What is the cost of sustainability?

Case study of using target costing in the Norwegian aquaculture industry

Abstract

Aquaculture industry has over many decades generated significant value for shareholders, governments and consumers. The negative environmental impacts of current open net pen (ONP) fish farming technology were increasingly becoming major concern for all stakeholders involved. Responding to that, industrial actors have for many years been experimenting with new type of technology ranging from “semi-“ to “fully” closed facilities including “deep-water” offshore farms and land-based closed containment (LBCC) installations. However, due to higher level of capital investments and costs compared to mature ONP fish farming technology, the use of new environment-friendly experimental technologies creates uncertainty for decision-makers about long-term effects of new technological solutions and hinders the process of development. Under what conditions would higher level of investment and capital costs in new technology be justified in reaching an appropriate tradeoff between profitability requirements and improved sustainability?

This paper looks at how target costing can be used to address this tradeoff in case of “semi-closed” off-shore technology undergoing experiment at one company operating in Norwegian aquaculture industry. Our expectations in this interventionist inspired research was that target costing, being a long-term profit planning techniques, has good potential to inform decision-makers about tradeoffs between profitability and sustainability considerations of new costly technology throughout its life-cycle.

Our research demonstrates the value of existing accounting concept in new empirical settings and for sustainability and environment accounting (e.g. Gray & Milne, 2015; Quattrone, 2021). The findings show that target costing exactly due to its long-term perspective indeed can be used to highlight benefits and costs of different fish farming technologies and therefore to some extent can improve the basis for investments decisions. By mapping and comparing all quantifiable life-cycle costs in a target costing exercise for “semi-closed” vs ONP technologies, we estimated that “semi-closed” alternative can be more profitable and sustainable. However, the value of target costing to properly address profitability-sustainability tradeoff of new technologies has been rather limited due to certain challenges. First, the target costing has been considered unable to properly reflect the complexity and relatively high uncertainty of the context aquaculture industry operates in beyond the production process itself, e.g. future markets for fish products and capital markets. Second, and more importantly, there is a difficulty to access and estimate the cost of improved environmental and social sustainability of new technology. This is not only due to lack of reliable measures but it is rather due to a more general problem of conceptual understanding how improved sustainability can be taken into account in target costing exercise from a long-term planning perspective. The paper concludes with a call for rethinking how cost of sustainability can be conceptually addressed.