IV Mainstreaming and Capacity Building on Life Cycle Management

This part includes a series of chapters addressing the challenges of mainstreaming life cycle management. It discusses opportunities to build operational capability and the potential for mainstreaming LCM in emerging economies through capacity building, concluding on the need to enhance communication and collaboration within the global LCA community.

Taking Life Cycle Management Mainstream: Integration in Corporate Finance and Accounting

Cornelis Theunis Van Der Lugt

Abstract What does it take for life cycle management (LCM) to capture the attention of the financial community? LCM experts face a window of opportunity as technological progress and economic developments lead to greater interest in mainstreaming the sustainability agenda and integrating it in business decision-making. This includes new approaches to the assessment of impacts on Natural Capital, environmental management as well as annual corporate reporting. Having highlighted these, this chapter employs a Green Business Case Model to define ways in which life cycle applications can be employed to link with core financial indicators of special interest to investors. It describes three hypotheses to illustrate where LCM tools can best make a difference, positively affecting core financial value drivers. The author suggests three hypothetical pathways to capture the attention of investors, linking environmental life cycle costing (LCC) and financial, activitybased costing. These are complemented with company case examples. It draws lessons from past work on the business case as well research on environmental versus financial life cycle costing (LCC).

Keywords Accounting • Corporate finance • Life cycle assessment • Life cycle costing • Life cycle management • Life cycle thinking • Sustainability

Evolution in Assessment, Management and Reporting Standards

Technological progress and improved understanding of the impact of a growing world population on resource use globally has set the scene for a gradual transformation of environmental assessment, management and reporting tools over the last decade. While globalization and trade liberalization has led to greater integration in the world economy, it has also been accompanied by increasing fragmentation in production (see OECD 2012; Elms and Low 2013). The life cycle assessment (LCA) community has seen a lively debate on, for example, the value of deepening research to the level of product subsystems versus widening research through systems expansion (cf Curran 2013), as well as combining process-LCA and Input–output (IO) LCA to deal with the complexities of long supply chains and product chain organization (see Gereffi et al. 2005; Finnveden et al. 2009; Koh et al. 2013; Lake et al. 2014; Eriksson and Olsson 2011; Baumann 2012).

Furthermore, global financial crises as well as dramatic cases of corporate failure has led to renewed questioning of the role of corporate reporting. Frustration about information overload in annual reports and apparent lack of what is really material or strategic information has led to the birth of an integrated reporting movement. The International Integrated Reporting Council (IIRC) seeks to promote “integrated thinking”, akin to “life cycle thinking”. In defense of the GRI Guidelines, all its environmental indicators reflect a life cycle approach. This includes impacts at the end of the useful life of the product, especially important for life cycle management (LCM) as environmental life cycle costing (LCC) takes into account useand endof-life phases and hidden costs (Klöpffer 2008). The LCA response to the integration challenge has been to define the emergence of life cycle sustainability assessment (LCSA) (see Finkbeiner et al. 2010; Guinee et al. 2011; Hellweg and Canals 2014)

Against this background of value chain complexity and initiatives in favor of integration, this chapter seeks to define pathways along which life cycle assessment (LCA) applications and life cycle thinking can be integrated with core business planning and strategic financial performance (Eun et al. 2009). Importantly, this chapter is not about moving from environmental and/or social LCA to economic LCA. Rather, it is about moving from environmental LCA to business finance and accounting. Its reflections will also be relevant for what integration in the form of sustainability LCA (a new integrated LCA or compilation of separate assessments) implies, and how life cycle sustainability assessment (LCSA) could be engrained in corporate financial planning.

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