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knowledge bank -applied learning Sustainability Reporting


The changing business environment of today which is symbolized by cross border flow of capital, technology and products has broadened the dimensions of accountability and performance. An increasing awareness of issues like ecological, economical and social sustainability has made it imperative for the accounting profession to adapt itself towards a substantive role in creating and enabling such development which does not impair the future.

Professional accountants are increasingly involved in the measurement, recording, reporting and stating assurance on sustainability issues. Sustainability permeates many aspects of any accountants work including the measurement of liabilities and impaired assets, the design and operation of management control systems, the identification and management of risk, the reporting and assurance of information and compliance with laws and regulations.

The two criteria which are frequently used by companies for reporting sustainability issues are the GRI Guidelines and the AA 1000 Framework. The GRI (Global Reporting Initiative) is a joint initiative of the US non governmental organizational Coalition for Environmentally Responsible Economies (CERES) and United Nations Environment Programme. GRI was established in 1997 with the objective of enhancing the quality, rigour and utility of Sustainability Reporting. GRI guidelines provide in-depth details on the reporting aspects of sustainability whereas the Account Ability’s AA1000 Assurance Standard is the dominant standard as far as assurance is concerned.

This article traces the history of sustainable development around the world, analyses the reasons which have contributed to the growing importance of sustainability reports and the role which professional accountants can play while preparing such reports.

The Stockholm Conference, 1972 and after…..

It was the Swedish Government, which took the initiative into bringing forth the problem of human environment on the agenda of the United Nations for the first time. Increasing awareness of serious negative environmental effects due to rapid development of science and technology, particularly after the Second World War, provided the general background to the Swedish initiative. These problems transcended national boundaries and cut across traditional administrative borderline. The notion of the growing interdependence between the nations, which resulted from these developments, stimulated the need of a new concept in global politics, is that of the oneness of our planet i.e. the fragile space ship earth. The stage was set for a new kind of international discussion, popularly known as Sustainable Development. Subsequent to the Stockholm Conference, World Conservation Strategy at Switzerland in 1980 prepared by the International Union for the conservation of nature along with the UN Environment programme and the World Wildlife Fund promoted the idea of sustainable development.

The concerns of the degradation of environment were common to all nations, but the approach to the solution of the problems was sharply divergent. The developing countries felt that the issues of environmental concerns were the luxury of the West and the rich, whereas for the developed nations environmental pollution and conservation of genetic and natural resources were prime areas of concern. It was at the Stockholm Conference that the former Prime Minister of India late Mrs Indira Gandhi in her famous speech stressed the need for linking environment with development at the global level. The United Nations appointed an environment commission, headed by Mrs Gro Harlem Brundtland, Prime Minister of Norway. This commission also stressed the need of integrating environment with development and termed the two as inseparable for future human survival. The Brundtland Report, as it is popularly known, defined Sustainable Development as “the development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This landmark report helped trigger an International Conference held by the UN General Assembly on issues concerning environment and development with the object of evolving a new global partnership for saving the earth planet and for sustainable development for the future. It was decided that the United Nations Conference on Environment and Development (UNCED) would be at the level of the Heads of State and Government, as a mark of importance of the issues involved. Hence, the UNCED was held at Rio de Janerio (Brazil) from June 3 to 14 1992. Another such World Summit on sustainable development was held at Johannesburg in 2002.

Industry and Sustainable Development

Business and industry have a key role to play in the global drive for sustainable development. In the run up to and since the Rio Earth Summit, business’s commitment to this goal has been apparent through many innovative initiatives launched by individual companies and business groups. Path-breaking private-public sector partnerships have also contributed significantly to the effort. The launch of many positive voluntary programmes, such as the ICC Business Charter for Sustainable Development and as described in the WBCSD’s (World Business Council for Sustainable Development) report "Signals of Change: Business Progress Towards Sustainable Development," indicates the broad agreement of industry worldwide to integrate sustainable development considerations into nearly every aspect of their day to day activities. Responsible entrepreneurial businesses are the driving force for sustainable economic development and provide the managerial, technical and financial resources to contribute to the resolution of environmental challenges.. Globally, the private sector is a primary source of employment creation, information, training, and capacity building. However, if the private sector is to make its full contribution to sustainable development, an essential prerequisite is a sound policy framework, both at the national and international level. Many challenges still remain and industry must continue to improve performance and keep stakeholders informed of its policies and practices.


Sustainability Report

Till date there is no international financial reporting or auditing standards dealing directly with social, environmental or sustainability accounting, reporting or auditing issues. One way of informing stakeholders about the progress, policies and practices related to sustainable development is through Sustainability Reports. Such a report is a stand alone, general purpose report issued by an organisation about its economic, environmental and social performance e.g. an environmental report.

Growing importance

Various global trends, such as the ones discussed below, have assumed significance over the past few years and have been instrumental in propelling the need of sustainability reporting by the corporate. 

Globalization: In a world characterized by massive cross border flow of capital and technology, the opportunities of creating wealth have increased multi fold. Alongside, there are concerns that such wealth may increase inequality amongst various social groups. While both governmental and non governmental organizations have a role to play in the globalization process, it is the corporate activity that remains its driving force. As a result almost all stakeholders including the corporate are seeking new forms of accountability, which may give some sort of a credible description of the consequences of the continuously expanding business activity across the globe.

Global governance: A border less global economy, which is being witnessed today, requires an equally borderless governing structure to help the private sector achieve goals which are socially, environmentally and economically viable. Various national and international institutions shall need to extend their capacity to govern such corporate activity. New models of international governance affecting areas such as green house emission, effect on ozone layer depletion or the emission of toxic pollutants, labour practices and the ever expanding financial standards signify the importance being given to global governance in the flat world of today. One of the common requirements from all these models is that of a high level of transparency.

Improvement in Corporate Governance: The recently witnessed Corporate Scandals like the ones of Enron and World Com has brought to focus the need of improving upon the existing corporate governance practices. It is now accepted that companies have a major role to play in the prosperity and continuous development of any society. whether it is economically or socially or for that matter environmentally.  In such a scenario the investors and all other stakeholders expect the highest standards of ethics, transparency, sensitivity and responsiveness from the corporate. The role of auditors is under scrutiny the world over and so is the behaviour of the board members. Today, corporate governance is being not only looked upon as a compliance activity but the dimension of its performance is being given the most importance. The importance of corporate governance can be understood by looking at the number of initiatives being taken by various institutions and organisations by way of issuing guidelines. Amongst the foremost are the Cadbury Commission, the Turnbull Report of the UK, the King Report in South Africa, OECD guidelines, the World Bank’s Corporate Governance forum and many others.

Emerging economies and globalisation: Countries like India, Brazil, Tanzania, China etc are facing the same globalisation, accountability and governance trends as those witnessed by the developed nations. Technology and capital is being transferred to such economies in a similar way as it was transferred amongst the developed nations in the last decade. This when coupled with very tightly linked supply chains across the world, increases the need of spreading common management practices and increasing accountability pressures into all segments of the value chain starting from research and ending with customer support. The emphasis of harmonizing accounting practices is on the forefront with similar progress being made towards social and environmental reporting.

Communication boon and rising expectations from organisations: The transfer of information today has re-characterised the history of human existence The use of internet and other high profile communication system has amplified the speed and force of feedback mechanism.  Consumers are today supported by more media coverage on sustainability issues and are hence more sensitive while evaluating companies. Such an unprecedented exposure has increased the expectations of the customers, consumers and other stakeholders in regard to sustainable activities of various companies. Today the risks of loosing brand image because of reasons related to sustainability are much more than the yester years. 


Governments involvement in sustainable reporting Although sustainable development had become a popular concept by the mid 90s, little was done to promote sustainability reporting. Today there are innumerable numbers of voluntary, statutory and regulatory initiatives taken in this regard. There is increasing talk of incorporating Non Financial measures in annual reports in almost all countries in the world including India. Narrative reporting appears to be there to stay. Some actions are propelled due to national and international requirements especially those related to social and environmental factors.


The pressure of financial markets: Financial industry is increasingly demanding sustainability reports. Such a demand has been primarily spurred by the growing demands of social and ethical funds among institutional and individual investors. “ The International Finance Corporation (IFC) a member of the World Bank Group, which is the largest multilateral source of loan and equity financing for private sector projects in the developing world , has made sustainable performance a basic criteria for the grant of any assistance.  IFC regularly monitors the environmental and social performance of projects in its investment portfolio. Also, the understanding of the relationship between sustainable activities and the value of the corporate is on the increase. Linkages between sustainability performance and key value drivers such as goodwill of the corporation, brand image and future asset valuation are influencing financial markets to adopt new tools for understanding and predicting value in capital markets:

·         Strategy - identification of relevant sustainability issues and stakeholder involvement.

·         Measurement and recording – measuring environmental benefits, costs and liabilities; management information systems for sustainability data; internal controls for sustainability issues; environmental cost and management accounting.

·         Management and interpretation – identification and appraisal of environmental threats and opportunities; incorporation of environmental and sustainability criteria into investment decisions; environmental management systems; managing environmental benefits, costs and liabilities; sustainability and codes of corporate conduct; responsible and sustainable supply chain management.

·         Reporting and assurance – preparation of internal and external sustainability reports; internal reporting of sustainability performance; communicating sustainability matters to management; the internal perspective on sustainability assurance; functioning of systems and codes;  preparation of external assurance.


Role of an accountant

Accountants are employed in a wide range of functional areas spreading across different industry sectors and have varied roles and responsibilities to perform. The following are some specific areas where the accountant’s involvement shall be mandatory to further the idea of sustainability reporting;

·         .Corporate Policies: Professional accountants working in business are frequently involved in framing company policies and developing business cases for action. While discharging their functions related to such roles and responsibilities, an accountant is ideally placed to mange the impact of sustainability issues in an integrated way. This can be extended to identifying, measuring and managing business risks. An accountant is suitably placed to provide some sort of an assurance that the proposed company policies are being implemented properly across the organisation. This can be done through the use of certain performance indicators to test the effectiveness of company’s policies and the reliability of related information.

·         SCM (Supply Chain Management): In the flat world of today, good Supply Chain Management is necessary for remaining competitive. This awareness has led many a company to introduce policies which minimise risk related to reputation and goodwill. With the need of more information, either regulatory or because of the pressure from customers, companies will fast realise their responsibility towards managing the supply chain. In this regard accountants will have a prominent role to play in the preparation and monitoring of the purchasing policies and the design and operation of management systems relating to the supply chain.

·         Stakeholder engagement: For stakeholder engagements to be effective, it is necessary that the information provided is reliable and trustworthy. The providing of such information shall at most of the times be the job of an accountant and in the process he shall need to work upon data relating to social, environmental and economic matters.

·         Benchmarking: An effective benchmarking system requires timely publication of information that is relevant, reliable and comparable. An accountant’s role in such an exercise is monumental as he has the necessary expertise to collect and present both financial and non financial data.  Also, an accountant’s expertise shall be useful in interpreting and analysing such collected information. Similarly, accountants working in business could also assist in raising the quality and credibility of the approaches adopted by the increasing number of benchmarking organisations.

·         Taxes and Subsidies: One of the major functional responsibilities of many an accountant relates to the area of taxation and subsidies. Accountants are expected to give advice on taxation of all forms and the expanding development of environmental taxes is of increasing importance to them. All taxes or subsidies given for furthering the cause of sustainability will be of paramount importance to the concerned accountants and the latter shall find himself to be in an ideal position to contribute to the development and implementation of business policy which promotes sustainability.

·         Tradable permits: Various tradable permits affect many a national jurisdiction and there is a challenging opportunity for professional accountants to contribute to the development of such policies at all levels including standards for accounting and reporting. For all those businesses which are affected because of such permits, there will be a compelling requirement of managing and accounting for ‘emission permits’, allowances and corresponding assets and liabilities. Needless to say, a professional accountant is the best suited for carrying out such an exercise.

·         Assurance: Accountants will increasing be involved in collecting, checking and interpreting information relating to environmental and social impacts. This will most likely affect those who are employed in the mainstream reporting role or in internal audit. Accountants shall provide assurance on internally communicated information on sustainability issues in order to provide the necessary confidence to the board in the reliability of the information.



Sustainability Reporting is an all encompassing paradigm in the way the Corporate Social Responsibility is going to shape and assume. Transnationalisation of companies have to address these issues in an equally responsible manner in their set up in developing countries. It is not only that the capital flows are important for companies, but the preservation of country’s ecological and environmental needs are also equally essential. The reporting of the activities which the company performs for maintaining sustainable development is a complex issue. Companies have to take the task and report on sustainability as a part of their financial statements. Accountants and finance professionals will have a major responsibility towards such reporting requirements. As the trend appears, sustainability reporting shall be amongst the major area of concern for the global corporate in light of the growing need to protect nature.


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