11.aras,crowther 0019www.iiste.org call for_paper-35

Issues in Social and Environmental Accounting
Vol. 2, No. 1 June 2008
Pp. 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, UK
Abstract

Sustainability is one of the most used words in relation to business activity and reporting at
present, 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 the
distribution 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 operationalisability

Keywords: Sustainability; sustainable development; distribution; stakeholders; corporate
reporting; regulation

INTRODUCTION 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 and
corporate 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 and
with 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 currently
cific definition of corporate sustainabil- has a high profile within the lexicon of
ity 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: aras@yildiz.edu.tr. David Crowther is Professor of Corporate Social Responsibility at Leicester Business
School, De Montfort University, UK, email: dcrowther@dmu.ac.uk

20 G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35

quently mentioned as central to corpo- ganisation as part of a wider social and
rate activity without any attempt to de- economic system implies that these ef-
fine exactly what sustainable activity fects must be taken into account, not just
entails. This is understandable as the for the measurement of costs and value
concept is problematic and subject to created in the present but also for the
many varying definitions – ranging from future of the business itself. This ap-
platitudes concerning sustainable devel- proach to sustainability is based upon
opment to the deep green concept of re- the Gaia hypothesis (Lovelock 1979) – a
turning 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, is
corporations merely to signify that they co-dependant upon its various facets and
intend to continue their existence into formed a complete system. According to
the 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 for
vagueness of its use mean that it is nec- maintaining the Earth as a planet capable
essary 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 macro
bottom line as if this is the panacea of level of society as a whole, or at the
corporate social responsibility and there- level of the nation state but are equally
fore 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 with
corporations needs to be concerned with which we are concerned in this work. At
these three aspects of CSR and equally this level, measures of sustainability
self 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 accommodated
ing 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. In
the cornerstone of both CSR and of cor- practice organisations mostly tend to
porate activity. aim towards less unsustainability by in-
creasing efficiency in the way in which
resources are utilised. An example
SUSTAINABILITY would be an energy efficiency pro-
gramme.
Sustainability therefore implies that so-
ciety must use no more of a resource Sustainability is a controversial topic
than 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 a
of the ecosystem (Hawken 1993) and growing awareness (or diminishing na-
described with input – output models of ivety) that one is, indeed, involved in a
resource consumption. Viewing an or- battle about what sustainability means

G. Aras, D. Crowther / Issues in Social and Environmental Accounting 1 (2008) 19-35 21

and, 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 then
opment (Schmidheiny, 1992). opportunities for new products and ser-
vices become apparent.
There is a further confusion surrounding
the concept of sustainability: for the pur- There seem therefore to be two com-
ist sustainability implies nothing more monly held assumptions which permeate
than 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. The
manner (Marsden 2000; Hart & Milstein second is that a sustainable company
2003) 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 unquestioning
cerned 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 we
been used in the management literature do not necessarily reject such market
over the last 30 years (see for example economics we argue that its acceptance
Reed & 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 this
sibility with the techniques of continu- point to reiterate the basic tenet of sus-
ous improvement and innovation to im- tainability, that sustainable activity is
ply 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 that
2005) and therefore sustainability and development is neither a necessary nor
sustainable 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 of
just possible but also desirable (see for sustainability.
example Spangenberg 2004). So it is
possible therefore for Daly 1992 to ar- Our second point is that corporate sus-
gue that the economics of development tainability is not necessarily continuing
is all that needs to be addressed and that into the future with little change except
this can be dealt with through the market to incorporate environmental and social
by the clear separation of the three basic issues – all firms are doing this in some
economic goals of efficient allocation, way. Nor is corporate sustainability a
equitable distribution, and sustainable term which is interchangeable with the
scale. Hart (1997) goes further and re- term corporate social responsibility. And


environmental sustainability – the con- ‘financial statements are normally
text in which the tem is generally used – prepared on the assumption that
is not the same as corporate sustainabil- an enterprise is a going concern
ity. and will continue in operation for
the foreseeable future. Hence, it is
assumed that the enterprise has
CORPORATE SUSTAINABILITY neither the intention nor the need
to liquidate or curtail materially
Sustainability is a fashionable concept the scale of its operations’.
for corporations and their reporting pre- Para 23 of the Conceptual Framework
viously described as environmental re-
porting and then corporate social respon- The going concern principle is among
sibility reporting is now often described the most important accounting, and
as 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 fraught
tainable 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 discussions
able activity has been created – conven- however is any attempt to apply the
iently 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 an
cal purposes. It has been argued else- unchanged external environment will
where (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, in
of persuading people that corporate ac- their publicity and annual reporting also
tivity 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 of
tors 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 same
is lower than it actually is. basis.

International GAAP1 however also has
THE 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 a
going concern. This of course means ‘The objective of general purpose
that the accounts and the Balance Sheet external financial reporting is to
of a company must reflect the value of provide information that is useful
that company as if it were to remain in to present and potential investors
existence for the foreseeable future. As
International GAAP states: 1
GAAP is the mnemonic for Generally Accepted
Accounting Principles – the basis of all accounting
practice.


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 to
'information that is useful' is further the organisation. Stewardship in this
clarified 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 entity's future cash inflows focused on the future and is concerned
and outflows (the entity's future with ensuring that the choices of re-
cash flows). That information is source utilisation in the future are not
essential in assessing an entity's 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 the
Accounting is clearly about the provi- acceptance of any costs involved in the
sion 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 activity
though 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 argument in the future of the organisation
ment 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 in
ACCOUNTING AND STEWARD- the future much as it does in the present.
SHIP Financial management also however is
concerned with the management of the
One view of good corporate perform- organisation’s resources in the present
ance is that of stewardship and thus just so that management will be possible in a
as the management of an organisation is value creation way in the future. Thus
concerned with the stewardship of the the internal management of the firm,


from a financial perspective, and its ex- society at large, although this welfare is
ternal environmental management coin- targeted at particular members of society
cide in this common concern for man- rather than treating all as equals. This
agement 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 whether
there 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 society
concern is of course the management of at large, however distributed. Similarly
the future as far as the firm is con- good environmental performance leads
cerned.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 in
role of financial accounting and report- emotional and community terms rather
ing therefore can be seen to be coinci- than being capable of being expressed in
dental. Thus the work required needs be quantitative terms. This will be ex-
concerned not with arguments about re- pressed in a feeling of wellbeing, which
source 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 the
reporting, are a necessary precursor to pleasant environment which will in turn
the 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 societal
Similarly the creation of value within the engagement by individuals.
firm is followed by the distribution of
value to the stakeholders of that firm,
whether these stakeholders are share- DISTRIBUTIONAL CONFLICTS
holders or others. Value however must
be taken in its widest definition to in- In binary opposition to shareholders, as
clude more than economic value as it is far as value creation and distribution for
possible that economic value can be cre- an organisation are concerned, are all
ated at the expense of other constituent others interested in the performance of
components of welfare such as spiritual the organisation (Crowther 2000), who
or emotional welfare.3 This creation of are generally homogeneously described
value by the firm adds to welfare for as ‘the stakeholders’. This concept
neatly distinguishes one stakeholder
2
Financial reporting is of course premised upon the group, the shareholders, from all others
continuing 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 this
equated to the concept of utility from the discourse of
classical liberalism.
amorphous mass contains very discrete


groupings such as employees, custom- an organisation’s activities. Similarly
ers, society at large and possibly most Eccles (1991) states that there has been a
significantly the future (see Cooper shift from treating financial figures as
2000). This future can be broadly encap- the foundation of corporate performance
sulated in the concept of the environ- measurement to treating them as part of
ment. In this separation of stakeholders a broader range of measures, while
into two distinct groupings a dialectic is McDonald and Puxty (1979) maintain
created which establishes a violent hier- that companies are no longer the instru-
archy (Laclan 1990) between the two ments of shareholders alone but exist
poles 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 Roslender
The 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, a
task for which accounting is singularly This part of the discourse therefore
well equipped. seems to have moved away from the
concerns of shareholders in the firm and
At the same time the creation of this dia- away from the economic rationale for
lectic implicitly creates two dimensions accounting and towards a consideration
to 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 and
equally implicit assumption that maxi- another part of the discourse has seen a
mising performance for one can only be return to economic values in assessing
at 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 the
sider which pole of the binarism should problems with accounting but goes on to
be dominant in the managing of corpo- consider the concept of shareholder
rate performance because one of the es- value and how this can be created and
sential features of the violent hierarchy sustained. He develops a methodology
of 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) that
other. 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 ultimate
measurement 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 that
years 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 by
of corporate performance measurement many writers (eg Herremans et al 1992,
to an informational perspective with a Tinker 1985) who argue that the way to
recognition of the social implications of maximise performance for society at
large is to both manage on behalf of all


stakeholders and ensure that the value It can be argued therefore that a clearer
thereby created is not appropriated by articulation of the needs of performance
the shareholders but is distributed to all evaluation will not only facilitate a more
stakeholders. Others such as Kay (1998) meaningful evaluation of performance
argue that this debate is sterile and that for all interested parties but will also
organisations maximise value creation lead to better performance for the or-
not by a concern with either sharehold- ganisation. This is not just because such
ers or stakeholders but by focusing upon an articulation of needs can be argued to
the operational objectives of the firm lead to a reduction in tension within the
and 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 be
be poor performance for the others. Thus
achieved in this manner but also is more
performance maximising philosophies
likely to be sustainable and so shape
are polarised in the discourse and this
long term performance rather than the
leads to a polarisation of performance short term performance of the organisa-
reporting and the creation of the dialec- tion. The factors shaping performance in
tic 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 time
the assumption that good performance horizon of the organisation are therefore
from one aspect necessitates the sacrific- important to its approach to measure-
ing of performance from the other, de- ment and evaluation. An examination of
spite the ensuing distributional conflicts this time horizon and its relationship
being hidden within the discourse. In- both to the organisation’s evaluation
deed 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 operating
ness are not even recognised let alone of the organisation.
evaluated. It is argued in this paper that
the future orientation of performance
management necessitates the creation of DISTRIBUTIONAL PROBLEMS
value 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 the
which the value created in the organisa- business through the transformation
tion is distributed among the various process and that distribution is merely
stakeholders. It is only in this way that
4
the 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.


concerned with how much of the resul- ing, the local societal environment in
tant profit is given to the investors in the which the organisation is located and the
business now and how much is retained wider global environment.
in order to generate future profits and
hence 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 with
of reasons. Even in traditional account- the operational performance of the or-
ing theory it is recognised that some of ganisation. Contrasting views of the role
the retained profit is needed merely to of accounting in the production process
replace worn out capital – and hence to might therefore be epitomised as either
ensure sustainability in its narrowest providing a system of measurement to
sense. Accounting of course only at- enable a reasonable market mediation in
tempts to record actions taking place the resource allocation problem or as
within this transformational process, and providing a mechanism for the expro-
even in doing so regards all costs as priation of surplus value from the labour
things 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 of
organisation 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 individual
ered that these are the only activities for people have a lifetime of availability for
which a role for accounting exists. Here employment and different needs at dif-
therefore is located the essential dialec- ferent points during their life cycle. The
tic of accounting – that some results of depersonalisation of people through the
actions taken are significant and need to use of the term labour however provides
be recorded while others are irrelevant a mechanism for the treatment of labour
and need to be ignored. This view of as an entity without any recognition of
accounting places the organisation at the these personal needs. Thus it is possible
centre of its world and the only inter- to restrict the discourse to that of the
faces 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 a
actions which an organisation under- convenient euphemism which disguises
takes 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 these
sides. 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 then
environment 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 accounting
is to record the effects of actions upon the organisation
itself. of the organisation. When this commod-


ity consists of people then this implies effect of mechanisation upon people
using them in such a way that the maxi- need not be taken into account. Thus if
mum 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 – except
young 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 SUSTAINABILITY
present. As people have been constituted
as a commodified variable cost then they In this paper we have sought to show
become merely a factor of production that there are two discourses concerning
which 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 is
mined through the use of accounting predicated in the environmental sustain-
legitimate. Thus it is reasonable, through ability discourse which is epitomised by
an accounting analysis, to replace people such work as Jacobs (1991), Welford
with 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 going
provided 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 on
concerned with the effect of the actions
an acceptance of a conventional view of
of 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 Profit

The 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


Essentially this however is an accep- fects recorded. Our argument is that this
tance 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
stakeholders

This is essentially a balancing model of ther a realistic nor an ethical model of
corporate activity. In other words we are sustainability. An ethical view of sus-
stating for example that the conventional tainability, predicated in a Utilitarian
view of sustainability in terms of either philosophy, would allow actions, as long
use no more of a resource than can be as full evaluation of the consequences
regenerated or not limiting the choices are made and as long as all stakeholders
of future generations – in other words understand and accept the implications.
stasis (Aras & Crowther 2007b) – is nei- Then it would be ethical behaviour if the


net effect of summation of effects was over it reflects the different traditions of
positive. 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 this
condition was met. In this model we are Although this definition places an em-
not arguing for or against sustainable phasis on such activity being voluntary
development (as others do) but merely the implication is that the EC will not be
acknowledging that it may be possible involved in any form of regulation and
and outlining the circumstances in which that the expectation is that companies
it 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 an
The European Union, through its Com- expectation upon companies this state-
mission, has concentrated on the enac- ment is in reality a clear abdication of
tion 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 with
hesion. 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 enable
Corporate Social Responsibility: A busi- such socially responsible activity.7
ness contribution to Sustainable Devel-
opment (EC, 2002) defined the pressure According to the European Commission
from 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 that
holders, 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.
7
voluntary rather than mandatory and this Of course, it is possible to argue that such things as
International Financial Reporting Standards (IFRS) and
voluntary approach to CSR expresses such bodies as the International Accounting Standards
the reality of enterprises in beginning to Board (IASB) are effectively government endorsed
take 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 valid
larger pressure exercised by various claim it must also be recognised that their enforcement
is policed by organisations such as Arthur Andersen
stakeholder groupings in addition to the and that corporations such as Enron would be deemed
traditional ones of shareholders and in- to be in compliance, one of the problems causing a lack
vestors (Aras & Crowther 2008b). More- of faith in both financial markets and corporate behav-
iour.


ested; how to decide if one activity more prescribe what should be reported on but
socially responsible that another. The rather the 'how'.
situation is complex and conflicting. So
here the intention is to consider both According to AccountAbility the
what is meant by CSR and what we AA1000 Assurance Standard is the first
know 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’s
Nevertheless steps have been taken by disclosure and associated performance
interested parties to change this volun- (i.e. sustainability reporting and per-
tary approach and to develop some kind formance). It draws from and builds on
of standards for reporting, but they have mainstream financial, environmental and
not een adopted by governments to be- quality-related assurance, and integrates
come enshrined into standards. Thus in key learning with the emerging practice
1999 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 Reporting
the 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 world's logue. The guidelines are claimed to be
first-ever assurance standard for social closely aligned to AA1000, but focus on
and 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 to
to improve accountability and perform- cover a full range of economic issues,
ance by learning through stakeholder although these are currently at different
engagement. It was developed to address stages of development. The GRI is an
the need for organisations to integrate initiative that develops and disseminates
their stakeholder engagement processes voluntary Sustainability Reporting
into daily activities. It has been used Guidelines. These Guidelines are for
worldwide 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 for
needed to ensure its effectiveness in how social environmental and economic
overall organisational performance. The reporting should take place. It aims to
principle 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 flexible
and auditing and reporting. It does not to reflect the different impacts of differ-
ent business sectors.


The GRI aims to develop and dissemi- GRI and AA1000 provide a set of tools
nate globally applicable Sustainability to help organisations manage, measure
Reporting Guidelines. These Guidelines and communicate their overall sustain-
are for voluntary use by organisations ability performance: social, environ-
for reporting on the economic, environmental and economic. Together, they
mental, and social dimensions of their draw on a wide range of stakeholders
activities, products, and services. The and interests to increase the legitimacy
GRI incorporates the active participation of decision-making and improve per-
of representatives from business, ac- formance. Individually, each initiative
countancy, investment, environmental, supports the application of the other – at
human rights, research and labour or- least this is the claim of both organisa-
ganisations from around the world. tions concerned; AA1000 provides a
Started 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 draft
version of its new Sustainability Report-
ing Guidelines, named the G3, was pro- DEVELOPING STANDARDS OF
duced and made open for feedback. The SUSTAINABILITY
GRI pursues its mission through the de-
velopment and continuous improvement We have discussed elsewhere (eg Aras
of a reporting framework that can be & Crowther 2007b, 2007c, 2008c) the
used by any organisation to report on its features of sustainability in terms of the
economic, environmental and social per- factors involved. Here we wish to focus
formance. The GRI has become the upon its operationalisation, in terms of
popular framework for reporting, on a the development of standards. Our argu-
voluntary basis, for several hundred or- ment has been that sustainability must
ganizations, mostly for-profit corpora- involve greater efficiency in the use of
tions. 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 then
ety of stakeholders relative to the impact of course the effects must be measurable
of the activity of business around the and the combination must of course be
world. 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)


This acts as a form of balanced score- Alam, Malaysia: MARA Univer-
card to provide a form of evaluation for sity Press
the operation of sustainability within an _______ & _______ (2007b) “Is the
organisation. It concentrates upon the 4 global economy sustainable?” in
key aspects, namely: Barber, S (ed) The Geopolitics of
Strategy the City, pp 165-194. London:
Finance Forum Press.
Distribution _______ & _______ (2007c) “The De-
Technological development velopment of Corporate Social
Responsibility”, Effective Execu-
Moreover it recognises that it is the bal- tive, Vol. 10, No. 9 (September
ance between these factors which is the 2007), pp. 18-21
most significant aspect of sustainability. _______ & _______ (2008a) “Corporate
From this a plan of action is possible for sustainability reporting: a study in
an organisation which will recognise disingenuity?”, Journal of Busi-
priorities and provide a basis for per- ness Ethics (forthcoming)
formance evaluation. _______ & _______ (2008b) “The So-
cial Obligation of Corporations”,
Journal of Knowledge Globaliza-
CONCLUSIONS tion (forthcoming)
_______ & _______ (2008c)
The discourses of sustainability all adopt “Sustainable corporate activity in
a viewpoint of the acceptability, or oth- a globalised world”, in M Rahman
erwise, of sustainable development. (ed) Perspectives in Knowledge
Equally these discourses accept that sus- Globalisation. Boston: KGI
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and about the resultant level of eco- an Accounting Revolution. Engle-
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analysis and have therefore outlined a or societal welfare: a stakeholder
more complete model which recognises perspective”, in Arnold, G. & Da-
distributional implications, and devel- vies, M. (eds) Value Based Man-
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Davis, E.W. (2001) Shareholder
or Stakeholder Value? The devel-
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