Source: https://pixabay.com/photos/nature-earth-sustainability-leaf-3289812/
By Dr. Paul Tiong
Definition of “sustainability”
The concept of sustainability in accounting and reporting originated from the term “sustainable development” which is defined by the World Commission on Environment and Development as “development which meets the needs of the present without compromising the ability of future generations to meet their own needs.” (World Commission on Environment and Development, 1987, p. 43). Sustainability accounting and reporting is the accounting and reporting of an organisation’s economic/financial, environmental and social impacts on sustainable development. This is also known as “triple bottom line reporting.” (Elkington, 1997). Therefore, a sustainability report shows the economic, environmental and social performance of an organisation.
Sustainability Reporting and Greenwashing
Sustainability reporting is done mainly on a voluntary basis in many countries, unlike traditional financial reporting (i.e., the preparation of a statement of financial performance, a statement of financial position, a statement of changes in equity, a statement of cash flows, notes to the accounts, and comparative information of the preceding period), which is, mandatory.
In practice, there are major issues and problems that users of sustainability reports face when they review sustainability reports, mainly because organisations can select which sustainability reporting standards to use when they prepare their sustainability reports and which parts of the standards to comply with. This results in the production of a range of sustainability reports with different levels of transparency and accountability, making it difficult for stakeholders to evaluate and compare the organisations’ economic, environmental and social performance which, in turn, affect users’ ability to make informed and proper decisions. Many stakeholders also claim that there is widespread greenwashing, where organisations use their sustainability reports to create an impression that they are more sustainable than they actually are.
Organisational Transparency and Accountability
With the different types, amounts and levels of information that are disclosed by organisations in their sustainability reports, how can stakeholders scrutinise the management and hold them accountable for the actions they had taken and on how the organisation operated during the reporting period, particularly, whether they had been financially, environmentally and socially responsible?
Users of sustainability reports can distinguish a higher level of organisational transparency and accountability from a lower one by observing for certain characteristics, such as, the existence of the following:
- The sustainability report is prepared according to globally-recognised sustainability reporting standards, such as, the International Sustainability Standards Board’s (ISSB) IFRS Sustainability Disclosure Standards (International Sustainability Standards Board, 2023a, 2023b) and Global Reporting Initiative’s (GRI) GRI Standards (Global Reporting Initiative, 2023a, 2023b, 2023c), not only national standards.
- The organisation engages with its stakeholders (eg. employees, suppliers, customers, regulators and local communities) to ensure that their interests, expectations and information needs are met, not shareholders only.
- The sustainability report is audited and assured by an external auditor.
The three characteristics above are not an exhaustive list. However, they can help users to determine the level of trust and confidence that they could place on the organisations of their interest.
Dr. Paul Tiong is a Lecturer at the School of Economics, Finance and Accounting.
References
Elkington, J. (1997). Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Capstone.
Global Reporting Initiative. (2023a). GRI 1: Foundation 2021. In. Amsterdam: GRI.
Global Reporting Initiative. (2023b). GRI 2: General Disclosures 2021. In. Amsterdam: GRI.
Global Reporting Initiative. (2023c). GRI 3: Material Topics 2021. In. Amsterdam: GRI.
International Sustainability Standards Board. (2023a). IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. In. London: IFRS Foundation.
International Sustainability Standards Board. (2023b). IFRS S2 Climate-related Disclosures. In. London: IFRS Foundation.
World Commission on Environment and Development. (1987). Our common future. Oxford University Press.
Keywords Sustainability reporting, transparency, accountability, GRI Standards, IFRS Sustainability Disclosure Standards