Sustainability Accounting and Integrated Reporting

Charl Villiers, Warren Maroun, Charl de Villiers, Warren Maroun

• Verlag: Routledge
• Jahr: 2017
• ISBN:
  9781351608855
• Auflage: 1
• Thema: Negocios y empresa
• Thema: Gobierno empresarial

Sustainability Accounting and Integrated Reporting deals with organizations' assessment, articulation and disclosure of their social and environmental impact on various groups in society.

There is increasingly an understanding that financial information does not sufficiently discharge organizational accountability to members of society who are demanding an account of the social and environmental impacts of companies' and other organizations' activities. As a result, organizations report ever more social and environmental information, and there are simultaneous movements towards providing the information in an integrated fashion, showing how social and environmental activities influence each other, members of society and the financial aims of the organization.

The book Sustainability Accounting and Integrated Reporting provides a broad and comprehensive review of the field, focusing on the interconnection between different elements of these topics, often dealt with in isolation. The book examines the accounting involved in the collection and analysis of data, control processes over the data, how information is reported to external parties, and the assurance of the information being reported. The book thereby provides an overview useful to practitioners (including sustainability managers, consultants, members of the accounting profession, and other assurance providers), academics, and students.

1 Introduction to sustainability accounting and integrated reporting

Charl DE VILLIERS

The University of Auckland, and University of Pretoria

Warren MAROUN

University of the Witwatersran

Abstract

The practice of sustainability accounting has evolved on a voluntary basis because of a need for information, pressure for more transparent reporting, and a need for companies to explain their business models in more detail. Disclosure frameworks evolved first as industry initiatives to deflect criticism, and later as independent initiatives as pressure groups saw through the often-superficial industry initiatives and demanded broader accountability. The Global Reporting Initiative (GRI) standards are now the most widely used of these independent frameworks. The GRI standards require a process of stakeholder identification, followed by a stakeholder engagement process to identify material social and environmental matters that should be covered in disclosure. Integrated reporting can be seen as the latest development in the reporting of social and environmental matters. A framework and a brief overview of the rest of the book is provided.

Introduction

This book will provide an overview of sustainability accounting and integrated reporting, including its background; what we can learn from different theoretical perspectives that have been applied to this practice, especially around the question of why organizations choose to disclose; the information stakeholders require; what happens to reporting after a crisis; other determinants of disclosure; the consequences of disclosure; disclosures by public sector and not-for-profit organizations; the management control systems that underpin reporting; and the assurance of sustainability and integrated reporting.

For much of the 20th century, reporting and the accounting systems that supports it were explained as a rational technical development driven by the information needs of the capital market (Watts and Zimmerman 1976; Watts and Zimmerman 1978; Hopwood 1987). Changes in social norms during the 1960s and 1970s brought different pressures to bear on companies and other organizations, including demands for greater social and environmental accountability. This led to a broader conceptualization of the nature of accounting, starting in the 1980s. Using theories drawn from sociology, psychology and political science, researchers started to explain accounting as a dynamic social construction and more than just a neutral information processing system (Burchell et al. 1980; Cooper 1980; Hoskin and Macve 1986; Hopwood 1987). Of particular interest for this book is the realization that corporate reporting could provide an ‘account’ to interested constituents and that the conventional accounting system could be expanded to include more than just reporting on financial matters (Hopwood 1987; Gray et al. 1995). The emergence of different types of non-financial or environmental, social and governance (ESG)¹ reporting can, therefore, be seen as a practice driven by stakeholder demands and pressures, and a need for organizations to respond to these pressures by explaining their social and environmental impacts. These voluntary disclosure initiatives have, in some jurisdictions, led to regulations that mandate social and environmental disclosures.

Theoretical perspectives

The conventional view at the heart of early mainstream accounting research was that a company’s goal is to maximize profit for shareholders. This position was challenged and replaced with a more inclusive model, which stresses that a company is accountable to a broad group of stakeholders rather than only its shareholders (Solomon 2010). The result is that companies cannot focus only on generating financial returns for the benefit of debt and equity providers. A company operates according to a social licence which necessitates the management of ESG-related concerns and expectations to ensure stakeholders’ continued support and in turn, an organization’s ability to continue as a going concern (De Villiers and Barnard 2000; Deegan 2002; Atkins and Maroun 2015).

From this perspective, early forms of ESG reporting and the emergence of codified non-financial reporting standards, can be explained as a product of underlying stakeholder pressures and the desire to gain and maintain organizational legitimacy. As ESG reporting gained prominence from the 1980s onwards, social scientists have argued that its function in the contemporary business practice has increasingly become taken for granted (De Villiers and Alexander 2014). This has contributed to the institutionalization of many codes of best practice dealing with different aspects of non-financial reporting and has provided further impetus for the proliferation of what is now referred to as sustainability and integrated reporting.

A stream of research deals with the economic determinants and consequences of different types of non-financial disclosures. These involve establishing relationships between the levels of non-financial disclosures and: economic performance and firm value (for recent examples, see Cahan et al. 2016; De Klerk and De Villiers 2012; De Klerk et al. 2015; Marcia et al. 2015; De Villiers and Marques 2016); organizational processes (Churet and Eccles 2014); quality of management (Churet and Eccles 2014); and information asymmetry (De Klerk and De Villiers 2012). This body of work is based on the business case for non-financial reporting and agency theory.

A critical reader may note that the term ‘sustainability reporting’ is used in this book as a synonym or collective term for social and environmental reporting; corporate social responsibility reporting; environmental, social and governance reporting; integrated reporting and other forms of so-called non-financial reporting. Inconsistent use of terms (and definitions for these types of reporting) suggest that ‘sustainability’ accounting is often not about enhancing sustainability, but about the disclosure of information that relates to social and environmental sustainability and portrays, for example, enhanced eco-efficiency. The critical perspective that sustainability reporting may have been captured by powerful organizations as a method to deal with stakeholder pressure and that capitalism, a masculine orientation, business competitiveness, and the role of accounting in these processes may actually undermine true sustainability is not explored in depth in this book.

Sustainability reporting

Sustainability reporting has a long history (De Villiers et al. 2014a). For example, Lewis et al. (1984) find evidence of an early form of financial accounting to employees dating to 1917. There are also examples of basic forms of corporate social responsibility (CSR) reporting by an American steel and an Australian mining company in their corporate reports issued in the late 1890s and early 1900s (Hogner 1982; Guthrie and Parker 1989). Increased disclosures often followed stakeholder pressure, which intensified following social or environmental incidents, such as major oil spills (Patten 1992; Summerhays and De Villiers 2012). Stakeholders were not always appeased by the additional disclosures, as they were aware that organizations could use these disclosures to emphasize positive and ignore negative aspects. In order to enhance the credibility of their social and environmental disclosures, companies formed organizations that purported to independently determine what companies within that industry should report. Companies could then subscribe to these ‘independent’ bodies’ disclosure frameworks. Of course, sophisticated stakeholders soon saw through these tactics. Truly independent bodies, each with their own social and environmental disclosure framework, sprang up, providing a broader choice of frameworks for companies. Framework providers vied for a period to be the most relevant and credible. The most widely used framework today is the standards issued by the Global Reporting Initiative (GRI) (KPMG 2015).

Sustainability reporting is now commonplace, with most of the world’s largest companies disclosing sustainability information (KPMG 2015; Hughen et al. 2014). Where these companies specify a framework, most mention the GRI (KPMG 2015). Governmental and non-governmental organizations often also disclose sustainability information and use the GRI framework.

The GRI does not define ‘sustainability’, directly but its guidelines point to a three-dimensional model based on an organization’s economic, environmental and social impact (Lamberton 2005). According to the GRI (2016, p. 3), its standards:

create a common language for organizations and stakeholders, with which the economic, environmental, and social impacts of organizations can be communicated and understood. The Standards are designed to enhance the global comparability and quality of information on these impacts, thereby enabling greater transparency and accountability of organizations.

The GRI’s guidelines consist of universal and topic-specific standards. The former provide core reporting principles (GRI 100); recommend general disclosures designed to provide context about an organization (GRI 102); and provide guidance on how to deal with material issues, which are managed and reported on using topic-specific standards (GRI 103). These include GRI 200, GRI 300 and GRI 400, which deal with reporting on an organization’s economic, environmental and social impacts respectively (GRI 2016). The GRI standards require the identification of stakeholders, followed by a stakeholder engagement process to identify material social and environmental matters that should be covered in disclosure.

Table 1.1 Analysis of sustainability accounting and reporting

Attribute, characteristic or theme	Discussion
Socially constructed and varied meaning	There is no single definition of ‘sustainability’ and how the concept should be applied in a corporate reporting and management context (Milne and Patten 2002; Lamberton 2005). The GRI uses a three-dimensional model (as explained above), but academics have also considered sustainability at the ecological level ( Jones and Solomon 2013; Mansoor and Maroun 2015), the emancipatory potential of sustainability reporting (Dillard and Reynolds 2008; Atkins et al. 2015) and sustainability as part of a broader integrated business philosophy (Eccles and Krzus 2010; Atkins and Maroun 2015).
Indicator-driven	An organization’s sustainability cannot be measured directly (Lamberton 2005). As a result, sustainability reporting requires disclosures on various indicators or metrics which, collectively, and using the GRI’s concept of sustainability, provide an account of an organization’s economic, environmental and social impact (GRI 2016). Exactly which indicators need to be reported, the emphasis placed on each and how the interconnection between indicators is explained are hotly debated issues (Gray et al. 1995; Lamberton 2005).
Multiple measurement bases	Unlike financial reporting, sustainability reporting is inherently qualitative. Some organizations provide quantified measures of economic, environmental and social outcomes, but this is usually complemented with qualitative disclosures, narrative information and diagrams/images (Thomson and Bebbington 2005; Michelon et al. 2015).
Interdisciplinary practice	Reporting on financial and non-financial metrics requires an interdisciplinary perspective of a firm (Lamberton 2005). In particular, detailed reporting on social and environmental metrics can require specialized knowledge and experience.
Dependent on accounting principles and practices	High-quality reporting will require an organization to identify sustainability indicators, collect data and analyse the data to prepare a sustainability report. This requires effective reporting infrastructure, controls and reporting protocols similar to the conventional financial reporting system (Alrazi et al. 2015; McNally et al. 2017).
Inherently limited	While the GRI represents an important development in the sustainability reporting movement, it is not without limitations (Lamberton 2005). Academics have raised concerns that sustainability reporting often amounts to rhetoric and that the changes needed at the operational and strategic level to ensure long-term sustainability are lacking (Bebbington et al. 2009; Milne et al. 2009; Tregidga et al. 2014).

Whereas much of the development of non-financial disclosure has been voluntary, changes in stakeholder expectations over time have led to increased regulations. For example, an EU directive requires firms with more than 500 employees to provide certain social and environmental disclosures, starting in 2017, and the Johannesburg Stock Exchange requires that South African–listed companies provide an integrated report or explain why they do not (De Villiers et al. 2017).

The prior academic research identifies different attributes or characteristics of sustainability accounting and reporting and related themes. These are outlined in Table 1.1.

Integrated reporting

Integrated reporting can be seen ...

Inhaltsverzeichnis

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• 1 Introduction to sustainability accounting and integrated reporting
• 2 Integrated reporting
• 3 Why organizations voluntarily report – legitimacy theory
• 4 Why organizations voluntarily report – institutional theory and institutional work
• 5 Why organizations voluntarily report – agency theory
• 6 Stakeholder requirements for sustainability reporting
• 7 Sustainability reporting after a crisis
• 8 Determinants of reporting
• 9 Consequences of reporting
• 10 Sustainability and integrated reporting by the public sector and not-for-profit organizations
• 11 Management control systems to support sustainability and integrated reporting
• 12 Assurance of sustainability and integrated reports
• 13 The future of sustainability accounting and integrated reporting