Sustainability Accounting and Accountability

Matias Laine, Helen Tregidga, Jeffrey Unerman

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000405767
• Edition: 3
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Sustainability accounting and accountability is fundamental in the pursuit of low-carbon and less unsustainable societies. Highlighting that accounting, organisations and economic systems are intertwined with sustainability, the book discusses how sustainability accounting and accountability broaden the spectrum of information used in organisational decision-making and in evaluating organisational success. The authors show how sustainability accounting can prove to be transformative, but only if critical questions are sufficiently addressed.

This new and completely rewritten edition provides a comprehensive overview of sustainability accounting and accountability. Relevant global context and key concepts are outlined providing the reader with the conceptual resources to engage with the topic. Drawing on the most recent research and topical practical insights, the book discusses a wide variety of sustainability accounting and accountability topics, including management accounting and organisational decision-making, sustainability reporting frameworks and practices, as well as ESG-investments, financial markets and risk management. The book also highlights the role accounting has with key sustainability issues through dedicated chapters on climate, water, biodiversity, human rights and economic inequality. Each chapter is supplemented with practical examples and academic reading lists to allow in-depth engagement with the key questions.

Sustainability Accounting and Accountability walks the reader through a spectrum of themes which are essential for all accountants and organisations. It helps the reader to understand why our traditional accounting techniques and systems are not sufficient for navigating the contemporary sustainability challenges our societies are facing. This key book will be an essential resource for undergraduate and postgraduate instructors and students, as an entry point to sustainability accounting and accountability, as well as being a vital book for researchers.

Introduction to sustainability accounting and accountability

Before starting to explore the topic of this book it is perhaps useful to take a moment to reflect on some key questions. What kind of world do we want to live in? What is the state of the natural environment in that world? How are the societies organised? How do the economies function, and in whose interests? And, importantly, how does that vision compare to our present reality?

If our vision is one that includes a healthy environment able to sustain life on Earth, social justice for all, and fair economies which promote the fair distribution of wealth and opportunity, then we must acknowledge that there is a gap between our vision and our shared current reality. Scientific consensus regarding climate change as a result of human activity is well-established and the effects of climate change (increasingly being referred to as climate emergency, climate breakdown or climate crisis) are all around us from extreme weather events, changing landscapes, and climate refugees, the result of displacement due to rising sea levels. High levels of biodiversity loss are causing growing alarm given the many crucial roles of a healthy biosphere for all life. For example, healthy biodiverse soil can sustain the growing of more nutritious foods in greater long-term quantities needed by humanity and other animals than severely degraded soils. The devastating effects of biodiversity loss are resulting in individuals, organisations and countries across the globe working on ways to protect species of flora and fauna and curb growing levels of extinction. These are just two examples which illustrate the current state of the natural environment and the effects of environmental destruction. Increasingly there is also attention being placed on growing levels of economic inequality in many parts of the world, especially in the West, and people living in poverty across the globe, in particular the Global South.¹ It is now commonplace to hear about social injustices occurring across the globe and crises within the financial and economic systems.

Overall, the negative consequences and impacts of our current way of life are increasingly being understood. Importantly, the role of human activity is also being increasingly recognised and placed at the fore. How this way of life compromises our ability for ecological integrity, social justice and economic stability is also being recognised, leading to critical reflection and the recognition that we must act – and act now. Dominant ways of organising our economies so as to maximise short-term economic growth which have operated nearly unquestioned for decades are under immense scrutiny. Economies and systems of organising that work for the few, rather than for the many in current and future generations, are widely considered to be part of the systemic reasons behind the current critical situation – the unsustainability of our planet and livelihoods.

Issues of sustainability (and relatedly unsustainability) are the focus of this book. While expanded upon in Part I, sustainability in this book relates to the long-term viability of the natural environment, society and the economy or how, in the long term, we might ensure social, environmental and economic sustainability. Or, put another way, how we might move from the current unsustainable system to a sustainable one. Organisations, including business organisations as key economic actors, not only impact on the environment and society, they are also dependent on the environment and society. As such, organisations and systems of organising are central to any movement towards sustainability.

Accounting and accountability, and their relevance to sustainability, are the particular focus of the chapters that follow. While all the above might be familiar to you, you might be thinking, what has all this got to do with accounting? Accounting is a powerful tool within societies. It is a key function in organising economic activity and plays a central role in decision-making. Accounting is traditionally conceptualised as financial and management accounting and related to financial decision-making by those both internal and external to the entity. Take a moment to think about what you know about accounting. It is possible that you may be thinking about financial accounting and accounting as focusing on numbers and finance, a process of collecting, analysing and communicating financial information on the financial performance of an entity for financial decision-making. A range of financial accounting techniques have been developed to communicate to owners of an entity how the entity’s management has used economic resources, demonstrating accountability for the financial resources for which it is responsible and the financial impacts of its operations.

But, as is now commonly understood, organisations no longer have responsibility and accountability only for financial resources. As the array of environmental, social and economic impacts of organisations have become evident (in particular the environmental and social impact of large corporations), organisations have increasingly been required to be accountable for these impacts and for their use of environmental and social resources. This has seen the need for accounting to evolve and adapt. In practice, attempts to account for, and be accountable for, environmental and social impacts have grown to be relatively commonplace. However, many would argue, and as you will see in the chapters that follow, that accounting and accountability practices still have a long way to go if they are to be “fit for purpose” in a sustainable world.

Sustainability accounting and accountability refers to a range of techniques, tools and practices that are used in the measurement, planning, control and accountability of organisations with regards to environmental, social and economic issues. Similar to financial and management accounting, sustainability accounting has the potential to be a very powerful mechanism through which both individual organisations, as well as their various stakeholders, can better assess the environmental, social and economic aspects of activities. This can be both in relation to accounting for the environmental, social and economic impacts of an organisation and its activities, or in terms of assessing, evaluating and taking into account how an organisation is dependent on its environmental, social and economic context. Sustainability accounting has the potential to make visible issues which have previously been rendered invisible by conventional accounting systems. It thereby broadens the spectrum of information used in organisational decision-making and in evaluating organisational success.

The use of sustainability accounting and accountability tools and techniques has increased in recent years. Many organisations publish sustainability reports, major accountancy firms have dedicated departments working with corporate responsibility and sustainability accounting and assurance, while in everyday life one can encounter all kinds of products and services labelled as “sustainable” or “carbon-neutral” for example. As such, alongside this increased popularity there is a need to understand these tools and techniques, critically reflect on them (including how far they go in assisting in the transition to a more sustainable world), as well as consider ways in which they might develop or envision new tools and techniques that might take their place. This book attempts to both outline current knowledge and practices as well as provide the basis upon which they can be critically reflected on and new possibilities imagined. Each chapter has been written with this in mind.

Introduction to the content and structure of the book

This book is intended to be of use to a variety of readers. In addition to providing a broad discussion of the topic of sustainability accounting and accountability for anyone with an interest in the subject, the book has been written to support the variety of courses in this area. How this book can be used in these courses, and further information for instructors, can be found in the next section. Here, we introduce each of the four parts to the book.

Part I “Setting the context” follows this short introductory chapter. Part I consists of two chapters. Chapter 2 “Background and global context” provides the essential context and background information to the issues discussed in the book. In particular, the broader environmental, social and economic challenges and initiatives and agreements like the Sustainable Development Goals (SDGs) and climate negotiations that provide the global context within which the issues in the book are situated are introduced. In addition, Chapter 2 outlines what sustainability accounting and accountability is. How sustainability accounting and accountability is relevant to, and implicated in, the move towards a more sustainable society, building on the introductory discussion above, is addressed as well as a consideration of the challenges of what might be referred to as “conventional accounting”. The various institutional settings for which sustainability accounting and accountability is relevant, including corporates (for-profit), not-for-profit, social enterprises, public sector and non-governmental organisations are also discussed. This demonstrates the various organisational forms for which this topic is relevant and also positions the remaining chapters in relation to this focus as it is important to recognise that sustainability accounting and accountability is relevant beyond the corporate context which often dominates discussions.

In Chapter 3 we introduce some key concepts relating to sustainability accounting and accountability. These key concepts, accountability, stakeholders, materiality and externalities, are essential for understanding the role of accounting and accountability for sustainability within contemporary societies. Moreover, these key concepts provide necessary background for understanding much of the discussion that follows in the next two parts of this book as they help make sense of the assumptions and perspectives providing the foundations for the topic.

Part II of the book is titled “Accounting for sustainability” and consists of five chapters. Each of these chapters introduces and outlines the various subject areas where sustainability accounting and accountability has emerged and is relevant. Chapter 4 begins this discussion.

Titled “Sustainability management accounting and control”, Chapter 4 includes both a discussion of the practice of management accounting and control related to sustainability (e.g. why and how do we assess, measure and control? And how do we decide on those things to include in such practices?) as well as some of the specific tools and practices (e.g. what is the practice within various institutional contexts?). The aim of this chapter is to facilitate an understanding and critical evaluation of sustainability management accounting and control and the tools and practices which relate to it.

Chapters 5 and 6 discuss the practice of sustainability reporting, a key area of practice and research in the field. In Chapter 5 we focus on providing an overview of sustainability reporting, including a look at its historical development, the various frameworks that exist for this form of reporting and a discussion of the ongoing debate surrounding the regulation of practice and some key trends and practices. In the following chapter, Chapter 6, we delve deeper into questions such as why organisations produce these reports, whom they are targeting with them, what is being reported, and how this is done. We also discuss the assurance of the reports. As such, we consider the stages of the reporting process and key influences, debates and discussions that occur at each stage.

Chapter 7 presents and discusses the increasingly visible practice of ESG investments (environment, social, governance) within financial markets. In the ESG context there is growing awareness of the increasing risks which escalating global sustainability challenges are causing – not only to organisations but also to social and economic systems more broadly. In this chapter we discuss how sustainability accounting information and accountability relationships are interconnected with financial markets and increasing ESG-investment activity. This includes an understanding of how sustainability can affect the financial performance and long-term success of an organisation, and also reflects on how the financial markets can influence the social and environmental activities of organisations. While understanding the sustainability impacts of organisations is important, this chapter also highlights how accounting for dependencies can be significant in the context of financial markets, risk management and investments.

The last chapter in Part II, Chapter 8, discusses the practice of external accounting. This form of accounting essentially refers to accounts prepared by those external to an entity and often associated with the accountability relationship. We discuss the various practices which can collectively be referred to as external accounting as they are relevant to sustainability accounting and accountability. In addition to introducing this area of sustainability accounting and accountability, this chapter is also useful in thinking through the complexities of the topic – both in relation to encouraging critical thinking, and for engaging in discussion on how the practice of accounting could be different in order to move towards sustainability. This latter aspect is also useful as background for discussions in Part III of the book.

Part III “Issues in accounting for sustainability” consists of five chapters which each address a separate sustainability issue. Specifically, we discuss climate (Chapter 9), water (Chapter 10), biodiversity (Chapter 11), human rights (Chapter 12) and economic inequality (Chapter 13), respectively. While each c...