sustainability accounting a brief history and conceptual framework 2005 accounting forum

8/9/2019 Sustainability Accounting a Brief History and Conceptual Framework 2005 Accounting Forum

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Accounting Forum 29 (2005) 7–26

Sustainability accounting—a brief history andconceptual framework

Geoff Lamberton

School of Accounting, Southern Cross University, P.O. Box 157, Lismore 2480, Australia

Abstract

Research linking accounting to the emerging concept of sustainability surfaced in the early 1990s

and has received continuing attention in academic and professional accounting literature. This paper

tracks this brief history through to the release of the Sustainability Reporting Guidelines at the World

Summit on Sustainable Development in August 2002, consolidating the various approaches into a

sustainability accounting framework. The result is a comprehensive reporting model that presents

an enormous challenge to business organisations, requiring a significant commitment of resources

to achieve widespread implementation. Failure to meet this challenge enables business organisationsto continue to avoid accountability for their continuing unsustainability. The paper concludes with a

personal view as to how implementation of the sustainability accounting framework could proceed.

© 2005 Elsevier Ltd. All rights reserved.

Keywords: Global Reporting Initiative; Sustainability Performance Indicators; Sustainability Accounting

Framework

1. Introduction

Environmental accounting and its most evolved form sustainability accounting(Elkington, 1993), have received continuing attention in the academic accounting litera-

ture beginning with the work of Gray in the early 1990s, through to the release of the

Sustainability Accounting Guidelines at the World Summit on Sustainable Development

in Johannesburg in August, 2002. This paper reviews and consolidates this research into a

sustainability accounting framework that captures the breadth and complexity of this new

form of accounting. The framework draws on the traditional financial accounting model for

its structure, whilst the content of the sustainability accounting framework is derived from

E-mail address: [email protected].

0155-9982/$ – see front matter © 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.accfor.2004.11.001


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8 G. Lamberton / Accounting Forum 29 (2005) 7–26

the various approaches taken by accounting researchers to link accounting to sustainability

over the past 10 years.

2. A brief history of sustainability accounting

Gray is attributed with much of the conceptual development of sustainability accounting.

Gray (1993) identifies three different methods of sustainability accounting

1. Sustainable cost.

2. Natural capital inventory accounting.

3. Input–output analysis.

These three methods together with full-cost accounting and triple bottom line (TBL)

accounting are discussed in Sections 2.1–2.4, leading to the identification of common themes

in Section 2.5 and the specification of a comprehensive sustainability accounting framework

in Section 4.

2.1. Sustainable cost and full-cost accounting

Sustainable cost is the (hypothetical) cost of restoring the earth to the state it was in prior

to an organisation’s impact; that is

. . . the amount of money an organisation would have to spend at an end of an ac-

counting period in order to place the biosphere back into the position it was at thestart of the accounting period. (Gray, 1994, p. 33)

Gray draws on the accounting concept of capital maintenance, and applies it to the bio-

sphere, recognising the need to maintain the stock of natural capital for future generations.

A sustainable organisation would be one that maintains natural capital intact for future gen-

erations (Gray, 1994). Sustainable cost is deducted from the accounting profit (calculated

using generally accepted accounting principles) to arrive at a notional level of sustain-

able profit or loss. Where the sustainable cost exceeds the accounting profit the degree of

unsustainability is measured in monetary terms.

The practical problems of valuing external costs such as pollution have been well doc-umented (Mathews, 1993; Pearce & Turner, 1990). Any damage to critical natural capital

would, in theory, be valued at infinite cost because it is irreplaceable, leading to the con-

clusion that the activities of an organisation which damage critical natural capital are un-

sustainable (Gray, 1994). Unfortunately the science of ecology does not provide clear and

unchallenged solutions to environmental problems (Holland & Petersen, 1995); whilst plac-

ing costs on a range of possible solutions to environmental problems may prove exhausting

(Mathews, 1995).

Sustainable cost provides an example of using an established accounting principle, in

this case capital maintenance, and applying it to natural rather than financial capital. Gray

(1992) acknowledges the inherent dangers of accounting for natural capital within a price-driven framework, as do critical accounting theorists (Cooper, 1992; Hines, 1991; Lehman,

1996; Maunders & Burritt, 1991).


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G. Lamberton / Accounting Forum 29 (2005) 7–26 9

Preliminary research projects exploring the practical issues of applying the sustain-

able cost framework have begun; (see Bebbington & Tan, 1996, 1997 and Howes, 1999).

Bebbington and Gray (2001) provide a fascinating account of the difficulties of applying

the sustainable cost framework. Difficulties in determining a meaningful estimate of sus-tainable cost resulted in the recasting of the sustainable cost framework to provide data

concerning a range of more sustainable options. This requires the organization to let go of

its attachment to the business-as-usual assumption exploring possibly radical alternatives

that require costing within the (revised) sustainable cost framework.

Another important conclusion drawn by Bebbington and Gray (2001) is that the process

of working with an organization and attempting to estimate sustainable cost may prove

more valuable than the financial data produced. This is not surprising given that ecological

destruction and social inequity have much to do with the (un)ethical underpinnings of our

consumer and wealth-obsessed culture (Sivaraksa, 1992), rather than a lack of information.

If this is true, the process of disclosing specific aspects of unsustainability, with a detailed

exposure of its causes and consideration of alternative paths could prove a significant and

cathartic experience. Similar conclusions have been drawn regarding the process of prepar-

ing life cycle analyses (Ayres, 1995; Christiansen, 1997) which may indicate we need to

spend more energy applying sustainability accounting using field work and case oriented

research methods.

Sustainable cost and full-cost accounting are not necessarily equivalent forms of ac-

counting (Atkinson, 2002), although both methods attempt to capture environmental costs

external to the organization which together with internal costs, provide a more complete pic-

ture of total cost. Full cost accounting as with Mathews’ total impact accounting (Mathews,1993), attempts to capture the total costs resulting from an organisation’s economic activ-

ities, including social and environmental costs (CICA, 1994; Deegan & Newson, 1996),

attempting to value these impacts in financial terms. This method of accounting is an at-

tempt to counter the misinformation contained within market prices from the omission of

social and environmental cost, which leads to a misallocation of resources and widespread

social and ecological destruction (Hawken, 1993).

2.2. Natural capital inventory accounting

Natural capital inventory accounting involves the recording of stocks of natural capitalover time, with changes in stock levels used as an indicator of the (declining) quality of

the natural environment. Various types of natural capital stocks are distinguished enabling

the recording, monitoring and reporting of depletions or enhancements within distinct cat-

egories (Gray, 1994). Gray suggests four categories of natural capital.

1. Critical, for example, the ozone layer, tropical hardwood, biodiversity.

2. Non-renewable / non-substitutable, for example, oil, petroleum and mineral products.

3. Non-renewable / substitutable, for example, waste disposal, energy usage.

4. Renewable, for example, plantation timber, fisheries.

Natural capital inventory accounting could be predominantly non-financial, trackingresource flows in quantitative, but non-monetary units (Gray, 1992), although Jones (1996)

suggests exploring the valuation of natural assets using financial units. Jones (1996, 2003)


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applies the inventory approach to the problem of accounting for biodiversity, adopting a

three part process involving the recording, valuing and reporting of natural asset wildlife

habitat, flora and fauna, and suggests aggregating records of individual organisations to

build national records of natural inventories.The influence of conventional accounting over natural capital inventory accounting is

evident in the application of the capital maintenance concept, as well as utilization of the

management accounting tool of inventory control. Invoking the axiom of strong sustainabil-

ity, the capital maintenance concept could be applied to each category of capital (natural and

humanmade) recognising that opportunities to substitute humanmade physical or financial

capital for natural capital are limited (Costanza & Daly, 1992).

Accounting for natural inventories is in its exploratory stage. Both the accuracy and

potential usefulness of this information needs to be tested with further theoretical and

empirical research. Major challenges involve the identification of the relevant accounting

entity to which to apply this method, which may be at the community (Lehman, 1999) or

regional level (Gray, 1992), rather than corporate level. Similarly the accounting principle

of materiality is critical in identifying the level of detail and the degree of precision required

at the data capture stage and reporting stages. Notwithstanding the preceding discussion,

whether natural inventory accounts could meaningfully reflect nature’s interconnectedness

and enormous diversity is extremely doubtful.

2.3. Input–output analysis

Input–output analysis accounts for the physical flow of materials and energy inputsand product and waste outputs in physical units. It aims to measure all materials inputs

into the process, and outputs of finished goods, emissions, recycled materials and waste

for disposal (Jorgensen, 1993). Resource flows are accounted for using units of volume,

although accounting in financial units is considered feasible (Gray, 1994). Input–output

analysis uses a balancing technique familiar to accountants, applying the principle what

goes in must come out , providing a disciplined approach to the provision of environmental

information.

Reported advantages of input–output analysis include identification of potential resource

and energy savings, it is often the first step in an environmental audit process, and it can

facilitate product innovation and pollution prevention strategies, particularly when it formspart of a product and/or process life cycle analysis (Jasch, 1993). Input–output analysis

does not measure sustainability or unsustainability; rather it provides a transparent account

of the physical flows into and out of a process, enabling further analysis of environmental

impact and ultimately sustainability strategies (Gray, 1994; Jasch, 1993).

Unlike the previous forms of sustainability accounting discussed, input–output analysis

has its origins in materials accounting techniques used in the physical sciences, rather than

in financial or management accounting principles or practice.

2.4. Triple bottom line accounting and the Global Reporting Initiative (GRI)

Elkington (1999) describes a form of sustainability accounting referred to as triple bottom

line (TBL), which aims to report on an organisation’s economic, social and environmental


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impacts. Underpinning TBL accounting is the evolving three dimensional definition of

sustainable development (Van den Bergh, 1996; WCED, 1987; Westing, 1996).

Some versions of TBL attempt to use monetary units to measure economic, social and

environmental performance, whereas others versions such as that used in the GRI Sustain-ability Accounting Guidelines utilise a wide array of indicators to measure performance

toward the goal of sustainability. The use of indicators to estimate variables that cannot

be measured precisely has a long history of use in environmental science (Moldan et al.,

1997), and is considered appropriate where variables that are inherently complex cannot be

directly observed.

The latest version of the GRI Sustainability Accounting Guidelines, released at the World

Summit on Sustainable Development (WSSD) in Johannesburg in August 2002, provide a

rigorous framework for the application of TBL reporting.

The Global Reporting Initiative (GRI) is a long-term, multi-stakeholder, internationalprocess whose mission is to develop and disseminate globally applicable Sustainable

Reporting Guidelines (‘‘Guidelines”). These Guidelines are for voluntary use by

organisations for reporting on the economic, environmental, and social dimensions

of their activities, products and services. (GRI, 2002)

The Guidelines draw on the accepted three-dimensional definition of sustainability using

a series of performance indicators to measure each of the economic, environmental and

social dimensions, as well as a set of integrated indicators capturing multiple dimensions.

The hierarchy of performance indicators included in the GRI framework is provided in

Table 1.The economic category of indicators is designed to supplement financial information

contained in conventional financial accounting reports, providing information concerning

the impact of an organisation’s activities on the

1. economic circumstances of stakeholders;

2. local, national and global economies (GRI, 2002, p. 45).

A clear link to sustainability is difficult to observe from these performance indicators

(Baker, 2002) particularly given that long term economic impacts are a critical aspect of

sustainability. However, the reporting of an organisation’s financial relationships with cus-

tomers, suppliers, employees and investors discloses the extent of these stakeholders’ re-liance on the reporting organization for financial support, and some indication as to potential

financial risk if the reporting organization ceases to operate.

The environmental indicators specified in the Guidelines are contained within many

state-of-the-art environmental reports. Each aspect identified in Table 1 represents criteria

relevant to measuring an organisation’s environmental performance. It is recommended in

the Guidelines that environmental performance indicators be expressed in absolute and rel-

ative (or normalized) terms (GRI, 2002, p. 48), with the latter method enabling comparisons

between organizations.

A major contribution of the Guidelines is the four categories of social performance

indicators covering employee, consumer and human rights, as well as societal issues suchas corruption and bribery. Given many of the social performance indicators are difficult

to measure in quantitative units, the Guidelines require a range of social policies to be


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Table 1

GRI framework for performance indicators

Category Aspect

Economic Direct economic impacts Customers

Suppliers

Employees

Providers of capital

Public sector

Environmental Environmental Materials

Energy

Water

Biodiversity

Emissions, effluents, and waste

SuppliersProducts and services

Compliance

Transport

Overall

Social Labour practices and decent work Employment

Labour/management relations

Health and safety

Training and education

Diversity and opportunity

Human rights Strategy and management

Non-discrimination

Freedom of association and collective bargaining

Child labour

Forced and compulsory labour

Disciplinary practices

Security practices

Indigenous rights

Society Community

Bribery and corruption

Political contributions

Competition and pricing

Product responsibility Customer health and safety

Products and services

Advertising

Respect for privacy

Source: GRI, 2002, p. 36.

specified, together with a description of the system used to monitor compliance with the

policy and results from the monitoring process.

Gray (2002) describes social accounting as the universe of possible accountings. This

implies that social accounting practice requires careful prioritisation of relevant social infor-mation. Sustainability accounting draws its social dimension from the evolving definition

of sustainability, which includes the goal of intragenerational equity, usually interpreted as


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the elimination of poverty. The problem of poverty is not directly targeted in the GRI social

performance indicators, although some of its causes (human rights violations, health and

freedom) are evident, and the financial value of donations is specified as a core economic

performance indicator. Limited disclosure could be due to a belief that primarily it is therole of government and not business organisations to eliminate poverty. Nonetheless the

business sector does have an obligation to ensure it does not contribute to poverty or its

continuance, and activities which do need to be disclosed.

In summary, the Guidelines form a noble initiative aimed at increasing the transparency

of organisations’ social and environmental impacts, in the belief that if the quality of this

information is improved organizational change toward sustainability will occur. However,

Broadhead (2002) draws attention to the inherent danger in the incremental management of

selected environmental problems at an international level. According to Broadhead regime

formation (for example the international regime concerning ozone depletion) and its re-

sulting compromise not only fail to initiate decisive action, but also mask lack of progress

toward averting environmental crisis, creating a false impression of material change.

Similar to Broadhead’s concerns is the potential misuse by corporate interests of infor-

mation produced using the Guidelines, reducing sustainability accounting information to

environmental propaganda, masking the reality of the environmental crisis and the role of

business as a primary cause (Gray, 1992; Lehman, 1995). Critical implementation issues

include: voluntary versus statutory compliance; the audit of sustainability reports by quali-

fied and independent third parties; as well as identifying who will bear the cost of producing

sustainability accounting information. These issues are discussed in the conclusion to this

paper.

2.5. General themes to sustainability accounting

In this section five major themes evident in the varied approaches to sustainability ac-

counting discussed in Sections 2.1–2.4 are identified. These themes contribute to the spec-

ification of the sustainability accounting framework in Section 3.

2.5.1. Preferred definition of sustainability

Applications of TBL are based on contemporary definitions of sustainable develop-

ment which necessarily include economic, ecological and social dimensions. Absent is anyguidance as to how these competing elements are prioritised, although this is more a de-

cision making rather than reporting issue. The three dimensional approach has its roots

in the WCED’s definition published in Our Common Future in 1987, where the social

evil of poverty was inextricably linked to environmental degradation (WCED, 1987), and

economic growth was identified as an essential weapon to fight poverty. However, it is

extremely doubtful whether continuing volume measured economic growth is compatible

with ecological sustainability (Costanza & Daly, 1992).

2.5.2. Use of indicators

Sustainability being a multi dimensional concept is not directly measurable and requiresa set of indicators to enable performance toward its multiple objectives to be assessed. Re-

search into the identification of sustainability indicators at the macro level is continuing (see


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for example Azar, Holmberg, & Lindgren, 1996; Moldan et al., 1997; Nilsson & Bergstrom,

1995), and more recent research has focussed on sustainability at the organisational level

(Bebbington & Gray, 2001; Lamberton, 1998). Application, for example, of established

rules for achieving ecological sustainability at the macro level are inherently difficult to ap-ply at the organisational level (Victor, 1991), and this will continue to hinder the derivation

of meaningful micro level sustainability targets.

2.5.3. Multiple units of measurement

Although some forms of environmental accounting rely on monetary units to measure

environmental and social impacts, an increasing trend, evident in the GRI Guidelines, is the

use of multiple units of measurement to assess performance toward the three dimensions of

sustainability. Financial units of measurement, the preferred choice for measuring economic

performance, are not necessarily suitable for capturing social and ecological impacts, which

require an array of measurement tools to capture nature’s multiplicity (Cooper, 1992)andthe

social equity dimension of sustainability. Qualitative tools, such as narratives to describe

an organisation’s social and environmental impacts form a critical part of sustainability

accounting (Lehman, 1999).

2.5.4. The interdisciplinary nature of sustainability accounting

Given the three dimensional definition of sustainability, it necessarily becomes a concept

reaching across and requiring cooperation between the accounting, social and ecological

disciplines. This necessitates the construction of a common dialogue to facilitate trans-

disciplinary discourses, and the formation of interdisciplinary teams to prepare and auditsustainability accounting reports.

2.5.5. Use of traditional accounting principles and practices

Most of the various approaches to sustainability accounting draw on traditional account-

ing principles and/or practice. The capital maintenance concept used in sustainable cost and

natural resource inventory accounting, full cost accounting, inventory accounting, and the

valuation of environmental assets and liabilities are examples of this reliance. Not surpris-

ingly, the accounting profession’s response to environmental crises draws on the traditions

of financial and management accounting, providing familiar principles to navigate through

the unfamiliar territory of ecology and sustainability.The five themes listed together with the traditional financial accounting model enable the

specification of the sustainability accounting framework in Section 3.1. The components of

the traditional financial accounting model are discussed in the next section.

3. Components of the financial accounting model

Solomons (1995) describes an accounting model as consisting of the traditional financial

statements (profit and loss statement and balance sheet) and the generally accepted account-

ing principles that underlie their preparation. Elliot and Jacobson (1991) take a similar viewof the traditional financial accounting model, including the statement of cash flows in the

set of final reports produced.


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Ijiri (1983) identifies accounting records and accounting reports as the major tools of the

accountant. Fundamental to the preparation of traditional financial statements are account-

ing records compiled using tools such as the journal, ledger and trial balance, and most

significantly the double entry principle, which increases reliability and influences the formof final reports. According to Ijiri the design of these tools is directly linked to the perfor-

mance evaluation function of accounting. He states that accounting records and reports are

designed to account for

. . . performance evaluation relative to the goal assigned to the accountor based on the

underlying accountability relationship. (Ijiri, 1983, p. 77)

Underlying the provision of financial statements is the assumption that users are primarily

interested in the accounting entity’s financial performance, measured by accounting profit

and cash flow, and the entity’s financial position measured by the balance sheet. The financial

accounting model has evolved to provide information relevant to these assumed primary

financial objectives of entrepreneurs. In sustainability accounting the goal assigned to the

accountor is the objective of sustainability (or sustainable development). Using a deductive

approach (Martin, 1994) a sustainability accounting model can be designed to provide

information enabling performance toward this objective to be evaluated.

Information provided for general purpose financial reporting should possess the qual-

itative attributes identified in statement of accounting concept SAC 3 (2002). Similarly,

the GRI Guidelines provide a comprehensive set of qualitative attributes of sustainability

accounting information, which are included later in this paper as part of the sustainability

accounting framework.From the discussions in this section five components are identified as integral to the

financial accounting model

1. The accounting reports (Elliot & Jacobson, 1991).

2. Accounting principles (Solomons, 1995).

3. Accounting records (Ijiri, 1983).

4. The objective of the accounting model (Martin, 1994).

5. Qualitative attributes (SAC 3).

In Section 3.1 a sustainability accounting framework is specified drawing on the general

themes identified in Section 2.5 and the five components of the financial accounting model.A justification for sustainability accounting research is that stakeholders, and in particular

business decision makers, require a balanced information set, including economic, social

and environmental information if decisions are to achieve the multidimensional goal of

sustainability.

If the accounting profession is to make a constructive contribution to the environmental

crisis, it will draw on the accumulated knowledge and experience of accounting tradi-

tion. Accountants have significant experience and long established standards for reporting

corporate financial performance which should prove useful when preparing sustainability

accounting information at the corporate level.

What else have accountants to offer? Accounting knowledge may also be used to informusers as to the limitations of and critical assumptions underpinning accounting information

(Hines, 1991). Alternatively, as some critical theorists argue, accountants will exacerbate


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the problem and the environment will suffer from attempts by accountants to capture and

report its value (Cooper, 1992; Maunders, 1996).

The financial accounting model identified in this paper represents a general framework

for the capture and reporting of information that has evolved from financial accountingpractice.Specifying a sustainability accounting model in the form of the financial accounting

model is attempted in this paper to provide structure to sustainability accounting which has

developed in a relatively ad hoc manner over the past 15 years. It is difficult to speculate

whether this approach will ultimately benefit the environment. Certainly the process of

reporting sustainability accounting information is open to manipulation by vested interests.

A potentially critical role for accounting is the design of systems to reduce manipulation

and increase the qualitative attributes of sustainability accounting information.

3.1. Sustainability accounting framework

Fig. 1 displays five components of a sustainability accounting framework drawn from

the preceding discussion of the financial accounting model which is expanded into a com-

prehensive framework later in this paper (refer Fig. 2). An assumption underpinning the

specification of this framework is that the issues of: the objective of the reporting model; the

principles which underpin application of the model; data capture; reporting frameworks;

and the qualitative attributes of the information produced, are critical issues which need to

be addressed during the developmental phase to add rigor and structure to the reporting of

sustainability accounting information.

The five components depicted in Fig. 1 represent the

1. objective(s) of the sustainability accounting framework;

2. principles which underpin application of the framework;

3. data capture tools, accounting records, and measurement techniques;

4. reports used to present information to stakeholders;

5. qualitative attributes of information reported using the framework.

Fig. 1. Components of the sustainability accounting framework.


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Fig. 2. Comprehensive sustainability accounting framework.


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The primary objective of the sustainability accounting framework is to measure organi-

sational performance toward the objective of sustainability. Information measuring perfor-

mance toward sustainability could serve either the accountability or decision useful objec-

tives evident in the provision of conventional accounting information (Ijiri, 1983). Criticalto this objective is the chosen definition of sustainability, which determines the depth and

complexity of the accounting framework. If, as is becoming increasingly common, a three

dimensional definition of sustainability is adopted, the accounting framework must report

on organisational performance from an ecological, social and economic perspective.

The primary objective of the sustainability accounting framework together with the

chosen definition of sustainability determines the principles which guide the capture and

reporting of accounting information. These principles are analogous to the principles and

conventions that underpin financial accounting, suchas the historical cost, going concern and

conservatism principles, and conventions concerning the accounting period and reporting

entity.

Data management tools used to capture and record sustainability accounting data are

analogous to the financial accountant’s journals, ledgers and trial balances used to record

financial data. Measurement techniques include the use of performance indicators and val-

uation methods used to estimate for example, environmental assets and liabilities.

Data captured by the sustainability accounting framework would be reported to users in

the form of both quantitative and qualitative information and must conform to a series of

qualitative attributes. These attributes, listed in Fig. 2, are drawn from the GRI’s Sustain-

ability Reporting Guidelines, and are equivalent to the attributes prescribed for financial

accounting data in SAC 3 (2002).In the next section, Fig. 1 is expanded into a comprehensive sustainability accounting

framework.

4. Theoretical framework for sustainability accounting

Fig. 2 depicts a comprehensive sustainability accounting framework and displays some

of the interconnections between the various components within the framework.

This framework draws together the five general themes (identified in Section 2.5) ev-

ident in environmental accounting research and practice, up to and including the releasein 2002 of the GRI Sustainability Accounting Guidelines. Central to the sustainability ac-

counting framework presented in this paper and the Guidelines, is the use of performance

indicators to measure the environmental, social and economic dimensions of sustainabil-

ity. Given the complexity of measurement across the three dimensions of sustainability,

multiple units of measurement including narratives of social policy and procedure is en-

visaged, preferably guided by the supervision of multidisciplinary teams of profession-

als.

The fifth general theme listed in Section 2.5 acknowledges the influence of traditional

accounting principles and practice over environmental accounting research. The influence

of accounting tradition in this paper is evidenced by the application of the five componentsof the traditional financial accounting model depicted in Fig. 1, to form the sustainability

accounting framework presented in Fig. 2. This structure provides objectives, principles,


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measurement and reporting methods directed at achieving the extensive list of qualitative

attributes listed in the Guidelines and discussed in Section 4.5 of this paper.

In Sections 4.1–4.5 each of the components of Fig. 2 is discussed in detail.

4.1. Objectives of framework

The primary objective of the sustainability accounting framework is to measure per-

formance toward sustainability. Central to this is the debate as to whether sustainability

is a relevant goal at the organisational level, and whether it is measurable at this level.

The sustainable development concept is widely recognized as a multi-level concept (Starik

& Rands, 1995) where levels are highly interdependent. Genuine progress toward global

sustainability requires action at every level. Rules have been set for achieving sustain-

ability at the macro level (Daly, 1990) but translation of these rules to the micro level is

problematic.

As with conventional accounting information, potential internal users of sustainability

accounting information can be distinguished from external users. Use by external parties

would aim to discharge the accountability of business organisations for their environmental

and social impacts to a broad set of external stakeholders. Sustainability accounting infor-

mation must exhibit the qualitative attributes of transparency and comparability in a relevant

sustainability context to enable stakeholders to assess the environmental and social impact of

the organization. Society requires information which renders the impact of an organisation’s

operations transparent so its contribution to the goal of sustainability can be assessed. An

important aspect of sustainability accounts is to establish measurable sustainability targetsto enable stakeholders to assess an organisation’s level of unsustainability.

The provision of sustainability accounting information to internal users would focus on

the provision of relevant and decision useful information to management. For example, an

array of performance indicators and life cycle data compared to relevant sustainability targets

would assist the internal management of the organization toward the multidimensional

sustainability objective.

4.2. Underlying principles

Major principles that underpin the application of the sustainability accounting frame-work are listed in the second column of Fig. 2. The chosen definition of sustainability will

shape the scope and content of an organisation’s sustainability accounting framework. The

increasingly accepted three dimensional definition expands the sustainability concept to

include ecological, social and (specifically longer term) economic objectives. Measuring

performance toward a multidimensional conception of sustainability requires an array of so-

cial, environmental and economic indicators. The problem of prioritization of the competing

dimensions of sustainability leads to differing interpretations of sustainability accounting

information by, for example, business management compared to environmentalists. One

response to this is to develop integrated performance indicators which attempt to measure

two or more dimensions of sustainability, such as eco-efficiency indicators.A contentious issue relates to identifying the appropriate entity for which sustainability

accounts are prepared. Applying the sustainability concept at the micro level by construct-


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ing sustainability accounts for individual organisations is based on the (possibly mistaken)

assumption that reported information will lead to organizational change toward sustain-

ability (Lehman, 1999). Research exploring sustainability accounting at the household,

community, regional and national levels is necessary to exert sufficient pressure to drive thetransition to sustainability.

Given the systemic nature of human impact on the natural environment the boundaries of a

sustainability accounting system need to be clearly defined to limit the scope to a manageable

exercise. First-level environmental impacts refer to direct impacts on the environment.

Second-level environmental impacts are impacts caused by suppliers of inputs. Third-level

impacts are incidental to the provision of inputs. In prior research boundaries have been

drawn to include first and second level environmental impacts, but to exclude third level

impacts (Bebbington & Tan, 1997).

Similarly the period over which organisation performance toward the goal of sustain-

ability is assessed needs to be defined. Alternatives to the financial accounting conventions

of (typically) reporting monthly, quarterly and/or annually are reporting continuously by,

for example, updating websites (maybe many times per day) with latest information, and/or

reporting over the life cycle of an organisation’s products and services. The use of life cycle

analysis is considered critical to the sustainability accounting process as it contributes to

changing the time horizon of decision makers from the short term accounting period to the

longer term product life cycle (Christiansen, 1997).

Including social and environmental factors in the sustainability concept necessitates the

use of an array of measurement units. Monetary units are relevant for assessing economic

performance, but are not appropriate for assessing social or environmental performance.Attempts to monetarise social and ecological impacts risks seriously misrepresenting and

understating the significance of these issues relative to economic issues.

The accounting principle of capital maintenance is applied to sustainability accounting

in Gray’s suggested sustainable cost and natural capital inventory approaches (Gray, 1993).

Defining sustainable development in the context of the capital maintenance principle implies

maintaining stocks of ecological, social and economic capital, and leads to the contentious

issue of substitutability between categories of stock, and the distinction between weak and

strong versions of sustainability (Costanza & Daly, 1992).

The financial accounting concept of materiality is also relevant to the sustainability

accounting framework. Given the interconnectedness inherent in the natural environment,it is not feasible to capture and report all human caused environmental impacts. Impacts

need to be prioritised depending on their significance as a potential threat to humankind

or the natural environment and their relevance to stakeholders. Lesser threats that would

not influence users could be excluded from sustainability reports based on the principle of

materiality.

The principle of materiality needs to be considered together with the ecologically based

precautionary principle, whereby action to alleviate environmental impacts is not delayed

due to scientific uncertainty (Chiras, 1992). Impacts that may not be precisely measur-

able, or where the risk is low still may require reporting to users. An example is high-

magnitude-low-probability risks (Rubenstein, 1994) which need to be considered giventheir potential to influence users given their potential for ecological, social and economic

destruction.


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4.3. Data capture and measurement techniques

The use of a wide array of indicators to measure performance toward sustainability is

recommended in the GRI Guidelines. Performance indicators have a relatively short historyof use in management accounting with the development of balanced scorecards which

identify critical indicators (Kaplan & Norton, 1996) in recognition of the multidimensional

nature of organizational performance.

Environmental accounting research has focused considerable attention on the valua-

tion of environmental assets, liabilities and costs, in an attempt to account for the envi-

ronment using generally accepted accounting principles. Milne (1991) reviews a range of

estimation techniques for facilitating the valuation process. Lehman (1996) warns that valu-

ing environmental assets is potentially destructive, and suggests sustainability accounting

is more about providing narratives of the social and environmental impact of corporate

activities.

Life cycle analysis provides an enormous challenge given the complexity and detailed

measurement of environmental impacts. As an evaluation technique it is inherently impre-

cise (Ayres, 1995) and simplified, non-quantitative versions which encourage the transition

to life-cycle thinking may be more cost effective.

Environmental data can be captured using generalised scientific models to estimate

emission levels and resource consumption. In cases where resources are purchased

from suppliers, direct measurement by technical instrumentation is possible. For ex-

ample water meters record consumption by the consumer at the source, as do elec-

tricity meters. In many cases sampling method is the only cost effective method of data capture due to the excessive cost of measuring all emissions and natural resources

consumed.

The poor quality of data required to calculate environmental performance indica-

tors and to perform life cycle analysis is well documented (Lee, O’Callaghan, & Allen,

1995). Methods and sources used to capture data are broad, varied and potentially un-

reliable, due to the practice of environmental accounting being at an early stage in its

evolution.

Primary records forming part of the sustainable accounting system could include, for

example, a pollution inventory and a resource consumption inventory. As with subsidiary

records maintained in conventional accounting systems these inventories are used to recorddata from which the final reports are extracted.

4.4. Reporting formats

The fourth component of the sustainability accounting framework depicted in Fig. 2

concerns the dissemination of information to users and involves two key questions:

1. What is the appropriate format of sustainability accounting reports?

2. How frequently should sustainability accounting information be disseminated to users?

Examples of reporting formats used to present sustainability accounting information

include


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• Tables of performance indicators which measure actual values of each indicator for a

specified accounting period (CICA, 1994). Usefulness of information is increased where

actual values are compared to relevant sustainability targets (Lamberton, 2000).

• Inventories of stocks of natural capital segregated into various categories (Jones, 1996).• Cost estimates of sustainable alternatives to current business practice (Bebbington &

Gray, 2001).

• Input–output analysis (Jasch, 1993).

• Life cycle analyses.

• Lists of non compliance with relevant legislation incidents (for example, see WMC,

2001).

• Narratives of environmental and social impacts.

These reports could be prepared periodically, or in the case of LCA, as required over the

useful life of a product or process, and preferably prior to the design decision being taken.Some types of sustainability accounting information could be disseminated using web sites

as it becomes available, rather than conforming to a fixed reporting schedule. This places

the onus on users to check web sites regularly for updates.

4.5. Qualitative attributes

The fifth component of the sustainability accounting framework identifies qualitative

attributes of sustainability accounting information which have been drawn from the GRI

Guidelines. The Guidelines provide a comprehensive list of attributes knitted together intoa cohesive framework. These attributes are referred to as reporting principles; refer Table 2

which is taken from page 23 of the Guidelines.

These attributes, drawn predominantly from financial accounting are designed to inform

users as to how reports have been prepared by the reporting organization (GRI, 2002, p.

22). The primary attributes specified in the Guidelines are

1. Transparency which requires

(f)ull disclosure of the processes, procedures, and assumptions in report preparation

(GRI, 2002, p. 24).

2. Inclusiveness which requires(t)he reporting organization [to] systematically engage its stakeholders to help focus and

continually enhance the quality of its reports (GRI, 2002, p. 24).

3. Auditability which requires

(r)eported data and information [should] be recorded, compiled, analysed, and disclosed

in a way that would enable internal auditors or external assurance providers to attest to

its reliability (GRI, 2002, p. 25).

The remaining eight qualitative attributes are designed to ensure the quality, reliability

and accessibility of information reported which is relevant to the organizational objective

of sustainability. As stated in SAC 3 Qualitative Characteristics of Financial Information,sustainability accounting information must possess these qualitative attributes to enable

preparers of reports to discharge their accountability to users (SAC 3, 2002, p. 23).


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Table 2

Reporting principles

Source: GRI, 2002, p. 23.

5. Conclusion

This paper reviews the relatively short history of sustainability accounting theory and

practice, and draws upon the structure of the financial accounting model to develop a sustain-

ability accounting framework. The aim of the framework is to provide direction for future

development of sustainability accounting at both conceptual and applied levels. Whether or

not it will prove beneficial to apply the structure of the traditional financial accounting model

to the sustainability accounting framework is unknown. Ideally sustainability accounting

practice should benefit from the history of financial and management accounting, although

such an approach may stifle creative development and reinforce existing (environmental)

problems and their (accounting) causes.The sustainability accounting framework depicted in Fig. 2 presents an enormous chal-

lenge to business. The breadth of reporting to include aspects of environmental, social


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and economic performance which conform to the stringent qualitative standards set in

the GRI Guidelines requires a large commitment of resources to achieve widespread ap-

plication. Given that the desired outcome from the dissemination of sustainability ac-

counting information is radical change to sustainable business practice; it is unrealis-tic to expect business to voluntarily commit the resources required for full implemen-

tation. Furthermore, humankind has too much to lose if this transition does not take

place.

This paper views the development of sustainability accounting through the lens of the

traditional financial accounting model. What this reveals is that sustainability accounting as

theorised and practiced exhibits some of the attributes of the traditional financial accounting

model but much work is required for sustainability accounting practice to achieve the rigor

and integrity defined by the list of qualitative attributes.

One option for financing the implementation of sustainability reporting would be to

use environmental taxes to both raise revenue and to discourage negative environmental

impacts. Once the sustainability accounting system is established tax rates could be linked

to (sustainability) performance outcomes to encourage the transition to sustainability at

the organizational level. Environmental taxes are a common policy option within green

political parties, and have been established as policy during the 1990s in Europe (Ekins,

1999).

A critical assumption of this research is that corporate impacts on the environment can

be changed by the provision of relevant information to stakeholders. Linking sustainability

performance to rates of tax incurred at the corporate level should increase the likelihood

of corporate management responding to the information produced. The expectation thatbusiness organisations pass environmental taxes on to consumers would partially offset

the widespread underpricing of economic goods and services from the failure to include

environmental and social costs in market prices.

The formation of independent transdisciplinary sustainability teams to prepare and au-

dit sustainability accounts would add credibility to the process. Accountants will need

to broaden their knowledge and establish a common dialogue to facilitate discourse with

social and ecological professionals. A more cost effective alternative to the regular and

continuous preparation of sustainability accounting information could be to prepare sus-

tainability reports (say) every 3 years, using data the company is required to collect

annually.The future direction of sustainability accounting research must continue to display the

essential quality of diversity. Attempts to increase the coverage, depth and quality of sus-

tainability accounting information need to be complimented by research which draws on

knowledge from outside conventional accounting and business. An interesting example is

provided by the joint project between GPI Atlantic and the Centre for Bhutan Studies, who

report work in progress toward the measurement of human, social and natural capital in-

cluding environmental quality, health, security, equity, education and free time (Coleman,

2004, p. 5). This project draws on the Buddhist foundation and commitment of the Bhutan

Government to achieve genuine progress toward operationalising the objective of Gross

National Happiness. Innovative projects drawing, where appropriate on alternative cul-tural perspective are needed to inform an accounting that is capable of making a genuine

contribution to sustainability.


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