Issues in Social and Environmental AccountingVol. 2, No. 1 June 2008Pp. 19-35 Evaluating Sustainability: a Need for Standards Güler Aras Institute of Social Science Yildiz Technical University, Turkey David Crowther Leicester Business School De Montfort University, UKAbstractSustainability is one of the most used words in relation to business activity and reporting atpresent, but its meaning is vague. We argue that its use is based upon the concepts of steward-ship and of the firm as going concerned, coupled with the traditional view of the transforma-tional process of a business. We further argue that this is problematic in the present global envi-ronment when stewardship of resources is becoming paramount. We therefore argue that sus-tainability is actually based upon efficiency in the transformational process and equity in thedistribution of effects. We therefore argue for the need for standards in analysing and measur-ing sustainability and outline a more complete model which recognises distributional implica-tions, and is developed into a model of operationalisabilityKeywords: Sustainability; sustainable development; distribution; stakeholders; corporatereporting; regulationINTRODUCTION its own definition to suit its purpose and objectives, although they seem to as-One of the most used words relating to sume that corporate sustainability andcorporate activity at present is the word corporate social responsibility are syn-sustainability. Indeed it can be argued onymous and based upon voluntary ac-that it has been so heavily overused, and tivity which includes environmental andwith so many different meanings ap- social concern, implicitly thereby adopt-plied, to it that it is effectively meaning- ing the EU approach.less. For example, according to Mar-rewijk & Were (2003) there is no spe- Thus the term sustainability currentlycific definition of corporate sustainabil- has a high profile within the lexicon ofity and each organisation needs to devise corporate endeavour. Indeed it is fre-Güler Aras is Professor of Finance and Director of the Graduate School at Yildiz Technical University, Istanbul, Tur-key, email: firstname.lastname@example.org. David Crowther is Professor of Corporate Social Responsibility at Leicester BusinessSchool, De Montfort University, UK, email: email@example.com
20 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35quently mentioned as central to corpo- ganisation as part of a wider social andrate activity without any attempt to de- economic system implies that these ef-fine exactly what sustainable activity fects must be taken into account, not justentails. This is understandable as the for the measurement of costs and valueconcept is problematic and subject to created in the present but also for themany varying definitions – ranging from future of the business itself. This ap-platitudes concerning sustainable devel- proach to sustainability is based uponopment to the deep green concept of re- the Gaia hypothesis (Lovelock 1979) – aturning to the ‘golden era’ before indus- model in which the whole of the eco-trialisation – although often it is used by sphere, and all living matter therein, iscorporations merely to signify that they co-dependant upon its various facets andintend to continue their existence into formed a complete system. According tothe future. this hypothesis, this complete system, and all components of the system, is in-The ubiquity of the concept and the terdependent and equally necessary forvagueness of its use mean that it is nec- maintaining the Earth as a planet capableessary to re-examine the concept and to of sustaining life.consider how it applies to corporate ac-tivity. Many people talk about the triple Such concerns are pertinent at a macrobottom line as if this is the panacea of level of society as a whole, or at thecorporate social responsibility and there- level of the nation state but are equallyfore inevitably concerned with sustain- relevant at the micro level of the corpo-ability. We regard it as self evident that ration, the aspect of sustainability withcorporations needs to be concerned with which we are concerned in this work. Atthese three aspects of CSR and equally this level, measures of sustainabilityself evident that all corporations are so would consider the rate at which re-concerned. This is not new and is not sources are consumed by the organisa-really what CSR is all about. Instead we tion in relation to the rate at which re-focus our concern differently and re-use sources can be regenerated. Unsustain-the going concern principle of account- able operations can be accommodateding to argue that what really matters for for either by developing sustainable op-a corporation’s continued existence is erations or by planning for a future lack-the notion of sustainability. For us this is ing in resources currently required. Inthe cornerstone of both CSR and of cor- practice organisations mostly tend toporate activity. aim towards less unsustainability by in- creasing efficiency in the way in which resources are utilised. An exampleSUSTAINABILITY would be an energy efficiency pro- gramme.Sustainability therefore implies that so-ciety must use no more of a resource Sustainability is a controversial topicthan can be regenerated. This can be because it means different things to dif-defined in terms of the carrying capacity ferent people. Nevertheless there is aof the ecosystem (Hawken 1993) and growing awareness (or diminishing na-described with input – output models of ivety) that one is, indeed, involved in aresource consumption. Viewing an or- battle about what sustainability means
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 21and, crucially, the extent (if at all) it can gards the concept of sustainable devel-be delivered by corporations in the easy opment merely as a business opportu-manner they promise (United Nations nity, arguing that once a company iden-Commission on Environment and Devel- tifies its environmental strategy thenopment (Schmidheiny, 1992). opportunities for new products and ser- vices become apparent.There is a further confusion surroundingthe concept of sustainability: for the pur- There seem therefore to be two com-ist sustainability implies nothing more monly held assumptions which permeatethan stasis – the ability to continue in an the discourse of corporate sustainability.unchanged manner – but often it is taken The first is that sustainability is synony-to imply development in a sustainable mous with sustainable development. Themanner (Marsden 2000; Hart & Milstein second is that a sustainable company2003) and the terms sustainability and will exist merely by recognising envi-sustainable development are for many ronmental and social issues and incorpo-viewed as synonymous. rating them into its strategic planning. We reject both of these assumptions –As far as corporate sustainability is con- both are based upon an unquestioningcerned then the confusion is exacerbated acceptance of market economics predi-by the fact that the term sustainable has cated in the need for growth. While webeen used in the management literature do not necessarily reject such marketover the last 30 years (see for example economics we argue that its acceptanceReed & DeFillippi 1990) to merely im- has led to the assumptions about sustain-ply continuity. Thus Zwetsloot (2003) is ability which have confused the debate.able to conflate corporate social respon- Thus we consider it imperative at thissibility with the techniques of continu- point to reiterate the basic tenet of sus-ous improvement and innovation to im- tainability, that sustainable activity isply that sustainability is thereby ensured. activity in which decisions made in the present do not restrict the choices avail-An almost unquestioned assumption is able in the future. If this tenet of sustain-that growth remains possible (Elliott ability is accepted then it follows that2005) and therefore sustainability and development is neither a necessary norsustainable development are synony- desirable aspect of sustainability. Sus-mous. Indeed the economic perspective tainable development may well be possi-of post-Cartesian ontologies predomi- ble, and even desirable in some circum-nates and growth is considered to be not stances, but it is not an integral aspect ofjust possible but also desirable (see for sustainability.example Spangenberg 2004). So it ispossible therefore for Daly 1992 to ar- Our second point is that corporate sus-gue that the economics of development tainability is not necessarily continuingis all that needs to be addressed and that into the future with little change exceptthis can be dealt with through the market to incorporate environmental and socialby the clear separation of the three basic issues – all firms are doing this in someeconomic goals of efficient allocation, way. Nor is corporate sustainability aequitable distribution, and sustainable term which is interchangeable with thescale. Hart (1997) goes further and re- term corporate social responsibility. And
22 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35environmental sustainability – the con- ‘financial statements are normallytext in which the tem is generally used – prepared on the assumption thatis not the same as corporate sustainabil- an enterprise is a going concernity. and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise hasCORPORATE SUSTAINABILITY neither the intention nor the need to liquidate or curtail materiallySustainability is a fashionable concept the scale of its operations’.for corporations and their reporting pre- Para 23 of the Conceptual Frameworkviously described as environmental re-porting and then corporate social respon- The going concern principle is amongsibility reporting is now often described the most important accounting, andas sustainability reporting (Aras & therefore business, principles. Neverthe-Crowther 2007a). Corporate websites less, despite the definition of the princi-also tend to discuss sustainability. But it ple seeming to be relatively straightfor-is apparent that sustainability and sus- ward, the application of it can be fraughttainable development are used as inter- with difficulties. Accountants and law-changeable terms. It is apparent there- yers spend much time debating the ap-fore that a very powerful semiotic plication of this concept in practice.(Guiraud 1975; Kim 1996) of sustain- What is missing from their discussionsable activity has been created – conven- however is any attempt to apply theiently as Fish (1985) shows that truth principles of sustainability to the com-and belief are synonymous for all practi- pany; instead they merely assume that ancal purposes. It has been argued else- unchanged external environment willwhere (Aras & Crowther 2008a) that this enable the firm to carry on in an un-is a deliberate ploy as one of the effects changed manner. Firms themselves, inof persuading people that corporate ac- their publicity and annual reporting alsotivity is sustainable is that the cost of assume this – merely that the going con-capital for the firm is reduced as inves- cern principle applies to the activities oftors are misled into thinking that the the firm, but with the prospect of devel-level of risk involved in their investment opment being sustainable on the sameis lower than it actually is. basis. International GAAP1 however also hasTHE FIRM AS A GOING CONCERN other things to say about the firm and its reporting. For example one such state-One of the fundamental principles of ment is that:accounting is the concept of the firm as agoing concern. This of course means ‘The objective of general purposethat the accounts and the Balance Sheet external financial reporting is toof a company must reflect the value of provide information that is usefulthat company as if it were to remain in to present and potential investorsexistence for the foreseeable future. AsInternational GAAP states: 1 GAAP is the mnemonic for Generally Accepted Accounting Principles – the basis of all accounting practice.
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 23 and creditors and others in mak- financial resources of the organisation so ing investment, credit, and similar too would management of the organisa- resource allocation decisions’. tion be concerned with the stewardship Section 5.2.1 of environmental resources. The differ- ence however is that environmental re-Furthermore the meaning of the phrase sources are mostly located externally toinformation that is useful is further the organisation. Stewardship in thisclarified as follows: context therefore is concerned with the resources of society as well as the re- ‘financial reporting should pro- sources of the organisation. As far as vide information to help present stewardship of external environmental and potential investors and credi- resources is concerned then the central tors and others to assess the tenet of such stewardship is that of en- amounts, timing, and uncertainty suring sustainability. Sustainability is of the entitys future cash inflows focused on the future and is concerned and outflows (the entitys future with ensuring that the choices of re- cash flows). That information is source utilisation in the future are not essential in assessing an entitys constrained by decisions taken in the ability to generate net cash in- present. This necessarily implies such flows and thus to provide returns concepts as generating and utilising re- to investors and creditors’. newable resources, minimising pollution Section 5.2.1 and using new techniques of manufac- ture and distribution. It also implies theAccounting is clearly about the provi- acceptance of any costs involved in thesion of information to enable the assess- present as an investment for the future.ment of future returns on investment.But we have attempted to show that al- Not only does such sustainable activitythough this has been interpreted as sus- however impact upon society in the fu-tainability on the discourse of firms and ture; it also impacts upon the organisa-their reporting it is clearly at odds with tion itself in the future. Thus good envi-the discourse of sustainability within ronmental performance by an organisa-both the academic community and the tion in the present is in reality an invest-environmental community. Our argu- ment in the future of the organisationment is that although these two dis- itself. This is achieved through the en-courses are seemingly incompatible they suring of supplies and production tech-are both incomplete, and that their com- niques which will enable the organisa-pletion brings about their reconciliation. tion to operate in the future in a similar way to its operations in the present and so to undertake value creation activity inACCOUNTING AND STEWARD- the future much as it does in the present.SHIP Financial management also however is concerned with the management of theOne view of good corporate perform- organisation’s resources in the presentance is that of stewardship and thus just so that management will be possible in aas the management of an organisation is value creation way in the future. Thusconcerned with the stewardship of the the internal management of the firm,
24 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35from a financial perspective, and its ex- society at large, although this welfare isternal environmental management coin- targeted at particular members of societycide in this common concern for man- rather than treating all as equals. Thisagement for the future. Good perform- has led to arguments by Tinker (1988),ance in the financial dimension leads to Herremans et al (1992) and Gray (1992),good future performance in the environ- amongst others, concerning the distribu-mental dimension and vice versa. Thus tion of value created and to whetherthere is no dichotomy (Crowther 2002) value is created for one set of stake-between environmental performance and holders at the expense of others. Never-financial performance and the two con- theless if, when summed, value is cre-cepts conflate into one concern. This ated then this adds to welfare for societyconcern is of course the management of at large, however distributed. Similarlythe future as far as the firm is con- good environmental performance leadscerned.2 The role of social and environ- to increased welfare for society at large,mental accounting and reporting and the although this will tend to be expressed inrole of financial accounting and report- emotional and community terms rathering therefore can be seen to be coinci- than being capable of being expressed indental. Thus the work required needs be quantitative terms. This will be ex-concerned not with arguments about re- pressed in a feeling of wellbeing, whichsource distribution but rather with the will of course lead to increased motiva-development of measures which truly tion. Such increased motivation will in-reflect the activities of the organisation evitably lead to increased productivity,upon its environment. These techniques some of which will benefit the organisa-of measurement, and consequently of tions, and also a desire to maintain thereporting, are a necessary precursor to pleasant environment which will in turnthe concern with the management for the lead to a further enhanced environment,future – and hence with sustainability. a further increase in welfare and the re- duction of destructive aspects of societalSimilarly the creation of value within the engagement by individuals.firm is followed by the distribution ofvalue to the stakeholders of that firm,whether these stakeholders are share- DISTRIBUTIONAL CONFLICTSholders or others. Value however mustbe taken in its widest definition to in- In binary opposition to shareholders, asclude more than economic value as it is far as value creation and distribution forpossible that economic value can be cre- an organisation are concerned, are allated at the expense of other constituent others interested in the performance ofcomponents of welfare such as spiritual the organisation (Crowther 2000), whoor emotional welfare.3 This creation of are generally homogeneously describedvalue by the firm adds to welfare for as ‘the stakeholders’. This concept neatly distinguishes one stakeholder2 Financial reporting is of course premised upon the group, the shareholders, from all otherscontinuing of the company – the going concern princi- and enables the discourse to treat amor-ple.3 See for example Mishan (1967), Ormerod (1994) and phously all other stakeholders. It is im-Crowther, Davies & Cooper (1998). This can be portant to remember however that thisequated to the concept of utility from the discourse ofclassical liberalism. amorphous mass contains very discrete
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 25groupings such as employees, custom- an organisation’s activities. Similarlyers, society at large and possibly most Eccles (1991) states that there has been asignificantly the future (see Cooper shift from treating financial figures as2000). This future can be broadly encap- the foundation of corporate performancesulated in the concept of the environ- measurement to treating them as part ofment. In this separation of stakeholders a broader range of measures, whileinto two distinct groupings a dialectic is McDonald and Puxty (1979) maintaincreated which establishes a violent hier- that companies are no longer the instru-archy (Laclan 1990) between the two ments of shareholders alone but existpoles of a binary opposition by estab- within society and so have responsibili-lishing the idea of a conflict of interests. ties to that society. Others (eg RoslenderThe creation of this dialectic provides a 1996) argue for a changed basis for ac-legitimation for the privileging of share- counting to reflect these changes.holders over all other stakeholders, atask for which accounting is singularly This part of the discourse thereforewell equipped. seems to have moved away from the concerns of shareholders in the firm andAt the same time the creation of this dia- away from the economic rationale forlectic implicitly creates two dimensions accounting and towards a considerationto the performance of an organisation – of the wider stakeholder environment.performance for shareholders and per- At the same time however these share-formance for other stakeholders, with an holder concerns cannot be ignored andequally implicit assumption that maxi- another part of the discourse has seen amising performance for one can only be return to economic values in assessingat the expense of the other. It is in this the performance of the firm. Thus Rap-way that a dialogue is created to con- paport (1986) recognises some of thesider which pole of the binarism should problems with accounting but goes on tobe dominant in the managing of corpo- consider the concept of shareholderrate performance because one of the es- value and how this can be created andsential features of the violent hierarchy sustained. He develops a methodologyof poles established in this dialectic is of shareholder value based upon his pre-that one must be privileged over the vious work where he argues (1992) thatother. a shareholder value approach is the cor- rect way of evaluating alternative com-The nature of the discourse regarding the pany strategies, stating that the ultimatemeasurement and evaluation of corpo- test of a corporate plan is whether it cre-rate performance has bifurcated in recent ates value for the shareholders, and thatyears with the adoption of different per- this is the sole method of evaluating per-spectives and this has been reflected in formance.the changing nature of corporate report-ing. Thus Beaver (1989) states that there This view of an organisation has how-has been a shift from an economic view ever been extensively challenged byof corporate performance measurement many writers (eg Herremans et al 1992,to an informational perspective with a Tinker 1985) who argue that the way torecognition of the social implications of maximise performance for society at large is to both manage on behalf of all
26 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35stakeholders and ensure that the value It can be argued therefore that a clearerthereby created is not appropriated by articulation of the needs of performancethe shareholders but is distributed to all evaluation will not only facilitate a morestakeholders. Others such as Kay (1998) meaningful evaluation of performanceargue that this debate is sterile and that for all interested parties but will alsoorganisations maximise value creation lead to better performance for the or-not by a concern with either sharehold- ganisation. This is not just because suchers or stakeholders but by focusing upon an articulation of needs can be argued tothe operational objectives of the firm lead to a reduction in tension within theand assuming that value creation, and organisational framework but also be-equitable distribution will thereby fol- cause it enables more clearly the identi-low. fication of the factors which shape per- formance as far as meeting the objec-Adherents to each of these conflicting tives of the organisation is concerned,philosophies have a tendency to adopt and the techniques of VBM4 are de-different perspectives on the evaluation signed for this purpose. It is further ar- gued however that successful perform-of performance. Thus good performance ance, in whatever terms deemed appro-for one school of thought is assumed to priate, is not just more likely to bebe poor performance for the others. Thus achieved in this manner but also is moreperformance maximising philosophies likely to be sustainable and so shapeare polarised in the discourse and this long term performance rather than theleads to a polarisation of performance short term performance of the organisa-reporting and the creation of the dialec- tion. The factors shaping performance intic considered earlier. Almost unques- the long and short term are not necessar-tioned within the discourse however is ily the same and the viewpoint and timethe assumption that good performance horizon of the organisation are thereforefrom one aspect necessitates the sacrific- important to its approach to measure-ing of performance from the other, de- ment and evaluation. An examination ofspite the ensuing distributional conflicts this time horizon and its relationshipbeing hidden within the discourse. In- both to the organisation’s evaluationdeed Kimberley et al (1983) have argued systems and its performance, both pro-that some areas of performance which jected and actualised, is important there-are important to the future of the busi- fore to an understanding of the operatingness are not even recognised let alone of the organisation.evaluated. It is argued in this paper thatthe future orientation of performancemanagement necessitates the creation of DISTRIBUTIONAL PROBLEMSvalue over the longer term for all stake-holders and moreover that this value Traditional accounting theory and prac-creation must be manifest in the way in tice assumes that value is created in thewhich the value created in the organisa- business through the transformationtion is distributed among the various process and that distribution is merelystakeholders. It is only in this way that 4the sustainability, and even the continu- VBM = Value Based Management, a technique claimed to optimise decision making for performance.ing temporal existence, of the organisa- See Cooper et al 2001 for further details.tion can be ensured.
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 27concerned with how much of the resul- ing, the local societal environment intant profit is given to the investors in the which the organisation is located and thebusiness now and how much is retained wider global environment.in order to generate future profits andhence future returns to investors. This is The discourse of accounting can there-of course overly simplistic for a number fore be seen to be concerned solely withof reasons. Even in traditional account- the operational performance of the or-ing theory it is recognised that some of ganisation. Contrasting views of the rolethe retained profit is needed merely to of accounting in the production processreplace worn out capital – and hence to might therefore be epitomised as eitherensure sustainability in its narrowest providing a system of measurement tosense. Accounting of course only at- enable a reasonable market mediation intempts to record actions taking place the resource allocation problem or aswithin this transformational process, and providing a mechanism for the expro-even in doing so regards all costs as priation of surplus value from the labourthings leading to profit for distribution. component of the transformational proc- ess. Both strands of the discourse how-This traditional view of accounting is ever tend to view that labour as a homo-that the only activities with which the geneous entity and consider the effect oforganisation should be concerned are organisational activity upon that entity.those which take place within the or- Labour is of course composed of indi-ganisation;5 consequently it is consid- vidual people; moreover these individualered that these are the only activities for people have a lifetime of availability forwhich a role for accounting exists. Here employment and different needs at dif-therefore is located the essential dialec- ferent points during their life cycle. Thetic of accounting – that some results of depersonalisation of people through theactions taken are significant and need to use of the term labour however providesbe recorded while others are irrelevant a mechanism for the treatment of labourand need to be ignored. This view of as an entity without any recognition ofaccounting places the organisation at the these personal needs. Thus it is possiblecentre of its world and the only inter- to restrict the discourse to that of thefaces with the external world take place organisation and its components – la-at the beginning and end of its value bour capital etc – and to theorise accord-chain. It is apparent however that any ingly. The use of the term labour is aactions which an organisation under- convenient euphemism which disguisestakes will have an effect not just upon the fact that labour consists of people,itself but also upon the external environ- while the treatment of people as a vari-ment within which that organisation re- able cost effectively commodifies thesesides. In considering the effect of the people in the production process. In or-organisation upon its external environ- der to create value in the transforma-ment it must be recognised that this en-vironment includes both the business tional process of an organisation thenenvironment in which the firm is operat- commodities need to be used efficiently, and this efficient use of such commodi-5 Essentially the only purpose of traditional accounting ties is measured through the accountingis to record the effects of actions upon the organisationitself. of the organisation. When this commod-
28 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35ity consists of people then this implies effect of mechanisation upon peopleusing them in such a way that the maxi- need not be taken into account. Thus ifmum surplus value can be extracted mechanisation results in people becom-from them. The way in which this can be ing unemployed (or possibly unemploy-achieved is through the employment of able) then this is of no concern – exceptyoung fit people who can work hard and to the people themselves.then be replaced by more young fit peo-ple. In this way surplus value (in Marx-ian terms) can be transferred from the DEVELOPING A FULL DIS-future of the person and extracted in the COURSE OF SUSTAINABILITYpresent. As people have been constitutedas a commodified variable cost then they In this paper we have sought to showbecome merely a factor of production that there are two discourses concerningwhich can be exchanged for another fac- corporate sustainability which are oper-tor of production, as the costs deter- ating in parallel with each other. One ismined through the use of accounting predicated in the environmental sustain-legitimate. Thus it is reasonable, through ability discourse which is epitomised byan accounting analysis, to replace people such work as Jacobs (1991), Welfordwith machinery if more value (profit) (1997) and Gray & Bebbington (2001).can be extracted in doing so, and this has The second is predicated in the goingprovided the imperative for the indus- concern principle of accounting as epito- mised by the corporate reporting de-trial revolution which has continued up scribed earlier. Although seemingly in-until the present. Accounting is only compatible, both are actually based onconcerned with the effect of the actions an acceptance of a conventional view ofof an organisation upon itself and so the the transformational process: Fig 1 The Traditional Transformational Process Inputs: Added value Outputs: Capital through Goods & Labour operations services Finance ProfitThe environmental strand of the sustain- in the form of the triple bottom line ap-ability discourse extends this by recog- proach to performance measurement:nising a wider set of inputs and outputs Fig 2 Recording Inputs / Outputs for the environmental Discourse economic social environmental
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 29Essentially this however is an accep- fects recorded. Our argument is that thistance of the traditional model of the does not actually lead to corporate sus-transformational process with more ef- tainability without a consideration of the Fig 3 Sustainability model Sustainable input activity Societal influence Environmental Impact Organisational culture Finance Transformational process Distribution of results to shareholders & other stakeholdersThis is essentially a balancing model of ther a realistic nor an ethical model ofcorporate activity. In other words we are sustainability. An ethical view of sus-stating for example that the conventional tainability, predicated in a Utilitarianview of sustainability in terms of either philosophy, would allow actions, as longuse no more of a resource than can be as full evaluation of the consequencesregenerated or not limiting the choices are made and as long as all stakeholdersof future generations – in other words understand and accept the implications.stasis (Aras & Crowther 2007b) – is nei- Then it would be ethical behaviour if the
30 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35net effect of summation of effects was over it reflects the different traditions ofpositive. Thus it could be acceptable to business and differing stages of develop-affect the environment and hence the ment throughout the Community.possibilities for future generations if thiscondition was met. In this model we are Although this definition places an em-not arguing for or against sustainable phasis on such activity being voluntarydevelopment (as others do) but merely the implication is that the EC will not beacknowledging that it may be possible involved in any form of regulation andand outlining the circumstances in which that the expectation is that companiesit is acceptable.The regulation of corpo- will engage in socially responsible activ-rate social responsibility ity in excess of any regulatory require- ments. Although phrased to place anThe European Union, through its Com- expectation upon companies this state-mission, has concentrated on the enac- ment is in reality a clear abdication oftion of corporate social responsibility any responsibility on the part of the EC.6(CSR) as an expression of European co- Such abdication is in accordance withhesion. Thus the Green Paper – Promot- the action (or lack thereof) of other gov-ing a European framework for Corporate ernments and is predicated in an as-Social Responsibility (EC, 2001) and the sumption that the market will enableCorporate Social Responsibility: A busi- such socially responsible activity.7ness contribution to Sustainable Devel-opment (EC, 2002) defined the pressure According to the European Commissionfrom the European institutions so that therefore it is about undertaking volun-corporations were rinded of their re- tary activity which demonstrates a con-sponsibilities to their various stake- cern for stakeholders. But it is here thatholders, both internal and external. The a firm runs into problems – how to bal-first document (EC, 2001: 8) described ance up the conflicting needs and expec-CSR as: tations of various stakeholder groups … a concept whereby companies while still being concerned with share- integrate social and environ- holders; how to practice sustainability; mental concerns in their business how to report this activity to those inter- operations and in their interaction 6 Conversely, as Ortiz-Martinez (2004) points out in a with their stakeholders on a vol- country such as Spain then some kind of information untary basis. about socially responsible corporate behaviour is re- quired to be shown on the corporate website. In this respect there there is not a universal consensus among government organs, at least as far as the EU is con-The essential point is that compliance is cerned. 7voluntary rather than mandatory and this Of course, it is possible to argue that such things as International Financial Reporting Standards (IFRS) andvoluntary approach to CSR expresses such bodies as the International Accounting Standardsthe reality of enterprises in beginning to Board (IASB) are effectively government endorsedtake responsibility for their true social regulations as they are supported by governments around the world and compliance is required by na-impact and recognises the existence of a tional and global corporations. Although this is a validlarger pressure exercised by various claim it must also be recognised that their enforcement is policed by organisations such as Arthur Andersenstakeholder groupings in addition to the and that corporations such as Enron would be deemedtraditional ones of shareholders and in- to be in compliance, one of the problems causing a lackvestors (Aras & Crowther 2008b). More- of faith in both financial markets and corporate behav- iour.
G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 31ested; how to decide if one activity more prescribe what should be reported on butsocially responsible that another. The rather the how.situation is complex and conflicting. Sohere the intention is to consider both According to AccountAbility thewhat is meant by CSR and what we AA1000 Assurance Standard is the firstknow about the relationship between initiative offering a non-proprietary,CSR and financial performance. open-source Assurance standard cover- ing the full range of an organisation’sNevertheless steps have been taken by disclosure and associated performanceinterested parties to change this volun- (i.e. sustainability reporting and per-tary approach and to develop some kind formance). It draws from and builds onof standards for reporting, but they have mainstream financial, environmental andnot een adopted by governments to be- quality-related assurance, and integratescome enshrined into standards. Thus in key learning with the emerging practice1999 the Institute of Social and Ethical of sustainability management and ac-Accountability (The Institute of Social countability, as well as associated re-and Ethical Accountability is probably porting and assurance practices.better known as AccountAbility) pub-lished the AA1000 Assurance Standard At the similar time the Global Reportingthe aim of fostering greater transparency Initiative (GRI) produced its Sustainabil-in corporate reporting. AccountAbility, ity Reporting Guidelines have been de-an international, not-for-profit, profes- veloped through multi-stakeholder dia-sional institute has launched the worlds logue. The guidelines are claimed to befirst-ever assurance standard for social closely aligned to AA1000, but focus onand sustainability reporting. The a specific part of the social and environ-AA1000 framework (http:// mental accounting and reporting proc-www.accountability.org.uk) is designed ess, namely reporting. The GRI aims toto improve accountability and perform- cover a full range of economic issues,ance by learning through stakeholder although these are currently at differentengagement. It was developed to address stages of development. The GRI is anthe need for organisations to integrate initiative that develops and disseminatestheir stakeholder engagement processes voluntary Sustainability Reportinginto daily activities. It has been used Guidelines. These Guidelines are forworldwide by leading businesses, non- voluntary use by organisations for re-profit organisations and public bodies. porting on the economic, environmental,The Framework is designed to help users and social dimensions of their activities,to establish a systematic stakeholder en- products, and services. Although origi-gagement process that generates the in- nally started by an NGO, GRI has be-dicators, targets, and reporting systems come accepted as a leading model forneeded to ensure its effectiveness in how social environmental and economicoverall organisational performance. The reporting should take place. It aims toprinciple underpinning AA1000 is inclu- provide a framework that allows compa-sivity. The building blocks of the proc- rability between different companies’ess framework are planning, accounting reports whilst being sufficiently flexibleand auditing and reporting. It does not to reflect the different impacts of differ- ent business sectors.
32 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35The GRI aims to develop and dissemi- GRI and AA1000 provide a set of toolsnate globally applicable Sustainability to help organisations manage, measureReporting Guidelines. These Guidelines and communicate their overall sustain-are for voluntary use by organisations ability performance: social, environ-for reporting on the economic, environ- mental and economic. Together, theymental, and social dimensions of their draw on a wide range of stakeholdersactivities, products, and services. The and interests to increase the legitimacyGRI incorporates the active participation of decision-making and improve per-of representatives from business, ac- formance. Individually, each initiativecountancy, investment, environmental, supports the application of the other – athuman rights, research and labour or- least this is the claim of both organisa-ganisations from around the world. tions concerned; AA1000 provides aStarted in 1997, GRI became independ- rigorous process of stakeholder engage-ent in 2002, and is an official collaborat- ment in support of sustainable develop-ing centre of the United Nations Envi- ment, while GRI provides globally ap-ronment Programme (UNEP) and works plicable guidelines for reporting on sus-in cooperation with UN Secretary- tainable development that stresses stake-General Kofi Annan’s Global Compact. holder engagement in both its develop-The guidelines are under continual de- ment and content.velopment and in January 2006 the draftversion of its new Sustainability Report-ing Guidelines, named the G3, was pro- DEVELOPING STANDARDS OFduced and made open for feedback. The SUSTAINABILITYGRI pursues its mission through the de-velopment and continuous improvement We have discussed elsewhere (eg Arasof a reporting framework that can be & Crowther 2007b, 2007c, 2008c) theused by any organisation to report on its features of sustainability in terms of theeconomic, environmental and social per- factors involved. Here we wish to focusformance. The GRI has become the upon its operationalisation, in terms ofpopular framework for reporting, on a the development of standards. Our argu-voluntary basis, for several hundred or- ment has been that sustainability mustganizations, mostly for-profit corpora- involve greater efficiency in the use oftions. It claims to be the result of a per- resources and greater equity in the distri-manent interaction with many people bution of the effects of corporate activ-that supposedly represents a wide vari- ity. For standards to be developed thenety of stakeholders relative to the impact of course the effects must be measurableof the activity of business around the and the combination must of course beworld. manageable. This can be depicted as the model of sustainability shown as fig 4: Fig 4 The facets of sustainability Manageable Measurable (strategic) (financial) Equitable Efficient (distributional) (technological)
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