Skip to content

ACCA Strategic Professional · Advanced Performance Management · Sustainability

Dunmore Foods faces the choice of investing in cleaner machinery. The finance director's appraisal includes only the machine's cash cost and energy savings. The sustainability manager argues that appraisal should also include costs such as future regulatory compliance, remediation liabilities and loss of customer goodwill. Which type of environmental cost is the sustainability manager mainly referring to?

The manager is referring to hidden, contingent and image or relationship costs. These are environmental costs to the company that conventional appraisal tends to omit, such as compliance, future remediation liabilities and reputational damage, so including them gives a fuller view of the investment.

  1. AConventional costs
  2. BExternalities borne wholly by society
  3. CHidden, contingent and image or relationship costsCorrect
  4. DCosts of environmental prevention only

Explanation

Hidden costs (e.g. regulatory), contingent costs (e.g. future remediation) and image/relationship costs (e.g. lost goodwill) are typically omitted from conventional appraisals. These are costs to the firm, so they are not pure externalities. Conventional costs are already included in the finance director's appraisal.

Did you get it right without looking?

One question tells you little. A timed set on Sustainability shows your real accuracy, how long you take and where you lose marks.

Practise SustainabilityFree diagnostic mock

More Sustainability questions