Traditional Accounting Return Ratios: A Foe To Business Sustainability

The penetration of sustainability principles in business practices has introduced the necessity for a simultaneous integrated assessment of the corporate economic, environmental and social performances. Continuous technological, political and legal evolutions indicate that Sustainable Development (SD) principles will soon have to be implemented in all sectors of the Greek corporate reality, among them in the Mineral and Mining Industry. However, the ultimate criteria for the evaluation of a company?s performance remain its profitability and its market value. Managers, shareholders, financial intermediaries, all alike, emphasize and base their decisions on the various accounting produced ratios of return (ROA, ROE, ROCE, Residual Value) included, or produced by data found, in the financial statements of the companies. This paper offers evidence that the traditional accounting ratios discourage the implementation of investment plans that aim at improving the environmental performance of companies and therefore can be inadequate and misguiding for SD applications. International studies have consistently traced a positive relationship between the environmental performances of firms and their financial positions. Yet, the fact that investors tend to reward proactive companies by increasing their corporate values is disregarded by the return ratios, which usually set up the basis for management rewards and bonuses. The book value of the firm assets and owners? equity from which such ratios are produced diverges strongly from the real corporate value, defined as the traded amount for the stock of a firm. There is an urgent need for an adjustment of the return ratios so that they can record the positive economic impact of a more sustainable attitude and encourage decision makers towards this direction.