sustainability accounting—a brief history and conceptual framework

Accounting Forum 29 (2005) 7–26

Sustainability accounting—a brief history andconceptual framework

Geoff LambertonSchool 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 1990sand has received continuing attention in academic and professional accounting literature. This papertracks this brief history through to the release of theSustainability Reporting Guidelinesat the WorldSummit on Sustainable Development in August 2002, consolidating the various approaches into asustainability accounting framework. The result is a comprehensive reporting model that presentsan enormous challenge to business organisations, requiring a significant commitment of resourcesto achieve widespread implementation. Failure to meet this challenge enables business organisationsto continue to avoid accountability for their continuing unsustainability. The paper concludes with apersonal 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 AccountingFramework

1. Introduction

Environmental accounting and its most evolved formsustainability 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 theSustainability Accounting Guidelinesat the World Summit on Sustainable Developmentin Johannesburg in August, 2002. This paper reviews and consolidates this research into asustainability accounting framework that captures the breadth and complexity of this newform of accounting. The framework draws on the traditional financial accounting model forits structure, whilst the content of the sustainability accounting framework is derived from

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0155-9982/$ – see front matter © 2005 Elsevier Ltd. All rights reserved.doi:10.1016/j.accfor.2004.11.001

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

the various approaches taken by accounting researchers to link accounting to sustainabilityover 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 withfull-cost accountingand triple bottom line(TBL)accounting are discussed in Sections2.1–2.4, leading to the identification of common themesin Section2.5and the specification of a comprehensive sustainability accounting frameworkin Section4.

2.1. Sustainable cost and full-cost accounting

Sustainable cost is the (hypothetical) cost of restoring the earth to the state it was in priorto 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 ofnaturalcapital 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 (calculatedusing 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 ofunsustainability 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 capitalwould, 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 andunchallenged 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, inthis casecapital 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).

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; (seeBebbington & Tan, 1996, 1997andHowes, 1999).Bebbington and Gray (2001)provide a fascinating account of the difficulties of applyingthe sustainable cost framework. Difficulties in determining a meaningful estimate of sus-tainable cost resulted in the recasting of the sustainable cost framework to provide dataconcerning a range of more sustainable options. This requires the organization to let go ofits attachment to thebusiness-as-usualassumption exploring possibly radical alternativesthat require costing within the (revised) sustainable cost framework.

Another important conclusion drawn byBebbington and Gray (2001)is that the processof working with an organization and attempting to estimate sustainable cost may provemore valuable than the financial data produced. This is not surprising given that ecologicaldestruction and social inequity have much to do with the (un)ethical underpinnings of ourconsumer and wealth-obsessed culture (Sivaraksa, 1992), rather than a lack of information.If this is true, theprocessof disclosing specific aspects of unsustainability, with a detailedexposure of its causes and consideration of alternative paths could prove a significant andcathartic experience. Similar conclusions have been drawn regarding the process of prepar-ing life cycle analyses (Ayres, 1995; Christiansen, 1997) which may indicate we need tospend more energy applying sustainability accounting using field work and case orientedresearch methods.

Sustainable cost and full-cost accounting are not necessarily equivalent forms of ac-counting (Atkinson, 2002), although both methods attempt to capture environmental costsexternal 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 ofsocial and environmental cost, which leads to a misallocation of resources and widespreadsocial 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 ofthe natural environment. Various types of natural capital stocks are distinguished enablingthe 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), althoughJones (1996)suggests exploring the valuation of natural assets using financial units.Jones (1996, 2003)


applies the inventory approach to the problem of accounting for biodiversity, adopting athree part process involving the recording, valuing and reporting of natural asset wildlifehabitat, flora and fauna, and suggests aggregating records of individual organisations tobuild national records of natural inventories.

The influence of conventional accounting over natural capital inventory accounting isevident in the application of the capital maintenance concept, as well as utilization of themanagement 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 andhumanmade) recognising that opportunities to substitute humanmade physical or financialcapital for natural capital are limited (Costanza & Daly, 1992).

Accounting for natural inventories is in its exploratory stage. Both the accuracy andpotential usefulness of this information needs to be tested with further theoretical andempirical research. Major challenges involve the identification of the relevant accountingentity to which to apply this method, which may be at the community (Lehman, 1999) orregional level (Gray, 1992), rather than corporate level. Similarly the accounting principleof materiality is critical in identifying the level of detail and the degree of precision requiredat the data capture stage and reporting stages. Notwithstanding the preceding discussion,whether natural inventory accounts could meaningfully reflect nature’s interconnectednessand 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 inputsinto the process, and outputs of finished goods, emissions, recycled materials and wastefor disposal (Jorgensen, 1993). Resource flows are accounted for using units of volume,although accounting in financial units is considered feasible (Gray, 1994). Input–outputanalysis uses a balancing technique familiar to accountants, applying the principlewhatgoes in must come out, providing a disciplined approach to the provision of environmentalinformation.

Reported advantages of input–output analysis include identification of potential resourceand energy savings, it is often the first step in an environmental audit process, and it canfacilitate product innovation and pollution prevention strategies, particularly when it formspart of a product and/or process life cycle analysis (Jasch, 1993). Input–output analysisdoes not measure sustainability or unsustainability; rather it provides a transparent accountof the physical flows into and out of a process, enabling further analysis of environmentalimpact and ultimately sustainability strategies (Gray, 1994; Jasch, 1993).

Unlike the previous forms of sustainability accounting discussed, input–output analysishas its origins in materials accounting techniques used in the physical sciences, rather thanin 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 astriple bottomline (TBL), which aims to report on an organisation’s economic, social and environmental


impacts. Underpinning TBL accounting is the evolving three dimensional definition ofsustainable development (Van den Bergh, 1996; WCED, 1987; Westing, 1996).

Some versions of TBL attempt to use monetary units to measure economic, social andenvironmental performance, whereas others versions such as that used in theGRI Sustain-ability Accounting Guidelinesutilise a wide array of indicators to measure performancetoward the goal of sustainability. The use of indicators to estimate variables that cannotbe 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 bedirectly observed.

The latest version of theGRI Sustainability AccountingGuidelines, released at the WorldSummit on Sustainable Development (WSSD) in Johannesburg in August 2002, provide arigorous 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 applicableSustainableReporting Guidelines(‘‘ Guidelines”). TheseGuidelinesare for voluntary use byorganisations for reporting on the economic, environmental, and social dimensionsof their activities, products and services. (GRI, 2002)

The Guidelines draw on the accepted three-dimensional definition of sustainability usinga series of performance indicators to measure each of the economic, environmental andsocial dimensions, as well as a set of integrated indicators capturing multiple dimensions.The hierarchy of performance indicators included in the GRI framework is provided inTable 1.

The economic category of indicators is designed to supplement financial informationcontained in conventional financial accounting reports, providing information concerningthe 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 ofsustainability. 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 potentialfinancial risk if the reporting organization ceases to operate.

The environmental indicators specified in theGuidelinesare contained within manystate-of-the-art environmental reports. Eachaspectidentified inTable 1represents criteriarelevant to measuring an organisation’s environmental performance. It is recommended intheGuidelinesthat environmental performance indicators be expressed in absolute and rel-ative (or normalized) terms (GRI, 2002, p. 48), with the latter method enabling comparisonsbetween organizations.

A major contribution of theGuidelinesis the four categories of social performanceindicators covering employee, consumer and human rights, as well as societal issues suchas corruption and bribery. Given many of the social performance indicators are difficultto measure in quantitative units, theGuidelinesrequire a range of social policies to be


Table 1GRI framework for performance indicators

Category Aspect

Economic Direct economic impacts CustomersSuppliersEmployeesProviders of capitalPublic sector

Environmental Environmental MaterialsEnergyWaterBiodiversityEmissions, effluents, and wasteSuppliersProducts and servicesComplianceTransportOverall

Social Labour practices and decent work EmploymentLabour/management relationsHealth and safetyTraining and educationDiversity and opportunity

Human rights Strategy and managementNon-discriminationFreedom of association and collective bargainingChild labourForced and compulsory labourDisciplinary practicesSecurity practicesIndigenous rights

Society CommunityBribery and corruptionPolitical contributionsCompetition and pricing

Product responsibility Customer health and safetyProducts and servicesAdvertisingRespect for privacy

Source: GRI, 2002, p. 36.

specified, together with a description of the system used to monitor compliance with thepolicy and results from the monitoring process.

Gray (2002)describes social accounting as the universe of possible accountings. Thisimplies that social accounting practice requires careful prioritisation of relevant social infor-mation. Sustainability accounting draws its social dimension from the evolving definitionof sustainability, which includes the goal of intragenerational equity, usually interpreted as


the elimination of poverty. The problem of poverty is not directly targeted in the GRI socialperformance indicators, although some of its causes (human rights violations, health andfreedom) are evident, and the financial value of donations is specified as a core economicperformance indicator. Limited disclosure could be due to a belief that primarily it is therole of government and not business organisations to eliminate poverty. Nonetheless thebusiness sector does have an obligation to ensure it does not contribute to poverty or itscontinuance, and activities which do need to be disclosed.

In summary, theGuidelinesform a noble initiative aimed at increasing the transparencyof organisations’ social and environmental impacts, in the belief that if the quality of thisinformation is improved organizational change toward sustainability will occur. However,Broadhead (2002)draws attention to the inherent danger in the incremental management ofselected environmental problems at an international level. According to Broadheadregimeformation (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 progresstoward 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 theGuidelines, reducing sustainability accounting information toenvironmental propaganda, masking the reality of the environmental crisis and the role ofbusiness as a primary cause (Gray, 1992; Lehman, 1995). Critical implementation issuesinclude: 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 producingsustainability accounting information. These issues are discussed in the conclusion to thispaper.

2.5. General themes to sustainability accounting

In this section five major themes evident in the varied approaches to sustainability ac-counting discussed in Sections2.1–2.4are identified. These themes contribute to the spec-ification of the sustainability accounting framework in Section3.

2.5.1. Preferred definition of sustainabilityApplications 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 rootsin the WCED’s definition published in Our Common Future in 1987, where the socialevil of poverty was inextricably linked to environmental degradation (WCED, 1987), andeconomic growth was identified as an essential weapon to fight poverty. However, it isextremely doubtful whether continuing volume measured economic growth is compatiblewith ecological sustainability (Costanza & Daly, 1992).

2.5.2. Use of indicatorsSustainability being a multi dimensional concept is not directly measurable and requires

a 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


for exampleAzar, 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 establishedrules 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 derivationof meaningful micro level sustainability targets.

2.5.3. Multiple units of measurementAlthough some forms of environmental accounting rely on monetary units to measure

environmental and social impacts, an increasing trend, evident in the GRIGuidelines, is theuse of multiple units of measurement to assess performance toward the three dimensions ofsustainability. Financial units of measurement, the preferred choice for measuring economicperformance, are not necessarily suitable for capturing social and ecological impacts, whichrequire an array of measurement tools to capturenature’smultiplicity(Cooper, 1992) and thesocial equity dimension of sustainability. Qualitative tools, such as narratives to describean organisation’s social and environmental impacts form a critical part of sustainabilityaccounting (Lehman, 1999).

2.5.4. The interdisciplinary nature of sustainability accountingGiven the three dimensional definition of sustainability, it necessarily becomes a concept

reaching across and requiring cooperation between the accounting, social and ecologicaldisciplines. 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 practicesMost of the various approaches to sustainability accounting draw on traditional account-

ing principles and/or practice. The capital maintenance concept used in sustainable cost andnatural resource inventory accounting, full cost accounting, inventory accounting, and thevaluation of environmental assets and liabilities are examples of this reliance. Not surpris-ingly, the accounting profession’s response to environmental crises draws on the traditionsof financial and management accounting, providing familiar principles to navigate throughthe unfamiliar territory of ecology and sustainability.

The five themes listed together with the traditional financial accounting model enable thespecification of the sustainability accounting framework in Section3.1. The components ofthe 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 financialstatements (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 theset of final reports produced.


Ijiri (1983) identifies accounting records and accounting reports as the major tools of theaccountant. Fundamental to the preparation of traditional financial statements are account-ing records compiled using tools such as the journal, ledger and trial balance, and mostsignificantly 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 aredesigned to account for

. . . performance evaluation relative to the goal assigned to the accountor based on theunderlying accountability relationship. (Ijiri, 1983, p. 77)

Underlying the provision of financial statements is the assumption that users are primarilyinterested in the accounting entity’s financial performance, measured by accounting profitand cash flow, and the entity’s financial position measured by the balance sheet. The financialaccounting model has evolved to provide information relevant to these assumed primaryfinancial objectives of entrepreneurs. In sustainability accounting the goal assigned to theaccountor is the objective of sustainability (or sustainable development). Using a deductiveapproach (Martin, 1994) a sustainability accounting model can be designed to provideinformation 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 conceptSAC 3 (2002). Similarly,the GRIGuidelinesprovide a comprehensive set of qualitative attributes of sustainabilityaccounting information, which are included later in this paper as part of the sustainabilityaccounting framework.

From the discussions in this section five components are identified as integral to thefinancial 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 Section3.1a sustainability accounting framework is specified drawing on the generalthemes identified in Section2.5and the five components of the financial accounting model.A justification for sustainability accounting research is that stakeholders, and in particularbusiness decision makers, require a balanced information set, including economic, socialand environmental information if decisions are to achieve the multidimensional goal ofsustainability.

If the accounting profession is to make a constructive contribution to the environmentalcrisis, it will draw on the accumulated knowledge and experience of accounting tradi-tion. Accountants have significant experience and long established standards for reportingcorporate financial performance which should prove useful when preparing sustainabilityaccounting 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


the problem and the environment will suffer from attempts by accountants to capture andreport its value (Cooper, 1992; Maunders, 1996).

The financial accounting model identified in this paper represents a general frameworkfor the capture and reporting of information that has evolved from financial accountingpractice. Specifying a sustainability accounting model in the form of the financial accountingmodel is attempted in this paper to provide structure to sustainability accounting which hasdeveloped in a relatively ad hoc manner over the past 15 years. It is difficult to speculatewhether this approach will ultimately benefit the environment. Certainly the process ofreporting sustainability accounting information is open to manipulation by vested interests.A potentially critical role for accounting is the design of systems to reduce manipulationand increase the qualitative attributes of sustainability accounting information.

3.1. Sustainability accounting framework

Fig. 1 displays five components of a sustainability accounting framework drawn fromthe preceding discussion of the financial accounting model which is expanded into a com-prehensive framework later in this paper (referFig. 2). An assumption underpinning thespecification of this framework is that the issues of: the objective of the reporting model; theprinciples which underpin application of the model; data capture; reporting frameworks;and the qualitative attributes of the information produced, are critical issues which need tobe addressed during the developmental phase to add rigor and structure to the reporting ofsustainability accounting information.

The five components depicted inFig. 1represent 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.


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 andcomplexity of the accounting framework. If, as is becoming increasingly common, a threedimensional definition of sustainability is adopted, the accounting framework must reporton organisational performance from an ecological, social and economic perspective.

The primary objective of the sustainability accounting framework together with thechosen definition of sustainability determines the principles which guide the capture andreporting of accounting information. These principles are analogous to the principles andconventions that underpin financial accounting, such as the historical cost, going concern andconservatism principles, and conventions concerning the accounting period and reportingentity.

Data management tools used to capture and record sustainability accounting data areanalogous to the financial accountant’s journals, ledgers and trial balances used to recordfinancial 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 inthe form of both quantitative and qualitative information and must conform to a series ofqualitative attributes. These attributes, listed inFig. 2, are drawn from the GRI’sSustain-ability Reporting Guidelines, and are equivalent to the attributes prescribed for financialaccounting data inSAC 3 (2002).

In the next section,Fig. 1 is expanded into a comprehensive sustainability accountingframework.

4. Theoretical framework for sustainability accounting

Fig. 2depicts a comprehensive sustainability accounting framework and displays someof the interconnections between the various components within the framework.

This framework draws together the five general themes (identified in Section2.5) ev-ident in environmental accounting research and practice, up to and including the releasein 2002 of theGRI Sustainability Accounting Guidelines. Central to the sustainability ac-counting framework presented in this paper and the Guidelines, is the use of performanceindicators 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 Section2.5 acknowledges the influence of traditionalaccounting principles and practice over environmental accounting research. The influenceof accounting tradition in this paper is evidenced by the application of the five componentsof the traditional financial accounting model depicted inFig. 1, to form the sustainabilityaccounting framework presented inFig. 2. This structure provides objectives, principles,


measurement and reporting methods directed at achieving the extensive list of qualitativeattributes listed in theGuidelinesand discussed in Section4.5of this paper.

In Sections4.1–4.5each of the components ofFig. 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 sustainabilityis 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 globalsustainability 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 isproblematic.

As with conventional accounting information, potentialinternal users of sustainabilityaccounting information can be distinguished fromexternalusers. Use by external partieswould aim to discharge the accountability of business organisations for their environmentaland social impacts to a broad set of external stakeholders. Sustainability accounting infor-mation must exhibit the qualitative attributes of transparency and comparability in a relevantsustainability context to enable stakeholders to assess the environmental and social impact ofthe organization. Society requires information which renders the impact of an organisation’soperations transparent so its contribution to the goal of sustainability can be assessed. Animportant 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 onthe provision of relevant and decision useful information to management. For example, anarray of performance indicators and life cycle data compared to relevant sustainability targetswould assist the internal management of the organization toward the multidimensionalsustainability objective.

4.2. Underlying principles

Major principles that underpin the application of the sustainability accounting frame-work are listed in the second column ofFig. 2. The chosen definition of sustainability willshape the scope and content of an organisation’s sustainability accounting framework. Theincreasingly accepted three dimensional definition expands the sustainability concept toinclude ecological, social and (specifically longer term) economic objectives. Measuringperformance toward a multidimensional conception of sustainability requires an array of so-cial, environmental and economic indicators. The problem of prioritization of the competingdimensions of sustainability leads to differing interpretations of sustainability accountinginformation by, for example, business management compared to environmentalists. Oneresponse to this is to develop integrated performance indicators which attempt to measuretwo or more dimensions of sustainability, such as eco-efficiency indicators.

A contentious issue relates to identifying the appropriate entity for which sustainabilityaccounts are prepared. Applying the sustainability concept at the micro level by construct-


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 asustainability accounting system need to be clearly defined to limit the scope to a manageableexercise. First-level environmental impacts refer to direct impacts on the environment.Second-level environmental impacts are impacts caused by suppliers of inputs. Third-levelimpacts are incidental to the provision of inputs. In prior research boundaries have beendrawn to include first and second level environmental impacts, but to exclude third levelimpacts (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 conventionsof (typically) reporting monthly, quarterly and/or annually are reporting continuously by,for example, updating websites (maybe many times per day) with latest information, and/orreporting over the life cycle of an organisation’s products and services. The use of life cycleanalysis is considered critical to the sustainability accounting process as it contributes tochanging the time horizon of decision makers from the short term accounting period to thelonger term product life cycle (Christiansen, 1997).

Including social and environmental factors in the sustainability concept necessitates theuse of an array of measurement units. Monetary units are relevant for assessing economicperformance, but are not appropriate for assessing social or environmental performance.Attempts to monetarise social and ecological impacts risks seriously misrepresenting andunderstating the significance of these issues relative to economic issues.

The accounting principle of capital maintenance is applied to sustainability accountingin Gray’s suggested sustainable cost and natural capital inventory approaches (Gray, 1993).Defining sustainable development in the context of the capital maintenance principle impliesmaintaining stocks of ecological, social and economic capital, and leads to the contentiousissue of substitutability between categories of stock, and the distinction between weak andstrong versions of sustainability (Costanza & Daly, 1992).

The financial accounting concept of materiality is also relevant to the sustainabilityaccounting framework. Given the interconnectedness inherent in the natural environment,it is not feasible to capture and report all human caused environmental impacts. Impactsneed to be prioritised depending on their significance as a potential threat to humankindor the natural environment and their relevance to stakeholders. Lesser threats that wouldnot influence users could be excluded from sustainability reports based on the principle ofmateriality.

The principle of materiality needs to be considered together with the ecologically basedprecautionaryprinciple, whereby action to alleviate environmental impacts is not delayeddue 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 economicdestruction.


4.3. Data capture and measurement techniques

The use of a wide array of indicators to measure performance toward sustainability isrecommended in the GRIGuidelines. Performance indicators have a relatively short historyof use in management accounting with the development of balanced scorecards whichidentify critical indicators (Kaplan & Norton, 1996) in recognition of the multidimensionalnature 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 ofestimation techniques for facilitating the valuation process.Lehman (1996)warns that valu-ing environmental assets is potentially destructive, and suggests sustainability accountingis more about providing narratives of the social and environmental impact of corporateactivities.

Life cycle analysis provides an enormous challenge given the complexity and detailedmeasurement of environmental impacts. As an evaluation technique it is inherently impre-cise (Ayres, 1995) and simplified, non-quantitative versions which encourage the transitionto life-cycle thinkingmay be more cost effective.

Environmental data can be captured using generalised scientific models to estimateemission levels and resource consumption. In cases where resources are purchasedfrom 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 ofdata capture due to the excessive cost of measuring all emissions and natural resourcesconsumed.

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 itsevolution.

Primary records forming part of the sustainable accounting system could include, forexample, a pollution inventory and a resource consumption inventory. As with subsidiaryrecords 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 inFig. 2concerns 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 informationinclude


• Tables of performance indicators which measure actual values of each indicator for aspecified accounting period (CICA, 1994). Usefulness of information is increased whereactual 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, seeWMC,

2001).• Narratives of environmental and social impacts.

These reports could be prepared periodically, or in the case of LCA, as required over theuseful 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 sitesas it becomes available, rather than conforming to a fixed reporting schedule. This placesthe onus on users to check web sites regularly for updates.

4.5. Qualitative attributes

The fifth component of the sustainability accounting framework identifies qualitativeattributes of sustainability accounting information which have been drawn from the GRIGuidelines. TheGuidelinesprovide a comprehensive list of attributes knitted together intoa cohesive framework. These attributes are referred to asreporting principles; referTable 2which is taken from page 23 of theGuidelines.

These attributes, drawn predominantly from financial accounting are designed to informusers as to how reports have been prepared by the reporting organization (GRI, 2002, p.22). The primary attributes specified in theGuidelinesare

1. Transparencywhich requires(f)ull disclosure of the processes, procedures, and assumptions in report preparation(GRI, 2002, p. 24).

2. Inclusivenesswhich requires(t)he reporting organization [to] systematically engage its stakeholders to help focus andcontinually enhance the quality of its reports (GRI, 2002, p. 24).

3. Auditabilitywhich requires(r)eported data and information [should] be recorded, compiled, analysed, and disclosedin a way that would enable internal auditors or external assurance providers to attest toits reliability (GRI, 2002, p. 25).

The remaining eight qualitative attributes are designed to ensure the quality, reliabilityand accessibility of information reported which is relevant to the organizational objectiveof sustainability. As stated inSAC 3 Qualitative Characteristics of Financial Information,sustainability accounting information must possess these qualitative attributes to enablepreparers of reports to discharge their accountability to users (SAC 3, 2002, p. 23).


Table 2Reporting principles

Source: GRI, 2002, p. 23.

5. Conclusion

This paper reviews the relatively short history of sustainability accounting theory andpractice, 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 futuredevelopment of sustainability accounting at both conceptual and applied levels. Whether ornot it will prove beneficial to apply the structure of the traditional financial accounting modelto the sustainability accounting framework is unknown. Ideally sustainability accountingpractice should benefit from the history of financial and management accounting, althoughsuch an approach may stifle creative development and reinforce existing (environmental)problems and their (accounting) causes.

The sustainability accounting framework depicted inFig. 2presents an enormous chal-lenge to business. The breadth of reporting to include aspects of environmental, social


and economic performance which conform to the stringent qualitative standards set inthe GRIGuidelinesrequires a large commitment of resources to achieve widespread ap-plication. Given that the desired outcome from the dissemination of sustainability ac-counting information isradical 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 takeplace.

This paper views the development of sustainability accounting through the lens of thetraditional financial accounting model. What this reveals is that sustainability accounting astheorised and practiced exhibits some of the attributes of the traditional financial accountingmodel but much work is required for sustainability accounting practice to achieve the rigorand integrity defined by the list of qualitative attributes.

One option for financing the implementation of sustainability reporting would be touse environmental taxes to both raise revenue and to discourage negative environmentalimpacts. Once the sustainability accounting system is established tax rates could be linkedto (sustainability) performance outcomes to encourage the transition to sustainability atthe organizational level. Environmental taxes are a common policy option within greenpolitical 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 canbe changed by the provision of relevant information to stakeholders. Linking sustainabilityperformance to rates of tax incurred at the corporate level should increase the likelihoodof corporate management responding to the information produced. The expectation thatbusiness organisations pass environmental taxes on to consumers would partially offsetthe widespread underpricing of economic goods and services from the failure to includeenvironmental 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 needto broaden their knowledge and establish a common dialogue to facilitate discourse withsocial and ecological professionals. A more cost effective alternative to the regular andcontinuous preparation of sustainability accounting information could be to prepare sus-tainability reports (say) every 3 years, using data the company is required to collectannually.

The future direction of sustainability accounting research must continue to display theessential quality of diversity. Attempts to increase the coverage, depth and quality of sus-tainability accounting information need to be complimented by research which draws onknowledge from outside conventional accounting and business. An interesting example isprovided by the joint project between GPI Atlantic and the Centre for Bhutan Studies, whoreport 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 BhutanGovernment to achieve genuine progress toward operationalising the objective ofGrossNational Happiness. Innovative projects drawing, where appropriate on alternative cul-tural perspective are needed to inform an accounting that is capable of making a genuinecontribution to sustainability.


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