Sustainability Reporting: Who's Kidding Whom?[i]
Rob Gray
Professor of Accounting, and Director, Centre for Social & Environmental Accounting Research, University of Glasgow, Scotland. E-mail:
[email protected]
Markus J. Milne
Associate Professor of Accounting, University of Otago, Dunedin, New Zealand. E-mail: [email protected]
This paper was written while Professor Gray was on a William Evans Fellowship at the University of Otago in April 2002.
Sustainability Reporting: Who's Kidding Whom?
Ten years ago, the Rio Earth Summit - the biggest intergovernmental conference the world had seen- was convened in Brazil by the
United Nations Commission for Sustainable Development. That gathering was convened to seek ways to address the increasingly
pressing exigencies of sustainability. Sustainability was to be achieved by seeking development which " met the needs of the present
generation without compromising the ability of future generations to satisfy their own needs" (UNWCED, 1987).
The conference acted as an international wake-up call about the increasingly parlous state of the global natural environment and the
alarming levels of destitution of many of the peoples of the world. That is, our ways of life - especially in the western developed nationswere essentially and increasingly un-sustainable. Five years later - at Rio+5- the re-convened conference was dismayed to discover the
bulk of the indicators of the state of the planet and its peoples were continuing to move in the wrong direction. In the run-up to the
Rio+10 conference, which is to be held in Johannesburg in August and September of this year, there is growing dismay that the
indicators are continuing to worsen - the planet's ability to sustain human and non-human continues to decline.
Understanding and then attempting to turn around a system as complex as mankind's interactions with the natural environment and how
we allocate access to and the benefits from the environment is daunting and, quite clearly, involves the efforts of all parts of society business and accounting included. Indeed, the international business community - and along with it the international accounting
community- may indeed be the most influential and organised of the different societal groups seeking to address what sustainability
might mean for future well-being and development.
However, the business and accounting communities' responses and initiatives in the area have been, at best, somewhat puzzling and,
despite undoubted good intentions, may be in danger of doing more harm than good. In this short article we will highlight a few of the
inconsistencies and contradictions that have been observable in the business and accounting contributions to the growing debates on
sustainability and suggest a few additional possibilities that we believe could enhance that contribution.
The story to date
To hear phrases like "good ethics is good business" and "sustainable development will unlock hidden shareholder value"[ii] or to read the
latest wave of business discussions of "triple bottom line" reporting (of which more below - but see the NZBCSD website for an
illustration) one might be forgiven for thinking that business and accounting were - and had always been- enthusiastic proponents of
sustainability[iii]. It is as well to remember that pre-1990 companies and accountants alike were passionately opposed to pretty much any
discussion of environmental or social issues in a business or reporting context. More recently, it is good to remember also, that it was
industry lobby groups that prevented the first Earth Summit discussing the business and accounting issues of sustainability. (As if any
discussion of sustainable development was possible in a global sense without any discussion of corporate activity)[iv]. The case was
apparently made by the (now) World Business Council for Sustainable Development (WBCSD) and the International Chamber of
Commerce (ICC) that business could deliver sustainability without the interference of governments through legislation etc. Both of these
- and other business- organisations (as well as an increasing number of the accounting professional bodies) have exerted considerable
effort in arguing for a voluntary approach to sustainable development by business. In so doing they have seemed to be trying to show
two things:
1. that the natural environment and social justice are safe in the hands of business; and that this arises because
2. such ideas are mere extensions of good business practices.
Both ideas are highly contestable - and in all probability untrue. But this hasn't stopped a considerable effort being put into the
forthcoming World Summit on Sustainable Development in Jo'burg as part of the UNEP's Industry as a Partner for Sustainable
Development project which will be presenting 22 reports prepared by industry representatives which outline the steps (or strides we are
to perhaps believe) towards sustainable development. In fact what they show is that some parts of some industries have undertaken
some initiatives that may improve environmental efficiency and/or improved some elements of social and employee interactions. None of
these initiatives demonstrate any substantive moves towards sustainability. To do so would require companies to demonstrate that they
were both reducing their total impact on the environment (a most unlikely outcome when they are seeking growth) and also reducing the
disparities between the poor and the wealthy (again a most unlikely outcome for a successful capitalist organisation).
Is the future safe in the hands of business?
It seems to be in the nature of businesses to oppose in varying ways all forms of government "interference" - whether or not such
"interference" is in the interests of the society as a whole or not. (New Zealand has an especially good example of this with the
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overturning, as a result of corporate lobbying, of the requirements for green reporting by the larger New Zealand businesses in the late
1990s). The argument usually put against such interference - i.e. against the regulation of corporate reporting- is that business
organisations are best left to their own devices and voluntary regimes are always more effective. Indeed, voluntary regimes are the best
if, as Gilkinson and Ensor noted in this journal (October 1999), one can find any volunteers.
But the truth of the matter is that New Zealand is lagging even the relatively under-whelming take up of social, environmental and
sustainability reporting by large global corporations. If, indeed, sustainable development is safe in the hands of business then society
has a right to see:
1. very widespread adoption of environmental, social and sustainability reporting by all major companies; and
2. such reporting to be of the highest standards.
Neither situation is the case. This is puzzling because if, as we are to believe, that sustainable development is safe in the hands of
business, why then won't such organisations demonstrate this fact? It is not as if we are to believe a business organisation's financial
success without the support of detailed and audited financial statements. Why then might we be expected to believe that the green
rhetoric is to be believed without a similar quality of reporting and attestation?
The much more likely scenario is that environmental stewardship and social justice are not to be left in the hands of business and, until
we see detailed reporting to the contrary, that is what any sensible society would be advised to believe. And given that, after over 10
years of development and experimentation with such reporting, that the vast majority of organisations continue to free-ride on the back of
a few brave, leading companies means, we would have thought, that detailed legislation - as is now the case in Denmark France, Korea
and Australia, for example- was an essential component of a nation's contributions to the process of understanding and developing
sustainable development.
Triple Bottom Line
While the focus in the early 1990s was on environmental reporting and this was joined, albeit briefly, by growing interest in social
reporting from about the mid 1990s, the principal focus is now on either triple bottom line reporting or sustainable development reporting
- which, despite appearances to the contrary are not synonyms.
The Triple Bottom Line was a phrased coined by the consultant and campaigner, John Elkington, to refer to the notion that organisations
that were beginning to think about issues related to sustainable development needed to work away from a single - i.e. financial- bottom
line to a recognition that organisations also have both social and environmental performance, or social and environmental bottom lines.
This was both a good and a bad idea.
It was good idea because it crystallised a notion that had been around for some time (e.g., The Corporate Report, 1975) that for full
accountability, an organisation needed to produce, alongside its financial statements, a full set of both social and environmental
"statements". That is, with the growth in environmental reporting and social reporting, the company's annual report would contain, in
addition to such matters as the chair's review, director's report and financial review, detailed social and environmental statements. For a
truly meaningful "triple bottom line" these social and environmental statements would be as important, detailed, rigorous and reliable as
the financial statements. But this is where the problems arose - the social and environmental information included by the few that
approached any kind of triple bottom line reporting tended to be assertive, partial and to cherry-pick the "good news". As accountability
statements they were, and still are, at very best, partial.
Equally, it is both obvious and well established in research that any organisation facing a conflict between its financial performance most obviously performance that affected share price and dividends- and its social or environmental performance is bound to (in all but
the most extreme cases) give preference to the financial. Thus the triple bottom line is not a triple bottom line at all but a financial bottom
line with a little bit of social and environmental added.
This probably needs to be the case for any manager in financially competitive organisations but until financial, social and environmental
accountability are given equal weight we will never be in a position to assess the extent to which economic and social/environmental
issues are in real conflict. For this to happen the quality of environmental and social reporting has to improve dramatically.
It seems from research that the only thing stopping full social and environmental accountability from being a fact of life are companies
themselves. The techniques for full social and environmental reporting now exist. However, full environmental reports (based around a
full eco-balance and attempts to define ecological footprint) and full social reports (based on a complete stakeholder analysis and
incorporating legal, quasi-legal and best practice standards) are still exceptionally scarce.
So rather than embracing an empty rhetoric of triple bottom line and/or galloping off towards an even more elusive sustainability
reporting (see below), we would be well advised to encourage - probably through legislation- all organisations to produce full and proper
social and environmental reports first - then we could at least see what a triple bottom line might look like.
This, then, has been the problem with triple bottom line. Whilst it is a nice sounding phrase that encourages us to start thinking about
organisations as more than economic entities and potentially focuses attention on good quality social and environmental reporting, its
use has encouraged folk to overlook:
i. that the quality of triple bottom line reporting remains fairly poor;
ii. there is an essential conflict between financial and other bottom lines which, for the foreseeable future at least, the financial will
always win; and
iii. that TBL is not the same as sustainability despite the rhetoric that would suggest otherwise.
Sustainability?
Sustainability is, primarily, a global concept and the question arises whether the concept has any application at the corporate or even at
the regional level. (This concern has significant implications when we talk, below, about "sustainability reporting"). Sustainability
emphasises not just an efficient allocation of resources over time, but also a fair distribution of resources and opportunities between the
current generation and between present and future generations, and, a scale of economic activity relative to its ecological life support
systems.[v]
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It is bound to be contestable whether we are currently at, below, or beyond the point of sustainability. However, our reading of the
evidence is that our current systems of economic, financial and social organisation are moving us in the wrong direction - i.e. our current
systems are making us more unsustainable. Threats to sustainability are legion - and all of them are contestable. Is it population, land
use, pollution, consumption or economic growth that is the principal enemy of sustainability? In all probability, it is a combination of these
and other factors. One thing seems clear, however, and that is that current trends of industrialisation, production and consumption are
amongst the most likely suspects - and accounting, as a primary mechanism encouraging these patterns, is closely implicated in these
apparent moves away from sustainability.
Sustainability suggests broader ecosystem-based approaches that require an understanding of cumulative environmental change, and,
most likely, new and alternative decision-making arrangements and institutions. To give effect to sustainability, calls have come for
cumulative effects assessments of economic activity, for ecological footprint analyses, for precautionary decision-making principles, and
for more just, democratic and participatory decision forums.[vi] All of these approaches represent profound challenges to existing
capitalist systems, business behaviour, and accounting and reporting.
Traditional reporting and accountability places at its centre the "economic organisation" (the entity concept) and assumes it will continue
indefinitely (the going concern concept). Sustainability, however, requires a collective and cumulative assessment of economic activity
relative to a resource base. Organisation-based assessment and reporting, then, no matter how well extended with social and
environmental impact information, will not be sufficient to demonstrate sustainability if it fails to consider the cumulative effect of all
activity - and therefore quite probably multiple organisations- on the carrying capacity of given ecosystems. Even profitable, efficient
organisations operating state-of-the-art environmental management practices can be unsustainable if they are increasing throughput.
The collective ecological footprint of many organisations can increase even when the ecological footprints of single organisations are
getting smaller. In the same way over-stocking led to over-grazing and the degradation of the English commons, so too is over
production and over consumption likely destroying modern day resource bases. Sustainability implies and requires a level of collective
decision making for the common good. It suggests one of our greatest problems, in terms of accountability and reporting for
sustainability, is the entity concept.
Determining ecosystem capacities, thresholds, and cumulative effects in practice is notoriously difficult and something ecologists,
planners, geographers, environmental engineers and scientists have known for years. Apparently, these are concepts and issues
business people and accountants have yet to understand, or choose to forget. So, really, who's kidding whom with this talk of
sustainability reporting?
Sustainability Reporting
Which brings us, finally to sustainability reporting. Can we report on an organisation's sustainability? We might if we could obtain a
complete and transparent statement about the extent to which the organisation had contributed to - or, more likely, diminished- the
sustainability of the planet. For that to occur, however, as we have seen, we need to have a detailed and complex analysis of the
organisation's interactions with ecological systems, resources, habitats, and societies, and interpret this in the light of all other
organisations' past and present impacts on those same systems. Mission impossible? Most likely, and especially at the level of planetary
systems, but one thing is clear: such reporting requires a substantially more complex, involved and testing form of report than a triple
bottom line report[vii]. Sustainability reporting may be possible, but not until we believe we see a shift in emphasis towards accounting for
ecosystems and to accounting for communities.
While we might conceptualise a sustainable enterprise as one that leaves the natural environment and social justice no worse off at the
end of the accounting period than it was at the beginning of that period, approximating such a state (and, especially the social justice
requirement) is clearly difficult and raises contestable issues. Nevertheless, there have been experiments that have, for example, sought
to approximate the full use of environmental capital by an organisation and a more discursive attempt to show that the nature of
companies is to appropriate to their own use sources of environmental resources and to encourage increasing disparities in either
income or access to environmental resources. Such experiments, while far from sustainability reports, suggest companies as more likely
to contribute to un-sustainability than to contribute to sustainability.
The central point, however, is not that companies are or are not essentially unsustainable (a more powerful argument tends to be that
the system is unsustainable and companies working within that system must, ergo, be contributing to that condition). The point is that it
is difficult, if not impossible to define precisely what a sustainable organisation would look like and, consequently, therefore impossible to
report on its sustainability. This is not an argument to dismiss or discourage attempts that seek to assess organisational practices that
might lead towards (un)sustainability - we would applaud and encourage such experiments as it is only through these that we learn more
about how companies can or cannot contribute to sustainable development- see, for example, Bebbington et al. (2001) and Bebbington
& Gray (2001). It is however an argument for care in defining accurately what is meant when the term sustainability is used, and it is an
argument for recognising that sustainability reporting involves levels of analysis and complexity that go well beyond the impacts of single
organisational entities.
These issues are not something that the principal driver in this area - the Global Reporting Initiative (GRI)- has yet to fully embrace[viii].
Although the latest version of the GRI guidelines (which has recently been publicised for comments) has a much more substantial set of
requirements on environmental reporting and recognises that it is still a long way from complete on its requirements on social reporting,
the guidelines still fail to address sustainability directly and the consequent complexities involved. So whilst a GRI-influenced report
might approach a triple bottom line report, it is highly unlikely to ever be a sustainability report.
Conclusions
In essence, there is no sustainability reporting in the public domain, any where in the world. This is because it is exceptionally difficult, if
not impossible, as we have discussed above.
What is even more apposite, if the few isolated experiments we mentioned earlier are anything to go by, companies' practices appear to
be anything but sustainable: most organisations in pursuit of growth and profit are likely increasing their throughput, and, consequently,
their ecological footprints - understandably something which company executives are not keen to recognise or publicise.
So the real danger we face is that there is lot of talk about something which nobody is doing, can do or wants to do - sustainability
reporting. This term, though, is used interchangeably with something which everybody could do - triple bottom line reporting- but virtually
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nobody is doing! And what are organisations doing? Well most of them are doing nothing at all and free-riding on the backs of the few
leading reporters who have yet to even reach the foothills of real triple bottom line reporting.
So the message is, there is an awful lot of talk and very little action. Don't believe what you read, and social and environmental
accountability will remain a "nice idea" until there is substantive legislation requiring it of all large organisations.
References
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http://www.acca.org.uk/publications/environment/
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see, http://www.acca.org.uk/publications/environment/
Bebbington, J., & Gray, R.H., (2001), An Account of Sustainability: Failure, Success and a Reconceptualisation, Critical Perspectives on
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[i]
A later version of this paper appeared under this title in Chartered Accountants Journal of New Zealand 81(6) July 2002 (pp66-70)
[ii]
These are deliberate misquotes to protect the guilty.
[iii]
www.nzbcsd.org.nz/vision contains a section entitled the Business Case for sustainable development and the strength of the "case"
-which doesn't actually say what a sustainable company would look like - suggests that any sensible organisation must be embracing
sustainability as a self-evident good. See also recent commentaries in Boardroom, the journal of the New Zealand Institute of Directors.
[iv]
It is now widely quoted that of the 100 biggest economic units on the planet only 49 of them are countries - the rest are companies.
[v]
This conception of sustainability, which most business commentators seem to have overlooked, or conveniently forgotten, has been
around for sometime. See, for example, Sadler, 1988; Daly & Cobb, 1989; Daly 1992; Dobson, 1998; but especially in a NZ context,
Grundy, 1993; and Milne, 1996 and the references therein.
[vi]
See, for example, Canter, 1999; O'Riordan & Cameron, 1994; Piper, 2002; Wackernagel & Rees, 1996.
[vii]
Despite what, for example, the ICANZ Working Group says on its website under FAQs - namely that "The terms [sustainable
development reporting" and "triple bottom line reporting] are used inter-changeably." (See
www.deloitte.co.nz/default.cfm?pageID=2237)
[viii]
The GRI is a multi-party initiative involving organisations from NGOs to large companies. Its task is to derive, disseminate and
encourage the use of voluntary guidelines on sustainability reporting. (See www.globalreporting.org)
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© CSEAR, School of Management - University of St Andrews The Gateway, North Haugh, St Andrews, KY16 9RJ. Scotland, UK
Tel: +44 (0)1334 46 2805; Email: [email protected]
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