Environmental Audit of TESCO

by Jason Shaw
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Introduction

TESCO is a multinational company in retail business dealing in grocery and general mechanidising ranging from entertainment, books, clothing, phones to banking and insurance.  Auditing with reference to environment considering its entry in Quatar is undertaken in this paper.  Barnett (2011) states “the top 50 list [in UK] have been replaced by more traditional brands such as Tesco or Marks and Spencer”.  According to guardian.co.uk (2009) it rang up worldwide sales of £1.02bn for every week of last year, it has more than 2,280 UK stores, and 2,077 internationally and about 469,000 staff work for Tesco, 283,000 of them in the UK.  Therefore, its entry into the country needs to be analyzed with regard to the company’s Corporate Social Responsibility policy, particularly its policy related to environment from an auditing point of view taking into account its CSR history and its compatibility with the national environmental policy “aimed at protecting the natural resources and preserving the wealth of the country through a strategy that reconciles industrial growth with environment safety”. (Qatar News Agency)

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Environment & Corporate Social Responsibility

There are several obligations imposed on the companies which could be legal, ethical or economical concerning their stakeholders.  Some of these responsibilities may be discretionary extending beyond the statutory obligations on voluntary basis on the part of the companies.  According to Bruntland (1987), the Sustainable Development is a process “that meets the needs of the present without compromising the needs of future generations to meet their own needs”. Therefore, a country aiming for a sustainable development considers the companies engaged in manufacturing or trading as the part of the environment or ecosystem without impairing the growth and safety of the people, plants and animals as all are dependent on each other.  The survival and wellbeing of the society and the future generations hinges on various environmental issues including pollution of water and air, treatment of water and effluents, proper disposal of the industrial wastes considering the likely imbalances caused due to these environmental threats. It is in this backdrop, it could be stated that the CSR is not limited to fairness, transparency and accountability in the running of the business.

Environmental Audit of TESCO

Standards

Several international agencies have developed standards and issued guidelines for voluntary compliance by the companies.  For instance SAE International (2011) has issued several guidelines on environmental standards which include emissions, environmental protection and re-cycling. Similarly, The UN Global Compact and the OECD Guidelines for Multinational Enterprises (“the OECD Guidelines”) are comprehensive. (OECD, 2005)  These standards inter alia cover environmental issues and a number of companies worldwide adopt such standards.       

Environmental Audit

Maltyby (1995) states “Environmental audit is a growth area which has received little attention in the auditing literature. There is currently no mandatory requirement for companies to undergo environmental audit, although pressures on them to do so are growing, and there are no generally accepted standards regulating the nature of audit work”. (Abstract) In this paper, in the absence of the clear-cut environmental program with the statistical information, the analysis has been made on data available from the Annual Report and the website of the company.  Alin, Daniel & Octavian (2010, p. 523) state “When environmental aspects are significant to a company, there is a risk for occurrence of significant misrepresentations or inadequate or incomplete presentation of information within the financial statements. In such cases, the auditor must pay proper attention to environmental aspects during audit of financial statements”.  The auditing is broadly covered under pollution & wastage, ecological ethics, conservation of natural resources and other environmental protection and social programs not related to the business carried out by the company directly or through the other agencies. 

Pollution & Wastage

The Corporate Responsibility Report of TESCO states that new stores built between 2007 and 2020 to emit half the CO2 of a 2006 new store and reduce emissions per case delivered by 50% by 2012. The other long term programs include reduction of emissions and zero carbon business by 2050.  According to the Annual Report 2009, “emissions from our baseline 2007 store and distribution centre portfolio have fallen by 7.8% over the past year and new stores and distribution centres built since 2006/7 are on average emitting 28.8% less CO2 than their equivalents in 2006/7”.

The company has the responsibility to significantly contribute in creating awarness among the consumers of the environment-unfriendly products to curtail its demand growth.  For example ozone layer is destroyed by chlorofluorocarbon gases used in products such as aerosol cans, air-conditioners and refrigerators, but minimized with the adoption of Vienna Convention in 1989.  Therefore, the promotion of the environment-unfriendly products should be curtailed by the company through consumer education by taking concretes steps, as they are in direct contact with the consumers. 

The company’s website states “Since August 2009 we have diverted 100% of our waste from going directly to landfill. Following a massive logistical exercise in reducing, reusing and recycling, as well as seeking out the best providers of waste management services, we reached this target almost a year ahead of schedule”.  This helps maintain the ecological balance and conservation of natural resources.

Ecological Ethics

In an ecological system plants and animals including fish and microorganisms are interdependent for their existence.  Therefore, the retailer as a corporate citizen is expected to be vigilant in this regard, and TESCO’s efforts in promotion of green label, its campaign for reduction in the use of career bages, recycling of waste and reduction in the emission of gases will go a long way to preserve the balance in ecological system. It is pertinent to note here that the manufacture of beaver hats in 18th century led to the extinction of beavers, the furry roents, leading to the drying up of large tracts of swamp lands due to ecological imbalance. 

Conservation of Natural Resources

Limiting consumption of natural resources for later use by the generations is very important.  The use of waste as an alternative source of energy for producing electricity is a step in this direction in minimizing the use of fossil fuel.  In the recycling process carrier bags are turned into refuse bags and old cardboard boxes to new ones by the company.

Environmental Protection Programs

The programs such as eParan Green Leaders Program for 76,000 in South Korea, Planting 950,000 trees in Thailand and an education program on climate change for 12,000 children in Turkey reflect the company’s CSR policy related to the environmental issues.  Annual Report 2009 states that in 2007 Tesco invested £25m to create a new Sustainable Consumption Institute (SCI) at the University of Manchester.

Social Environment

Also, apart from providing employment and services with an underlying social responsibility, the company’s support to local causes in the areas such as health and education improve the level of social environment as well. During the year according to the Annual Report (2009)  TESCO “gave over £60m in donations to charities and contributions to community projects …donated the equivalent of more than 1% of our profits to good causes… our staff raised over £7m for charity across the Group”.  The company’s Community Champions support local charities, organizations, schools and causes that local people really care about. Tesco for Schools and Clubs scheme in UK, Shop for Schools Project in US and Computers for Schools program in Turkey reflect the company’s commitment on international scale.

Analysis

Analysis in respect of environmental audit should be made with reference to Qatar, considering TESCO’s plan to enter the country.

Pestel Analysis

  • Political Factors: There is greater greater political stability in this traditional monarchy, and historically transition of power has been smooth, peaceful and nonviolent.
  • Economic Factors:  The double digit growth with strong oil prices augurs well for the consumer spending.The pace of economic growth will remain solid.  Government financed spending combined with rising natural gas output will drive the economic improvement”. (EDC Economics, 2011)  A number of sectors have been opened up for 100% foreign direct investment and the minimum corporation tax of 25 to 35% in 2010 is considered attractive for foreign investment.  
  • Social Factors: The citizens enjoy greater social freedom in this country compared to the other countries in the region consequent upon new social liberties introduced in 1995 which include female suffrage and freedom from media censorship.  Free healthcare and free education were primarily responsible for the development of the country socially.
  • Technological Factors:  There have been several initiatives taken by the government such as strategies for the development of technology as outlined in QFIRST 2007 and Science and Technology Park in 2010.  Developments in the field of education and telecommunications ensure good employment potential and communication facilities.
  • Environmental Factors: 2016 Summer F1 Grand Prix could provide impetus to business environment, which is already conducive for foreign investments, and the infrastructural facilities such as construction of malls and recreation facilities are underway.  However, this accelerated pace of development has to some extent resulted into inflated real estate prices. 
  • Legal Factors: Outright purchase of land is not allowed, but the investors can enter into long-term property lease agreements. The country’s accession to the International Centre for Settlement of Investment Disputes (ICSID) in September 2010 paves way for easier settlement of disputes. 

SWOT Analysis

  • Strengths:  Apart from the brand equity, financial stability and worldwide network facilities, the company’s collaboration with the customers, suppliers, NGOs and Governments around the world resulted into positive impacts on reduction in emissions.

According to the Directors Report.  

  • Weakness: The Directors Report covers only broad principles followed by the company on corporate governance.  The future proposals such as : to become a zero-carbon business by 2050; to reduce the carbon impact of products in our supply chain by 30% by 2020; and to help our customers halve their own footprints by 2020 are ambititous. But financial details of the future programs or allocation of funds are not given in the reports.
  • Opportunity: The growing economy of Qatar and the other crucial factors for entering into this market are favorable to the company. The experience in greenhouse gas emissions and  waste management and recycling of waste would be beneficial to the country when they enter Qatar
  • Threat:  BBC (2011) states thatcampaigners’ claim the store will increase traffic and destroy business for other stores [in Cambrigshire, UK]. Tesco has not given any comment”. Similarly the company’s entry may be considered as detrimental to the interest of the local retail stores.

Porter Five Forces Analysis

The following five forces form part of the microenvironment relating to the company. 

  • Bargaining Power of the Suppliers: Volume of the orders, track record and financial strength place TESCO in an advantageous position.
  • Bargaining Power of the Buyers: Since TESCO is in a position to offer quality, competitive prices and choices from an array of international brands, for a discerned conusmers, TESCo would be a better choice.
  • Entry Barriers: Cost could be a prohibiting factor for a new company to enter into retail in view of the stock levels to be maintained for thousands of products, floor space and other overheads.  Secondly, brand identity is very important.  As it is a high volume low margin industry, unless there is fast turnover of capital, sustainability would be difficult.  Access to inputs need elaborate global network for procurement of quality goods at competitive prices, and TESCO is advantageously placed in this respect.
  • Threat of Substitutes: The competition of the local products with the branded products on account of price difference is a concern.  However, quality and service is expected to win in the long run in retail business.
  • Rivalry: The company’s advantage in respect of brand identity, economies of scale and financial strength provide an edge over the competitors.  However, lower overheads and the customer loyalty enjoyed by the local stores due to their knowledge about the consumer behaviour borne out of  their direct relationship and interaction and the price sensitivity of the buyer place TESCO at disadvantageous position.  Howeverr, the growth in the industry has enough room to accommodate TESCO, and also there is a need for modern and diversified retailing outfit in line with the growth and development of the society.

Already there are big mals such as Villagio and City Cenre Mall operating in Doha.

Conclusion

In a comprehensive analysis made in the paper, it has been observed that the micro environment related to the comapany and the macro environment as prevailing in Qatar from the company’s as well as the country’s perspecives, are good for establishing TESCO’s presence in Qatar.

References;
  • Alin, I. I., Daniel, C. V. & Octavian, M. V., 2010. Instruments that are needed to ensure the credibility of environmental disclosure, Annals of the University of Oradea: Economic Science, pp.522-527 ISSN 1222569X Volume1, Issue 1. [online] Available at: <http://www.doaj.org/doaj?func=abstract&id=688877&q1=environmental%20audit&f1=all&b1=and&q2=&f2=all&recNo=1> [Accessed 21 February 2011].
  • Barnett, E., 2011. Top 50 UK online brands: Tesco and BT oust dotcom darlings, The Telegraph, 22 February 2011. [online] Available at: <http://www.telegraph.co.uk/technology/news/8339000/Top-50-UK-online-brands-Tesco-and-BT-oust-dotcom-darlings.html> [Accessed 21 February 2011].
  • BBC News Cambrigshire, 2011. Cambrigshire villagers protest over Tesco plan,  21 February 2011. [online] Available at: <http://www.bbc.co.uk/news/uk-england-cambridgeshire-12527152> [Accessed 22 February 2011].
  • Brundtland Report, 1987. [online] Available at: <http://www.ace.mmu.ac.uk/eae/sustainability/Older/Brundtland_Report.html> [Accessed 21 February 2011].
  • First Conference of Arab Expatriate Scientists: QFIRST 2007, Towards Partnership in Research with Arab Expatriate Scientists to Achieve Sustainable Development in Qatar, [online] Available at: <http://www.qf-qfirst.info/qatari_initiative.html> [Accessed 21 February 2011].
  • Guardian.co.uk, 2009. Tesco’s vital statistics, 21 April 2009. [online] Available at: <http://www.guardian.co.uk/business/2009/apr/21/tesco-facts> [Accessed 22 February 2011].
  • Maltby, J., 1995.  Environmental audit: theory and practices, Managerial Auditing Journal, Vol. 10 Iss: 8, pp.15 – 26
  • OECD, 2005, The UN Global Compact and the OECD Guidelines for Multinational Enterprises: Complementarities and Distinctive Contributions. [online] Available at: <http://www.oecd.org/dataoecd/23/2/34873731.pdf> [Accessed 21 February 2011].
  • Qatar News Agency, 2011. Environment. [online] Available at: http://www.qnaol.net/QNAEn/Main_Sectors/Environment/Pages/default.aspx> [Accessed 21 February 2011].
  • SAE International, 2011. Environment,  [online] Available at: <http://standards.sae.org/environment/> [Accessed 21 February 2011].
  • Tesco Plc, 2009. Corporate Responsibility,  [online] Available at: <http://cr2010.tescoplc.com/> [Accessed 21 February 2011].
  • Tesco PLC Annual Report and Financial Statements 2010, [online] Available at: <http://ar2010.tescoplc.com/en/downloads/~/media/Files/T/Tesco-Annual-Report-2009/Attachments/pdf/Tesco-Annual-Report.pdf> [Accessed 22 February 2011].

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