Accounting and Sustainability

A prerequisite for individuals and organisations being able to survive and thrive in the long term is a society that is economically, environmentally and socially sustainable. If we ignore the need for durable sustainability in these three key areas, then we risk placing potentially intolerable burdens on ourselves and on future generations. Each of these three areas is necessary because:

• economic sustainability provides us with future income and resources
• environmental sustainability provides a stable ecosphere that supports and protects life, including the provision of food and water
• social sustainability provides well-functioning societies that protect and enhance quality of life and safeguard human rights.

Taking the above factors into account, the concept of sustainable development recognises the vital social role of economic activity and development. But it also seeks to ensure that this economic development is undertaken in a manner that weighs and balances positive economic and social impacts against negative social and environmental ones, taking into account the long-term sustainability of that economic activity and development.

These three spheres of sustainability are closely related, as it is increasingly recognised that actions and impacts in one can and does affect sustainability in the others. For example, since the start of the Industrial Revolution, economic development has involved the burning of large amounts of fossil fuels, which we have only relatively recently realised has contributed to environmental unsustainability through its impact on global warming. Conversely, economic deprivation through lack of economic development leads to numerous negative social impacts associated with poverty, including:

• hunger
• inadequate housing
• poor education
• declining physical and psychological health (different aspects of which are associated with affluence)
• increased human conflict, crime and violence.

Many of these negative social impacts reinforce poverty as they hinder the development of an adequate physical and intellectual infrastructure, which is needed to support economic development.

Embedding practices

Traditional business, financial and accounting practices have tended to focus solely on the financial or economic outcome of business activities. In the commercial sector, these practices have sought to help maximise financial returns in the form of increased profit and shareholder value.

More recently, however, a growing recognition of the potentially significant negative social and environmental impacts of human actions (see above) has led many organisations to also consider the social and environmental outcomes of their activities.

Where these outcomes were often previously treated as externalities, without considering their longer-term impact on the organisation itself, they are now progressively being brought into decision-making processes. From this perspective, sustainability is seen as an increasingly urgent strategic issue that poses significant challenges to business, the public sector and society as a whole.

Creative responses and solutions are required to address these challenges by embedding sustainability considerations within strategic and day-to-day decision-making and action, thereby moving us towards a more sustainable future.

In the context of the widespread and growing recognition that both environmental and social sustainability, alongside economic sustainability, are among the major challenges facing society today, sustainability accounting and reporting practices have developed considerably in recent years.

Accounting has a variety of important roles to play in the effective response to the challenges of balancing financial, environmental and social sustainability at the organisational level. It can:

• help organisations to identify their past and potential future environmental and social impacts and benefits, in addition to the historical and forecast financial outcomes from their activities
• provide forward-looking information to help both formulate and implement strategic solutions to strengthen business performance and respond to the challenges of sustainability
• support risk management through the identification and analysis of, and response to, sustainability-related risks and opportunities; and be used to give an account of sustainability policies, practices and impacts to a range of third parties to whom the organisation is responsible and accountable.

Underlying all of these roles is the potential of accounting to make visible, through both quantitative and qualitative information, a broad range of financial, environmental and social consequences of strategies and actions, and implications of external economic, environmental and social trends for the organisation's financial performance. These include not only the consequences that have arisen from past strategy and action, but also possible future consequences based on an organisation's strategic plans.

Raising the visibility of these consequences can then help to embed issues of sustainability in the day-to-day language and discussions within organisations. This added visibility and embedding can thus raise the profile and status of sustainability management and impacts, both in internal management decision-making and in the external profile of the organisation.

For accounting to more fully realise its potential role in this complex arena of sustainability requires commitment and innovative long-term solutions. In recognising its crucial role, a growing number of organisations have been committed to developing such imaginative and innovative sustainability accounting and reporting practices.

Accounting for Sustainability: Practical Insights is edited by Anthony Hopwood, Jeffrey Unerman and Jessica Fries with a foreword by HRH The Prince of Wales. www.earthscan.co.uk.