippines.

STATEMENT OF THE PROBLEM

Is it beneficial to incur environmental cost?

Based on the experience of Japanese companies, particularly Toyota Motors Corporation, aside from rooting on culture, and compliance with regulations, are environmental investments and expenses beneficial? Taking the lead role in advocating environmental accounting should also merit its benefits to convince other countries and companies to do the same.

RESEARCH OBJECTIVES

This study has the following objectives to prove the cost-beneficial view of environmental accounting:

To describe Toyota's environmental accounting report within the context of Japan's prescribed guidelines;

To relate the environmental costs and investments to the firm's financial performance;

CONCEPTUAL FRAMEWORK

From an Economic Perspective

This paper uses the Kaldor-Hick Efficiency basis of cost-benefit analysis. The KaldorHicks efficiency states that an outcome is more efficient if those that are made better off could in theory compensate those that are made worse off, so that a Pareto improving outcome results. This criterion is widely applied in welfare economics and managerial economics and forms the underlying rationale for cost benefit analysis because it provides a more practical standard justifying costs with net social benefits. The theoretical foundations of the cost-benefit theory could be traced back in welfare economics in the 19th century France (Nas 1996).

The OECD has espoused cost-benefit analysis in their public advocacies on environment policy, transportation planning, and health care. Particularly for the environment, the OECD has highlighted special challenges on environmental problems and environmental policy that pose for cost-benefit analysis. It is in this light that the OECD suggests cost benefit appraisals to take account of recent concern about sustainable development (OECD 2006).

In cost-benefit analysis, an alternative, such as engaging in environmental activities is evaluated by comparing the total costs, in this case environmental expenses and investments, with the total benefits, cost savings, other income from recyclable materials and avoidable clean up and litigation costs. …

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