Accounting for Sustainability

Gunnar Rimmel

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000171853
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

This book provides a broad overview of how sustainability reporting has grown, how it is used now and where it is heading.

Daily, we read and hear in various media about concepts such as corporate social responsibility (CSR), sustainability reporting, sustainability accounting, environmental reports, corporate citizenship or environmental management systems. Accounting for Sustainability decodes this terminology by providing an accessible introduction to the topic that explores sustainability reporting from an internal and external perspective. It begins with an overview of how sustainability reporting has emerged and why it is important, before moving on to cover definitions of key terms and specific theories and frameworks. Subsequent chapters explore the role of financial management, sustainability standards, accounting communication and capital markets.

With learning outcomes and study questions embedded in each chapter, this book will be of great interest to students of sustainability reporting and accounting, as well as practitioners taking related professional accreditations.

Part I
Background & Theoretical Perspective

1 Accounting for sustainability – historical development of the field

Gunnar Rimmel

Abstract

This chapter provides an overview of accounting for sustainability. Accounting for sustainability reporting has been recognized as an important part of companies’ information provision and the financial market has also begun to change its approach and attitude towards accounting for sustainability. The chapter begins with globalization and economic developments that led to pressure from stakeholders on companies to report on social responsibility and sustainable development. Furthermore, the origins of accounting for sustainability can be traced back to the 1930s and developed continuously until it has become widely recognized business practice among the companies. Accounting for sustainability consists basically of three pillars. It is explained how Human Resource Accounting, Social Accounting and Environmental Accounting were initially developed separately from each other and are now important integrated parts in sustainability reporting. Furthermore, the UN 2030 Agenda describes 17 Sustainable Development Goals that have been enthusiastically received by many actors, including the accounting profession. Finally, criticism and challenges are discussed with accounting for sustainability.

Learning Outcomes

After reading this chapter, you are expected to be able to:

• Describe the importance of accounting for sustainability;
• Explain differences between the different pillars that play a central role in accounting for sustainability; and
• Account for basic developments related to accounting for sustainability.

1.1 Introduction

Globalization has improved the lives of many people around the world. It has given us access to high technology, information technology and increased trade worldwide. Despite these positive aspects, globalization has contributed to some concerns. Globalization has also led to increased consumption and increased competition, which has followed in the wake of globalized economic development. The increasing level of production and consumption has a major impact on the environment. Raw materials are shipped to consumers worldwide, and research has shown that transportation is responsible for 75 percent of worldwide carbon dioxide emissions (Bebbington & Unerman, 2018). With the unrestrained consumption and industrialization around the world also increased emissions of carbon dioxide and environmentally hazardous substances, deforestation and monocultures, overfishing of the sea and reduction of biodiversity. Increase in temperature on our planet as a result of greatly increased carbon dioxide emissions due to industrialization causes changes in precipitation, rising sea levels and melting of glaciers and snow. These are all clear signs of the ongoing climate change. To reduce climate change, activities such as burning fossil fuels and deforestation must be reduced. Measures against climate change must be taken to ensure sustainable development.

1.1.1 Globalization and its consequences

Globalization and economic development have turned many companies from national companies into large powerful multinational companies, but with great power comes great responsibility. The increased competition as a result of globalization has led companies to move their production of products to countries where workers’ wages are lower in order to cope with the pressing global competition. This has meant that in many cases working conditions do not maintain the same level as in European countries, where workers’ rights are much more strongly regulated. Many companies that have placed their production of products on subcontractors in low-wage countries such as China, India, Vietnam or Bangladesh have suffered scandals where the subcontractor’s workers work in the low-wage factory, so-called sweatshops, with starvation wages and poor health security, without breaks, no access to clean water and risk of life. Today, Corporate Social Responsibility (CSR) is an important factor for successful companies, regardless of the industry in which they operate. The link between CSR and improved business with positive effects has been demonstrated by research (Baboukardos & Rimmel, 2016). Therefore, the practice of corporate social responsibility has evolved from companies that seek to fulfil their obligations to society through philanthropy, to companies that have incorporated the CSR concept and adapted many factors into their business as environmentally friendly manufacturing and improving working conditions to create sustainable development.

1.1.2 CSR’s emergence

Corporate social responsibility and sustainable development are two concepts that usually go hand in hand as they aim to describe the same topic. The three main parts (see Chapter 7) of CSR are economic, social and environmental effects that an organization has on society through its operations. The economic dimension aims to describe how companies work on sustainability issues that can arise from their interaction with different types of stakeholders (e.g., suppliers, customers) and how it can affect their market position. This means that accounting information includes sustainability information. The purpose of such gathering of sustainability information is to look beyond the short-term profitability and build on relationships to emphasize the long-term economic development and thus the continuous life of the business. Furthermore, the social dimension of CSR aims to improve health, safety and the well-being of employees, e.g., motivate workforce by offering training and development opportunities. This also enables companies to function as good citizens in the local community. Such actions are reflected, among other things, in the companies’ way of producing goods and services in an ethical way with the safety of their workplace. Finally, the environmental dimension of corporate social responsibility suggests that companies should focus on minimizing the ecological effects that their business has on the environment, which might require them to implement environmental management systems (see Chapter 6).

1.1.3 Sustainability reporting

Over the past two decades, sustainability reporting has been recognized as an important part of corporate disclosure (see Chapter 10) and the financial market has also begun to slowly change its approach to accounting for sustainability (see Chapter 11) and provides financial resources through the Social Responsible Investment funds (see Chapter 12). A key factor for this is increased awareness among companies that report on the benefits of taking action on sustainable business operations. Standards and guidelines such as the Global Reporting Initiative (GRI) (see Chapter 8) or Integrated Reporting (see Chapter 9) have emerged to guide companies throughout the process of establishing sustainability reporting with the aim of demonstrating how companies can practically implement sustainability in their operations. Sustainability reporting is voluntary for SMEs, but in accordance with EU Directive 2014/95/EU, it is mandatory for entities of general interest within the EU to carry out sustainability reports for the 2017 financial year (EU, 2014). The directive applies to large companies with an average number of over 500 employees. The directive came into force in 2014, and companies that are subject to the new legislation must publish by 2018 – by the end of 2018 – reports containing relevant information on the environment and society.

The accounting industry has begun to offer services similar to traditional financial accounting by producing verifiable sustainability information. External review and auditing of sustainability reports have begun to develop (see Chapter 13). This has also been made possible by companies changing their financial management (see Chapter 3) towards sustainability by developing sustainability control and control tools (see Chapter 5) and integrated management accounting (see Chapter 5).

Accounting for sustainability reflects a current view of good sustainable business practice. The current view on good practice will undoubtedly change in the future, when new problems may be seen as further important parts of social responsibility. A major positive impact on accounting for sustainability are the Global Sustainable Development Goals (SDGs) adopted by the UN General Assembly at the end of 2015 in connection with the UN 2030 agenda. The 17 sustainable development goals place increased demands on accounting for sustainability and strengthen its position against traditional financial reporting (Bebbington & Unerman, 2018).

1.2 Development of accounting for sustainability

Contrary to the popular assumption, sustainability reporting is not a new phenomenon but has existed for about 70 years. Although its significance has become more known to the public over the past two decades. Social controversies and concerns with the environment have subject to society for centuries. But despite the fact that sustainability issues have existed for centuries, the emergence of sustainability reporting is largely linked to the emergence of the modern company. Maturity of accounting and the development of accounting standards is a slow process. For hundreds of years, accountants have worked to describe the financial practice in companies by developing various forms of external accounting and financial management. Nevertheless, it was only in the last century that accountants began to set accounting standards. Similarly, sustainability accounting, reporting and standardization is also a...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Preface
• Part I Background & Theoretical Perspective
• Part II Accounting for sustainability in practice (internal perspective)
• Part III Reporting sustainability (From internal to external perspective)
• Part IV Capital market and audit (external perspective)
• Index