Background on Toyota Motor Corporation and its Sustainability Reporting
In today’s business worlds, it has become mandatory for the business entities around the globe to disclose all of their activities related to environment and sustainability as the customers all over the world has become aware of the negative effects of the business activities on the environment. For this reason, it has become necessary for the companies to publish their sustainability reports from which the customers can obtain information about the sustainability activities of the companies. In this context, it is needed to mention about Global Reporting Initiative (GRI) Standards as it is the first global standards for the purpose of sustainability reporting. More specifically, ‘GRI-102: General Disclosures’ puts the obligation on the business organization to disclose all the required information related to the sustainability reporting of the companies (globalreporting.org, 2018). The main aim of this report is to conduct an analysis and evaluation of different sustainability reporting related activities of Toyota Motor Corporation.
It can be seen from the 2017 Annual Report as well as Sustainability Report of Toyota Motors that the business operations of the company have some major effects on the environment as well as the society and they are discussed below:
The first major negative impact of the business operations of Toyota Motors is the emission of carbon. Carbon emission from the motor vehicles of Toyota Motors has major negative impact on the environment. Apart from this, another major source of carbon emission in Toyota Motors is their production facility (Toyota-global.com, 2018). In this context, it needs to be mentioned that some of the operations of Toyota Motors involve in massive carbon emission like process of material production and others; and all these processes have major negative impact on the society After that, the next major positive impact of Toyota Motors’ operation comes in the form of Recycling-based society and system. It needs to be mentioned that, over the last 40 years, the aim of Toyota Motors has been to recycle the environmental and social resources for the betterment of the society (toyota-global.com, 2018). After that, excessive usage of water along with wastage of water has been the major negative impact of the business operations of Toyota Motors. Excessive use of water can be seen in the plants of Toyota Motors for various purposes like painting, forging and other processes. For this reason, it is considered as a major environmental issue of the business of Toyota Motors. At the same time, Toyota Motors has been engaged in some specific social activities like plantation of trees, environmental consecutive activities and others that are majorly helpful for the environment as well as the society (toyota-global.com, 2018).
The Impact of Toyota Motor Corporation’s Business Operations on the Environment
It can be seen from the earlier discussion that the GRI reporting framework puts the obligation on the business entities to disclose different aspects and the below discussion shows four of them:
According to GRI Disclosure 102-18 Governance Structure, it is the obligation on the business organizations provide the information related to their governance structure and its composition. At the same time, it is needed for the companies to provide information of the role of governance body, governance for audit, sustainability reporting and others. After that, as per GRI Disclosure 102-45, it is needed for the business entities to include the consolidated financial statements for providing the required information (globalreporting.org, 2018). After that, as per GRI Disclosure 102-30, the companies are needed to disclose the details about their risk management process along with their effectiveness. Lastly, as per GRI Disclosure 102-35, it is needed for the business organizations to provide all the details about the remuneration policies of the companies (globalreporting.org, 2018).
It needs to be mentioned that Toyota Motors develops their annual report as well as sustainability report after complying with the disclosure requirements of GRI 102: General Disclosures. As per the 2017 Annual Report of Toyota Motors, the company has provided the required information about corporate governance by complying with the principles of GRI Disclosure 102-45 (toyota-global.com, 2018). This Section includes fundamental approach of governance, board composition, business executives and supervisions, audit and supervisory board and others. After that, it can also be observed from the 2017 Annual Report of Toyota Motors that the company has included all the required financial statements in their annual report like consolidated balance sheet, statement of cash flow, consolidated statement of income and others; and it shows the compliance of the company with GRI 102-45 (toyota-global.com, 2018). This report of Toyota Motors also includes all the details about the risk management process that includes business and other risks; and it shows the compliance of Toyota Motors with GRI Disclosure 102-30. Lastly, Toyota Motors has provided the information about the remuneration of board members and audit committee in the report that shows the compliance with GRI Disclosure 102-35 (toyota-global.com, 2018).
Quality and Depth Analysis of the Sustainability Report.
The sustainability report is prepared by the company along with the annual report of the company for providing a comprehensive knowledge about the sustainable strategy about the company and the progress the companies are making in the sustainable corporate progress. Both the companies have a wide and diversified wide range of the initiatives it takes in addressing the global environmental issues. The issue, which the Toyota Motor Corporation deals with is the extreme nature and climate effects such as weather changes, emissions of greenhouse gas, focus on depleting biodiversity, which gets indirectly influenced by the operations of the company. The Toyota Motor Corporation has developed and built strategies like the Toyota environmental Challenge 2050 in lieu of the changing and depleting environmental resources and the surroundings. The main motive behind such initiatives would be reducing the environmental burden on automobiles and other products. Addressing key issues, which directly influence the environment and the biodiversity and measures for the same would be taken to reduce the same (Toyota Environmental Challenge 2050, 2018). The major steps taken by the company are:
- Reducing CO2 emissions by enhancing the framework of the production and designing of the product
- Minimizing and efficient utilization of water
- Creation of a recyclable society and systems involved
- Reducing Energy Consumption by adopting renewable sources of energy.
GRI Standards and Toyota Motor Corporation’s Compliance
The BMW group on the other hand the largest automobile company is also having several measure and steps for reducing the environmental burden and influence on the same through some key strategies. The BMW 2020 year plan is the key initiative the company is undergoing through by reducing the emission amount of CO2 and other harmful pollutants, which could indirectly influence the environment. The company through its plan has decided to reduce the emission of the CO2 gas by about 50% in the European new vehicles fleet (BMW Group, 2017). Some of the key target and measure by the company are:
- Reducing CO2 emissions of the BMW group company.
- Delivering more electric cars
- Creation and adoption of renewable sources of energy.
The Global Reporting Standards is the standard for reporting sustainable reporting of financial information and statements. The Global Reporting standards help the investors, stakeholders and other shareholder of the company by creating a modular structure and thus that would enable the best practices of financial reporting (Fernandez-Feijoo, Romero & Ruiz, 2014). The widespread compliance with the GRI standards from the other motor vehicle corporations in the industry would benefit the stakeholders of the company’s operating in and around the same sector of the industry. The common and adherence to the global reporting standard would enable the investor to form a basis for comparison of financial information presented in the financial report of the company. The reporting standard would enable the companies to accurately classify and record transactions according to the guidelines and principles mentioned by the reporting standards. The common reporting standard would also enhance the transparency and fairness in the financial information provided by the company. The main motive behind the global reporting standard is that the investors and stakeholder of the company should be able to compare returns and financial information presented by companies by different way of accounting (del Mar Alonso?Almeida, Llach & Marimon, 2014).
The benefits and the features of common financial reporting would be that the classification of accounts based on accrual and judgemental basis is eliminated when certain guidelines and principles will be accounted. There might be companies recording the same nature of income or expenses for the company in different ways. Companies following the global reporting standard would be benefited by treating expenses and income for the company under common head. Common Accountability and transactions of the accounts is necessary for the industry. Thus global accounting standard would bring about best corporate governance in the industry by common reporting of financial informations and statements (Tschopp, & Nastanski, 2014).
- The major costs associated with the ongoing operations of the production line with the Smart Vehicle is all about developing the overall company from an hardware company to a new companies, which has the capabilities of transforming itself into a technology driven company. The improvements by the company could be in the field of Artificial intelligence, automated driving facilities, robotic and high tech advanced features for the new modern and smart cars. The cost associated with the same would be advancement in the field of technology, which could be explored by company investing more into the research and development section of the company. The advancement in the field of Artificial Intelligence, which would help the company gather important relevant data about the taste and preference of the consumers. The advancement in the smart car through robotic features and tech drive cars could enhance the driving experience of the customers. Advancement in the human resources skills and knowledge could be one of the major factor driving the company toward long term growth and prosperity (Palia, 2014).
- The cost behaviour may be classified into three major categories either fixed or variable cost. The major costs identified was creating and pooling of data through artificial intelligence, whose classification of expense could be classified as variable expense. Inclusion of robotic features and new tech driven facilities and amenities in the car would be done by the company by investing more and more into technology driven software’s, hardware’s and equipment’s. The classification for such expenses done would come other as fixed expenses as the cost incurred for buying those products will be used in the long term. Advancement in human resources skills and knowledge could be done through extensive training and development of the employees. The classification for such kind of expenses would be variable as the cost would depend from employee’s base to training requirements.
- Yes the use of breakeven analysis could be one of the useful and reliable screening tools for the Toyota Motor Corporation. The company should go along with the scenario analysis and breakeven strategy in order to perform a better screening tool for the company cost benefit analysis. The desirability of the new product would only fit into the company’s business model if the cost incurred for the same and the return generated from the same is sufficient for the company. The breakeven analysis for the product would give the company an estimate about the minimum products, which needs to be sold and delivered in the market to at least get cover for the primary costs of developing the products.
- Evaluation of success of Toyota Motor Corporation and the strategy used is elaborated with the help of a balanced scorecard. Both financial and non-financial measures were taken into account during the review.
|
Perspective |
Objective |
Measures |
|
Financial |
Growth in Revenue |
Lead: Increase in Revenue though advance booking and increasing quarter sales. |
|
Lag: Financial statement and the annual production, revenue generated by the company. |
||
|
Customer |
Trend, Performance and Demographics |
Lead: Increase in Customer base through safety car techniques , advanced high tech pro features in the car could drive more customer base |
|
Lag: Traditional framework and Approach of working |
||
|
Internal Business Processes |
Value Creation |
Lead: Increase in Return on Equity and the margins of the company by increasing revenue and sales per region |
|
Increase in Margins by reducing operation costs |
||
|
Learning and Growth |
Human Resource Development |
Lead: Better Output of Existing Labour through extensive skills development |
|
Lag: Increasing Staff and employee turnover to increase and get the best labour delivering better output. |
Comparative Analysis of Sustainability Reporting in the Automobile Industry
The key features involved in the scorecard and the reasons which explains the overall success of the Toyota Motor Corporation is about development of products and ideas through which the company caters its customers. The financial perspective taken, which explains the growth in revenue can be done through different strategies of revenue generation like advance booking and by increasing the sales of the company. The old traditional method should be avoided which just include buying selling products instead of buying selling products and after sales services. The customer approach was identified in order to get an overview of the type and category of customer, which the company caters. The quality and the type of advanced services they expect to be included in the product. Internal Business process or the value creation as the primary objective was chosen to check and observe the return company generates. Companies should operate in a way, which would adhere to the customer according to their preference and the type of product expectation they. Traditional method included volume activity of buying and selling similar products, which would not differentiate between various classes and kinds of customer base and profile. The learning and development of the human resources of the company is the most important and significant category in the overall success of the company. The company through extensive training and development of trained and skilled employee could achieve the same. Turnover of employee base would often distort the company’s working environment and would be ineffective for long-term growth and prosperity of the company.
Breakeven Analysis
There were a total number of three hypothetical products selected of which the breakdown of the cost and variance analysis is performed. The fixed cost and the variance cost of the company is broken down as per unit production cost to the company. The breakout for Product A will be when the company produces product greater than 100 units. In case of product B and C 100 units is a sufficient breakout strategy for the company (Goldenberg et al. 2015).
|
Particulars |
Product A |
Product B |
Product C |
|
Non- Current Investment |
|||
|
Plant and Property |
90,000 |
80,000 |
70,000 |
|
Machinery |
50,000 |
40,000 |
45,000 |
|
Total Fixed Cost |
140,000 |
120,000 |
115,000 |
|
Current Investment |
|||
|
Cash or Working Capital |
20,000 |
10,000 |
10,000 |
|
Inventory |
25,000 |
20,000 |
15,000 |
|
Expenses |
|||
|
Training and Development Cost |
8,000 |
7,000 |
5,000 |
|
Marketing Cost |
5,000 |
4,000 |
3,000 |
|
Total Variable Cost |
58,000 |
41,000 |
33,000 |
|
Total Investment |
198,000 |
161,000 |
148,000 |
|
Total Output Expected and Return from the Current Investment and Assets Capacity |
|||
|
Expected Number of Output |
100 |
90 |
85 |
|
Total Production Fixed Cost Per Unit |
1400 |
1333 |
1353 |
|
Total Production cost per unit |
140000 |
120000 |
115000 |
|
Margin on each product |
10% |
8% |
10% |
|
Total Selling Price Per Unit |
1540 |
1440 |
1488 |
|
Total Revenue for the company |
154000 |
129600 |
126500 |
|
Less: Variable Cost |
58,000 |
41,000 |
33,000 |
|
Less: Depreciation cost |
70000 |
60000 |
57500 |
|
Profit Before Tax |
26,000 |
28,600 |
36,000 |
|
Tax Expenses |
7800 |
8580 |
10800 |
|
Profit After Tax |
18,200 |
20,020 |
25,200 |
|
Return on Investment |
9.19% |
12.43% |
17.03% |
|
Breakeven Output |
<100 Units |
100 Units |
>100 Units |
|
Workings |
|||
|
Less: Tax Rate |
30% |
30% |
30% |
|
Useful life of Assets |
|||
|
Plant and Property |
2 Years |
3 Years |
2 Years |
|
Depreciation Amount Per Year |
45000 |
40000 |
35000 |
|
Machinery |
2 years |
3 Years |
2 Years |
|
Depreciation Amount Per Year |
25000 |
20000 |
22500 |
Table 1: Break-even Analysis
To: Toyota Motor Corporation
Cc: Toyota Directors
From: Accounts Department
Date: September 16, 2018
Subject: Strategic Initiatives for Toyota Motor Corporation
The letter is to address about the key strategies, which can be implemented by the Toyota Motor Corporation. The strategies, which can enhance the breakeven point is by reducing the variable cost of the product or by increasing the selling price of the product. The same will enable the company to deliver more revenue and deliver better output of the capital invested. Three major strategies defined for the company to enhance the breakeven are:
- Increasing Selling Price
- Eliminating and Reducing Fixed Cost component
- Cross selling of products and services.
Conclusion
The initiatives and strategies implemented could affect the companies selling price, variable costs such as marketing costs for the company and reducing fixed costs by efficiently utilisation of assets. The company would have to invest more into Research and development cost for the product in order to deliver quality products. The company variable cost will be dependent on the unit produced so the production and the turnover of the units produced. The ability for the company in efficiently utilising its fixed and variable costs to enhance the return on investment for the stakeholders of the company. The working shown in Table 1 shows the impact of changing variable and fixed costs for the company and the return generated from the same. The company could also enhance the annual profit of the company by the new product by the following strategies:
- Removal of Unutilised products and services of the company
- Creation of new customer base
- Increasing the Inventory Turnover Ratio for the company.
- Reviewing and monitoring the pricing structure of the company.
The following strategies could be beneficial for the company in enhancing the breakeven point and the annual profit for the company.
Regards,
Andrew Lewis
Accounts Department
Toyota Motor Corporation.
Conclusion
The above discussion indicates towards the fact that Toyota Motors complies with GRI for the development of their sustainability and integrated report. Some of the major environmental issues of the company are carbon emission, wastage of water, waste disposal and others. However, the above discussion also indicates towards the fact that the company has complied with the major disclosure requirement of GRI at the time of sustainability and financial reporting. The comparison between Toyota Motors and BMW Group shows that both the companies have take initiatives while Toyota Motors has longer sustainability initiatives than BMW.
References
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del Mar Alonso?Almeida, M., Llach, J., & Marimon, F. (2014). A closer look at the ‘Global Reporting Initiative’sustainability reporting as a tool to implement environmental and social policies: A worldwide sector analysis. Corporate Social Responsibility and Environmental
Fernandez-Feijoo, B., Romero, S., & Ruiz, S. (2014). Commitment to corporate social responsibility measured through global reporting initiative reporting: Factors affecting the behavior of companies. Journal of Cleaner Production, 81, 244-254.
Goldenberg, S. D., Bacelar, M., Brazier, P., Bisnauthsing, K., & Edgeworth, J. D. (2015). A cost benefit analysis of the Luminex xTAG Gastrointestinal Pathogen Panel for detection of infectious gastroenteritis in hospitalised patients. Journal of Infection, 70(5), 504-511.
GRI Standards Download Center. (2018). Globalreporting.org. Retrieved 16 September 2018, from https://www.globalreporting.org/standards/gri-standards-download-center/
GRI Standards. (2018). GRI 102: GENERAL DISCLOSURES 2016. Retrieved 16 September 2018, from https://www.globalreporting.org/standards/media/1037/gri-102-general-disclosures-2016.pdf
Palia, A. P. (2014, January). Target profit pricing with the web-based breakeven analysis package. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 35).
Toyota-global.com. (2018). Toyota Environmental Challenge 2050. Retrieved from https://www.toyota-global.com/sustainability/report/archive/sr17/pdf/sdb17_077-128_en.pdf
Toyota Global Site | Plant Zero CO<sub>2</sub> Emissions Challenge. (2018). Toyota Motor Corporation Global Website. Retrieved 16 September 2018, from https://www.toyota-global.com/sustainability/environment/challenge3/
Toyota Motor Corporations. (2018). Environmental Report 2017. Retrieved 16 September 2018, from https:// www.toyota-global.com/sustainability/report/archive/er17/pdf/er17_full_en.pdf
Toyota. (2018). 2017 Annual Report. Retrieved 16 September 2018, from https:// www.toyota-global.com/pages/contents/investors/ir_library/annual/pdf/2017/annual_report_2017_fie.pdf
Tschopp, D., & Nastanski, M. (2014). The harmonization and convergence of corporate social responsibility reporting standards. Journal of Business Ethics, 125(1), 147-162.
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