Accounting Sustainability: Linking Sustainability With Business Strategy And Financial Performance

Need for Accounting Sustainability

Question:

Write an essay on “Role of Accounting Profession in Accounting for Sustainability”.
 

Practicing business stability can help the organizations to derive long-term value. But the term sustainability serves to provide different concepts for the professionals and other stakeholders like investors, customers and employees etc. It often happens that organizations introduce sustainability efforts in order to influence particular stakeholders for a green agenda that leads to a misconception that sustainability is related with environmental activities. But there are times when these particular stakeholders create problems with the other group of stakeholders. Hence, accounting for sustainability is needed so that it can cater to various requirements and issues of all stakeholders groups together with the green agenda issues. This in turn can help the organizations to take into account the stakeholder groups while framing any strategy or decision so that long-term benefits can be achieved (Albuquerque et. al, 2013).

Accounting Sustainability can be better understood when it is related with ERM (Enterprise Risk Management) and the business strategy of the organization as a part of wider accounting for sustainability. With the help of this study, accountants can become motivated to be indulged in the sustainability cycle in order to understand their role that includes how accounting profession can add value in accounting for sustainability. It is already known that the current business environment is very demanding in nature that is, it not only creates opportunities for the organizations to obtain value but also snatches away opportunities from some organizations very quickly (Albuquerque et. al, 2013). For instance, Carnival Cruise Line did not employ an accounting sustainability approach in its profession and as a result, the public relations with the company is damaged that led to the destruction of brand image of the company. Alternatively, Costco has employed this approach in its profession by managing its prime stakeholders through effective internal and external communication systems (Brown, 2011). Hence it can be observed that by linking sustainability activities together with the engagement of stakeholders to the organizational strategies, management can more efficiently manage the shareholder and stakeholder’s interests that can further lead to employee attraction, enhancement in the revenue, improved risk management etc. Alternatively, if this is not done, then the organization can destroy its goodwill in the market and disrupt its market competitiveness. Accountants can use their skills in order to better understand the role of accounting profession in accounting for sustainability. As such, accounting for sustainability provides for significant opportunities for the accounting professionals, both for those who practice accounting and who work within the organization.

Sustainability related activities help in strategic decision making but in order to satisfy this benefit, the effectiveness of these activities must be adequately linked to the strategy and financial performance within the organization. A significant number of financial and strategic dimensions are present where these linkages can be done and they comprise of decrease in supply chain costs, increase in satisfaction of customers, enhanced recruitment, rise of market prices and decrease in other political costs that result from the strict regulations and access to the strategic alliances that align with the organization’s values (Schaltegger, 1996). Both the internal and external accounting practitioners of the organization can help in providing the relevant missing measurements of accounting by recognizing the quantitative measures for sustainability activities which can be related with the financial and strategy measures (Brown, 2011). This linkage or relationship is very important for determining the long-term efficiency of the sustainability related activities. For instance, in the year 2010, the Corporate Responsibility Officer’s Association provided through their report that after the survey of several companies, only one-third out of them could relate sustainability activities to the bottom line but as the companies were becoming more developed with the linkages, this percentage rose (Slaper & Hall, 2011).

Linking Sustainability with Stakeholders Engagement and Business Strategy

It is to be noted that while the expertise of accountants play a crucial role in conducting the sustainability activities efficiently, their methods must also be derived from the conventional methods of financial reporting. For instance, accounting innovations that are associated with sustainability related activities are distinct from accounting innovations in financial reporting because in the former case, accounting practitioners will need to associate themselves with experts of subject matter like scientists, engineers, operation personnel, anthropologists etc in disciplines and areas related with the sustainability activities. These experts also include internal and external experts from within the organization that functions for the interests of the company as a whole. The measurement of accountants’ expertise helps to associate in connecting several non-financial indicators to the future strategy and financial outcomes that can in turn improve the strategic decision making. In relation to PUMA, it is the first company to measure values and report the externalities of the environment caused by its supply chain. It issues an environmental P/L account (EP & L) to obtain the impacts of GHG missions on the environment, air pollution, land and water use and wastes derived through its operations and supply chain (Lubatkin, 2009). An example like PUMA underscores the opportunities available for accountants in order to team with the experts of subject matter to make sure that the reporting details are controlled, measured and reported with well-established standards of accounting so that an independent auditor can ensure the relevance, reliability and completeness concept (Bence & Nadine, 2012). 

The expectations of various stakeholders tend to rise day by day and it not only hampers the business objectives of an organization but also creates various opportunities for creation of values. The expertise of accountants can be used in their profession to counter these types of problems in organization by effective implementation of accounting metrics and proper controls. For instance, in relation to BP, the accounting profession is performing with both the plaintiff attorneys and BP itself as the processing of claims regarding the 2010 Deepwater Horizon Oil Spill is done. Even a business week article stated how the formula was developed by BP on the basis of accounting information in order to process claims for companies that affected the event (Greenbaum, 2010).

It must be noted that for sustainability activities to perform better in the long-run, it must be developed in such a way so that the organizations are aimed to manage their short-term goals and challenges effectively without sacrificing their attention to the long-term goals and challenges (Wurbs, 2005). This perfect balance can be maintained by the organizations if they recognize that their stakeholders or a small set of shareholders are expecting that the organization is focused on its performance goals and will strive to attain such without compromising their values (Greenbaum, 2010). These stakeholders with long-term performance goals and horizons include but are not limited to customers, NGO’s, suppliers, employees etc.

When an organization observes sustainability activities for the satisfaction of shareholders, as opposed to the emphasizing of operational or strategic advantages from such activities, can lead to various unexpected and harmful outcomes that also includes the reaction of stakeholders towards the sustainability reports of the organization. Instead of pursuing a sustainability activity that is driven by value and also does not satisfy some particular stakeholders, the organization must possess and focus on those sustainability activities that are viewed as a public relation process to meet the expectations of stakeholder groups, commonly known as green washing (Bence & Nadine, 2012). The value-driven approach does not meet the requirements of specific set of stakeholders but when it comes to implementing and reporting on sustainability activities, the value-driven approach is the only approach that must be focused upon because it helps in portraying and emphasizing the significant long-term values of the organization. If an organization fails to adopt this approach in its sustainability activities, the value of the underlying aims for the initiatives are disrupted and the credibility of the information that is the reliability, relevance, completeness etc gets reduced for user’s use. In order to overcome this barrier, accountants must recognize the importance of accounting sustainability within the organizations and they must realize the complete value potential prevalent in their sustainability efforts (Sustainability reporting, 2012). The green washing approach can also be developed and recognized by the internal and external accountants within the organizations and it can be unknowingly developed by the organizations as one of the prime flaw of this approach is that the sustainability reports framed by this approach portrays too much hopefulness for the stakeholders that it makes them discard the approach. As a result, firms use public relations exclusively in order to develop the sustainability reports even without the involvement of public accounting firms to develop the credibility and independence of the assertion of the reports. Alternatively, accountants of the organizations would give due importance to the transparency, objectivity and completeness than the public firms of accounting that will hence decrease the trust and perceptions of the stakeholders on this green washing concept (Sustainability reporting, 2012). For instance, the issue of green-guides by the Federal Trade Commission was made so that the misleading claims associated with the environment could be prevented in the sustainability reports. Hence, a value-driven approach must be employed by the organization for developing the sustainability reports inspite of the fact that it does not cater to the needs of few stakeholders because organizations will and probably must invest significant amount of resources on those activities that has a role in attaining the strategic objectives consistent with the prime values in order to enhance the value of firms. 

Role of Accounting Professionals in Accounting for Sustainability

In the year 2009, there were several surveys conducted regarding the strategic objectives of the organizations together with the sustainability initiatives. The survey stated that around 82% of the 175 corporate respondents decided to invest much of their amount on sustainability activities and the results were positively associated with the respondents who stated that the main motive of this investment was to link the initiatives of sustainability with the strategy of the corporate. It was found that when the sustainability initiatives of the companies were linked with the strategic objectives, then most of the companies were interested to invest particularly in those sustainability initiatives. In simple words, companies are more likely to invest in those sustainability initiatives that were closely linked with the strategic objectives of the company. When investments are made in these sustainability initiatives that are driven by value approach, it diminishes the economic conditions in the organization. For instance, in the year 2008 to 2011, when the US economy was suffering, more importance was given to the short-term issues instead of focusing on the long-term sustainability objectives of the economy. However, when the economy was in a state of improvement or instead when it improved, the concentration might as well be implanted back on the long-term sustainability objectives of the economy from the short-term issues. Therefore, sustainability activities that are implanted into the strategy of the organization are more likely to obtain the required attention and other resources so that the strategic initiative goals of the organization can be efficiently met (Kruger, 2015).

The above provides an insight to the key challenges that are faced by the accounting profession while implementing embedding the concept of sustainability. It is vital to know that features of impediments to change are problematic in nature because there are many factors that need to be considered.  Moreover, various questions crops up like whether the issue is related to explaining the relevance of sustainability within the framework of accounting skills. There are various drivers for change that can be traced like national, as well as state policies that promotes the industry of sustainability, the drivers for CSR, back up for change form related associations, etc. Accounting profession is faced with severe challenge when it comes to sustainability because to implement it, it needs proper structure of the management. In some cases, it has been observed that the organization are keen enough in implementing the concept of sustainability and hence, in such cases the accountants face tremendous risks and unable to cope with the pressure (Kruger, 2015). This is due to the fact that the accountants get little back up from the management. Moreover, there are very less public courses available for accountant considering the area of sustainability is less, therefore there is much problem. There is also a bigger problem that is related to guidance and therefore, the soft skills needed for sustainability is absent. Further, there is even a bigger problem when it comes to the concept of assessment (Ballot et. al, 2006). The assessment is rudimentary in nature and hence, leads to difficulties. There is a big concern when it comes to project the financial value like the triple bottom line (TBL), as well as CSR (Sustainability reporting, 2012). The problem that happens in ascertainment of long-term value and the interest bulks thee factor of risk and the demand for a unique carbon market. However despite the challenges; there are ample opportunities that can be gained by the accountants in this regard. The accountant can build up a strong area of sustainability process and helps the business to prosper considering this matter. Moreover, with the passage of time, there has been a strong reliance on courses that offers teaching in departments such as social, environmental and ethical issue (Cairns, 2000). The structure of an MBA degree is designed in a manner that helps in strengthening the skills and provides adequate focus on sustainability. Therefore, there has been a constant improvement in the studies and specialization so that the future accountants are in a better position to tackle with the problem of issues that happen in sustainability. Business is going through a rapid change and transformation is essential (Trevour & Geoffrey, 2001). There is a strong urge for sustainable organization and in this regard, the concept of accountancy will play a major role. Accountant core skills are mainly in the area of financial reporting like definition, recognition, as well as assurance. It has been noted that there is very little demand or urge by the students to shift their focus from financial to sustainable reporting. New approaches needs to be undertaken so that it inculcates a strong feeling in them that helps to bring rapid development (Choi & Meek, 2011). This is the main challenge that is faced in the profession. The professional association is of the major concern that sustainability will help in driving the models of the future and hence professional development must be continued. It is important that the universities must collaborate and establish strong measures that will aid in creating a better environment. However, the major problem is that sustainability is always seen as a trivial issue and is left to operate on its own. It is therefore essential that the concept of sustainability be kept at the prior levels. This must be kept at the priority level when it comes to the accounting profession as it will lead to strong results. The change cannot be bought overnight (Slaper & Hall, 2011). A strong effort is needed by the authorities to change the outlook that will aid in providing strong results. It is to be noted that the accounting profession is exposed to global, as well as national pressure and hence, it is expected to perform keeping into consideration various problems. 

References

Albuquerque, R., Durnev, A., Koskinen, Y. (2013) Corporate social responsibility and firm risk: theory and empirical evidence. Boston University.

Ballot, B., Heitger, D. L. & Landes, C. E. (2006). The future of corporate sustainability reporting: A rapidly growing assurance opportunity, Journal of Accountancy, 20,  65-74

Bence, D & Nadine, F. (2012). The International Accounting Standards Board’s Search for a General Purpose Accounting Model, viewed 22 May 2016, 

Brown, L. (2011).  Earth Policy Institute Preface

Cairns, R. D. (2000). Sustainability accounting and green accounting. Environment and Development Economics, 5(1),  49-54.

Choi, R.D. and Meek, G.K 2011, International accounting, Pearson.

Greenbaum, A (2010). Environmental Law and Policy in the Canadian Context. Concord, Ontario: Captus Press.

Kruger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial economics, pp. 304-329

Lubatkin, M.H. (2009). One more time: What is a realistic theory of corporate governance?. Journal of Organizational Behaviour, 28, 59-67

Schaltegger S. (1996). Corporate Environmental Reporting. Wiley: Chichester.

Slaper, T. F., & Hall, T. J. (2011). The Triple Bottom Line: What Is It and How Does It Work? Indiana Business Review, 86(1),  6-10.

Sustainability reporting 2012, Using sustainability to drive business innovation and growth 2012, viewed 25 May 2016, 

Trevor D. W and Geoffrey R. F. (2001). The role of accounting and the accountant in the environmental management system, Business Accounting, 10, 135-178

Wurbs, R. A. (2005). Texas Water Availability Modeling System. Journal of Water Resources Planning and Management, American Society of Civil Engineers, pp.