As public concern for the environment and social issues grow every day, the accounting profession and corporations have become more involved through non-financial reporting or sustainability accounting. In the past few decades, globalization has expanded, competition from growing nations increased, and unfortunately, public trust in many industries decreased as scandals emerged due to lack of controls and responsiveness. This realization has allowed companies to see the potential benefits of sustainability accounting and take care of stakeholder needs, while changing their perceptions. Frameworks and standards for sustainability provide guidance and support for companies globally, while communicating sustainability goals and performance.
Sustainability initiatives have made companies focus not only economic initiatives, but environmental and social initiatives as well. This trifecta is also called “triple bottom line”. To make this communication more streamlined, integrated reporting is under development to tie the financial and sustainability reports together. Sustainability accounting has evolved into a need in today’s society as companies want to be competitive and stakeholder s want to know where their investment lies.
Background
According to the American Institute of Certified Public Accountants (AICPA), “accounting for sustainability involves linking sustainability initiatives to company strategy, evaluating risks and opportunities, and providing measurement, accounting and performance management skills to ensure that sustainability is embedded into the day-to-day operations of the company”.1 Environmentalists have been concerned with how economic growth will impact the environment since the 1960s, and most recently, global warming and the greenhouse effect. More recognition was given to these issues as the demand for energy and resources increased, as well as related costs for businesses. This cost pressure led companies to outsource operations to under privileged countries, whose internal controls and operations differed than the “norm” in the US. Events such as the BP Oil spill, Chernobyl nuclear incident, and many others has led the public to ask “to what degree is an organization responsible and accountable for the impact that its products and services have on the society that uses them?”.2 Sustainability is made to address these issues and adjust to the changes in social expectations of corporations.
Benefits and Need for Sustainability Reporting
Sustainability reporting has proved to be beneficial in many ways including: waste reduction and efficiency, access to capital, better company reputation, and employee loyalty. Reports allow more transparency into company operations, which reduces public scrutiny and mitigate risks. Decision-making processes are improved as managers can make better decisions regarding consumption and waste, including reducing costs. According to a report by Ernst and Young, “ a large institutional shareholder’s successful interventions in corporate social responsibility increased share price by an average of 4.4% per year”3. This shows how the increase communication of sustainability will result in a positive reaction from the market and affect the firm’s balance sheet. There is also a positive correlation between more transparent companies and increased firm liquidity, resulting in higher cash flows.4 To ensure that sustainability reporting and assurance will be beneficial to a firm, the benefits must outweigh the cost of implementation, as well as not “green washing” the company to divert attention from a negative issue. 5 The challenges of sustainability reporting must also be addressed.
The challenges of sustainability reporting should be approached with consideration of the corporation size, whether it is public or private, and well as what standards of financial reporting firms already use. There is a lack of uniformity in frameworks and standards, as the reporting