Sustainability Accounting and Corporate Accountability
Sustainability Accounting and Corporate Accountability
Sustainability accounting and reporting, also known as corporate social reporting, social accounting, non-financial reporting, and corporate social responsibility accounting, entails processes, methods, and systems of creating sustainability information for accountability, transparency, and decision-making purposes (Zvezdov & Schaltegger, 2013). It involves identifying critical sustainability aspects of the organization, defining measures and indicators, collecting data, tracking overall performance, and communicating with external and internal stakeholders (Zvezdov & Schaltegger, 2013). Sustainability accounting and reporting is important in the pursuit of more sustainable societies (Laine, Tregidga, & Unerman, 2021). While it can prove transformative, there is need to address critical questions related to the subject. This paper discusses whether sustainability accounting and reporting can lead to genuine improvements in corporate accountability.
For more than twenty years, top executives held that the primary obligation of managers and directors is to serve shareholders (Christensen, Hail, & Leuz, 2021). However, this has since changed with the suppliers, employees, customers, and community have joined the conversation (Business Roundtable 2019). That is, there is mounting pressure to invest sustainably. The top management of various organizations are beginning to respond to the pressure that there is a need to be ethical when conducting their operations, whether it is guaranteeing employees safety and health, clearing waterways, or keeping carbon footprint low. There is a growing need for organizations to provide information regarding their environmental, social, and governance (ESG) policies and activities (Cohen, Holder-Webb, & Zamora, 2015). This has resulted in corporate accountability, with some firms responding by disclosing sustainability in their regulatory filings. However, as most of these disclosures are voluntary, investors are left with no verifiable or comparable information (Bernow et al. 2019).
While various regulatory boards seek to ensure that business adhere to sustainability accounting and reporting, they differ extensively with regard to how to realize these targets. The current regulatory approaches are broadly divided into two categories. The first approach prioritizes giving investors the information they want evident in financial reporting. Here investors find ESG activities and policies as relevant if they result in financial consequences (Christensen, Hail, & Leuz, 2021). The second approach considers the needs of various stakeholders, the broad audience affected by the firms, including the community served. In this approach, reporting enhances transparency as a change agent and discourages undesirable behaviors while incentivizing desirable ones. Based on this approach, the firm reports how it is impacted by ESG policies and activities and how it affects the society and environment, including the various externalities caused (Christensen, Hail, & Leuz, 2021). Therefore, unless investors recognize that sustainability reporting is not just about maximizing their value or getting what they want to make investment decisions but also societal and environmental impacts of the firms, sustainability accounting and reporting cannot improve corporate accountability as expected.
Under sustainability accounting and reporting, organizations both for-profit and not-for-profit, are required to develop more sustainable business models, products, and processes. They are challenged to link their products, supply chains, and operations with social views and science-based targets of sustainable development goals to improve corporate accountability (Laine, Tregidga, & Unerman, 2021). While this is attainable, it is a daunting task. Despite considerable innovations being created in sustainability accounting and reporting for the last twenty years, developments are still too inconsistent. However, as companies are embedded in competitive business environments, the natural environment, and social context, it is more likely that corporate accountability can be increased.
Overall, from the discussion above, it is clear that many scholars believe sustainability accounting and reporting can improve corporate accountability. However, they remain skeptical on the effectiveness of the current corporate sustainability accounting and reporting methods. Voluntary disclosure of sustainability accounting and reporting information cannot be relied upon and there is a need to utilize mandatory disclosures.
References
Bernow, S., Godsall, J., Klempner, B., & Merten, C. (2019). More than values: The value-based sustainability reporting that investors want. McKinsey and Company. Available at: https://www.mckinsey.com/business-functions/sustainability/our-insights/more-than-values-the-value-based-sustainability-reporting-that-investors-want. (Accessed December 07, 2021).
Business Roundtable. (2019). Statement on the purpose of a corporation. Available at: https://opportunity.businessroundtable.org/ourcommitment/. (Accessed December 07, 2021)
Christensen, H.B., Hail, L. and Leuz, C., 2021. Mandatory CSR and sustainability reporting: economic analysis and literature review. Review of Accounting Studies, 26(3), pp.1176-1248. https://doi.org/10.1007/s11142-021-09609-5
Cohen, J.R., Holder-Webb, L. and Zamora, V.L. (2015). Nonfinancial information preferences of professional investors. Behavioral Research in Accounting, 27(2), pp.127-153. https://doi.org/10.2308/bria-51185
Laine, M., Tregidga, H. and Unerman, J. (2021). Sustainability Accounting and Accountability. Routledge.
Zvezdov D. and Schaltegger S. (2013) Sustainability Accounting. In: Idowu S.O., Capaldi N., Zu L., Gupta A.D. (eds) Encyclopedia of Corporate Social Responsibility. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-28036-8_743