Sustainability accounting (also known as social accounting, social and environmental accounting, corporate social reporting, corporate social responsibility reporting, or non-financial reporting) originated in the 1970sHardyment, R. (2024) Measuring Good Business: Making Sense of Environmental, Social and Governance (ESG) Data. Abingdon, Oxon: Routledge. ISBN 9781032601199 and is considered a subcategory of financial accounting that focuses on the disclosure of non-financial information about a firm's performance to external stakeholders, such as capital holders, creditors, and other authorities. Sustainability accounting represents the activities that have a direct impact on society, environment, and economic performance of an organisation. Sustainability accounting in managerial accounting contrasts with financial accounting in that managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organisation's performance at economic, ecological, and social (known as the triple bottom line or Triple-P's; People, Planet, Profit) level. Sustainability accounting is often used to generate value creation within an organisation.
Sustainability accounting is a tool used by organisations to become more sustainable. The most known widely used measurements are the Corporate Sustainability Reporting (CSR) and triple bottom line accounting. These recognise the role of financial information and shows how traditional accounting is extended by improving transparency and accountability by reporting on the Triple-P's.
As a result of triple bottom level reporting, and in order to render and guarantee consistency in social and environmental information, the GRI (Global Reporting Initiative) was established with the goal to provide guidelines to organisations reporting on sustainability. In some countries, guidelines were developed to complement the GRI. The GRI states that "reporting on economic, environmental and social performance by all organizations is as routine and comparable as financial reporting".
History The concept of sustainability accounting has emerged from developments in accounting. Broad developments in accounting have occurred over the past forty years, although narrow developments have occurred over the past ten years. The development reveals two distinct lines of analysis. The first line is the philosophical debate about accountability, if and how it contributes to sustainable development and which are the necessary steps towards sustainability. This approach is based on an entirely new system of accounting designed to promote a strategy of sustainability. The second line is the management perspective associated with varied terms and tools towards sustainability. This could be seen as an extension of or modification to conventional financial cost or management accounting. To develop sustainability accounting de novo allows a complete reappraisal of the relative significance of social, environmental and economic benefits and risks and their interactions in corporate accounting systems. The developments that lead to sustainable accounting could be distinguished in several time periods in which a number of trends were evident: 1971–1980, 1981–1990, 1991–1995 and up to the present. These periods distinguish empirical studies, normative statements, philosophical discussion, teaching programmes, literature and regulatory frameworks.
1971–1980
By the end of the decade, a large volume of empirical work and a number of papers referring to the building of models which foster social accounting disclosures have been published. These early works included subjective analysis as well as underdeveloped social and environmental accounting literature (SEAL). Information related to the social dimension of accounting has been mostly connected with employees or products. Environmental matters were treated as part of a generally undifferentiated and fairly unsophisticated social accounting movement.
Environmental damage included damage to terrain, air, water, noise, visual and aesthetic and other forms of pollution, and solid-waste production. Ideas about shadow prices and mapping of externalities first arose and began to develop. Albeit the contribution of this period was notable for extensive developments in the field of social audit, the methodology was nearly identical with the historical financial accounting reports. At this time neither financial accounting standards nor regulatory frameworks had been developed to any extent. The empirical studies and research were mainly descriptive. Although several models and similar normative statements were enhanced, the philosophical debate was not widespread.
1981–1990
The first part of the decade showed increased sophistication within the social accounting area and the second part of the decade saw an apparent transference of interest to environmental accounting, with increasing signs of specialisation in literature. Empirical research was more analytical. Concerns of social disclosures have been replaced by a concentration on environmental disclosures and regulation as an alternative means of reducing environmental damage. Normative statements and model building began to foster the environmental arena. During this period, the development of teaching programmes about social and environmental accounting issues began. Despite an increasing use of conceptual frameworks, accounting standards, and legal provisions to reduce the degree of individual interpretation in financial reporting, little of this accounting structure applies to an appropriate framework of social and environmental accounting. Less normative statement have been made, but more articles discussing philosophical matters have been published.
1991–1995
This period was characterised by the almost complete domination of environmental accounting over social accounting. There have also been a number of extensions from environmental disclosures to environmental auditing as well as the development of framework to guide the applications of environmental auditing, and in particular, the development of environmental management systems. There was still little regulatory framework affecting social and environmental accounting disclosures and conceptual frameworks for accounting did not extend to non-financial quantification and social or environmental issues. The development of a clear regulatory as well as conceptual framework grew in several countries, whereas the progress of environmental regulation in the UK and Europe was slower than in the United States, Canada or Australia. The progress was uneven but rapid compared with those in the area of social accounting disclosures. During this period, there have been several textbooks and journal articles covering both social and environmental accounting. However, there has been a relative lack of normative/philosophical work within accounting during this period: environmental accounting has not been revived since the models of the 1970s and has failed to adapt to the discussions about the valuation of externalities. Sustainability and the discussion of the role of management accounting in assisting with sustainable development have become of growing interest.
1995–present The convergence of global capital markets and the emergence of global and regional quality control issues – culminating for the accounting profession in the Asian financial crisis in 1997–1998 as well the collapse of Enron in 2001 – led to a subsequent high-level focus on international and national accounting.Association of Chartered Certified Accountants (ACCA)(2002). "Industry as a partner for sustainable development", http://wedocs.unep.org/bitstream/handle/20.500.11822/8238/-Industry%20as%20a%20Partner%20for%20Sustainable%20Development%20_%20Accounting-2002116.pdf?sequence=3&isAllowed=y, Retrieved: 30.03.2012 The accounting literature has demonstrated a considerable increase in concern for the issues of sustainable development and accounting. Via the exploration of what sustainability accounting may entail, the accounting profession is likely to be involved in re-examining accounting fundamentals in the light of the challenge of sustainable development. Several proposals and significant statistical work as well as a growing body of measurement on accounting for sustainable development is being carried out in many international and national settings. Kee, P./de Haan, M. "Accounting for Sustainable Development", Statistical Commission of the Netherlands, http://www.cbs.nl/nr/rdonlyres/7e93afcb-b0c3-497f-be70-661a59d168bc/0/accountingforsustainabledevelopment.pdf, Retrieved: 30.03.2012 Even supra-national policy bodies like the United Nations and the OECD have sponsored work addressing accounting for sustainability. Up till now environmental accounting is the most evolved form of sustainability accounting and increasingly processed in the academic circle beginning with the work of Robert Hugh Gray in the early 1990s, and through the release of the Sustainability Accounting Guidelines at the World Summit on Sustainable Development in 2002.
Due to the use of different frameworks and methods, much uncertainty remains how this agenda will develop in the future. What is certain is that there is belief that past economic development and the current human (and hence business) activities are not sustainable, which has led to questioning the current mode of development. Recent years have seen an increasing acceptance and even enthusiasm for these new reporting approaches. Energetic and innovative experimentation by far-sighted organisations state that sustainability aspects in accounting and reporting are crucially important, feasible and practicable as well.Gray, R. (2005). "Current Developments and Trends in Social and Environmental Auditing, Reporting & Attestation: A Personal Perspective", (E-Journal) Radical Organisation Theory Special Issue on "Theoretical Perspectives on Sustainability", Draft 2B, April, https://www.st-andrews.ac.uk/media/csear/discussion-papers/CSEAR_dps-socenv-curdev.pdf, Retrieved: 20.03.2012 In this respect, the International Federation of Accountants (IFAC), whose objective is to develop the accounting profession and harmonise its standards, includes 167 member bodies in over 127 countries and represents approximately over two million accountants worldwide.
In order to help finance teams and accountants embed sustainability into their accounting, King Charles III, then Prince of Wales, set up his Accounting for Sustainability project (A4S) in 2004. A4S convenes leaders in the finance and accounting communities to catalyse a fundamental shift towards resilient business models and a sustainable economy. A4S has two global networks – the Accounting Bodies Network (ABN) whose members comprise approximately two thirds of the world's accountants and the A4S CFO Leadership Network, a group of CFOs from leading companies seeking to transform finance and accounting.
Methodology
Sustainability accounting has increased in popularity in the last couple of decades. Many companies are adopting new methods and techniques in their financial disclosures and are providing information about the core activities and the impact that these have on the environment. As a result of this, stakeholders, suppliers, and governmental institutions want a better understanding of how companies manage their resources to achieve their goals to accomplish sustainable development.
According to common definitions there are three key dimensions of sustainability. Every dimension focuses on different subsets. Environmental factors Social Economic Energy Water Greenhouse gases Emissions Hazardous and non hazardous waste Recycling Packaging Community investment Working conditions Human rights and fair trade Public policy Diversity Safety Anticorruption Accountability / Transparency