Michelle Spiteri-Bailey, PhD Student and recent award winning essayist at the School, insists that the rise in Business Ethics and Stakeholder Theory will make accountancy more interesting but also more challenging.
Traditionally, the ‘stakeholders’ of a corporation included investors, employees, customers, and suppliers. Nowadays, however, the term ‘stakeholders’ embraces a much wider circle of interested parties including the community, government, trade associations, even the environment. With this broadening of the stakeholder category, traditional financial reporting mechanisms no longer seem sufficient. Indeed, a more holistic perspective on the operations of the organisation is now required, a perspective which embraces these additional responsibilities. This is easier said than done, however!
Many practical difficulties stem from the fact that the meaning of sustainability is highly contested. At the very least, sustainability reporting requires broad-mindedness, a focus not only on profit as an indicator of success, but also on additional success measures such as social and environmental concerns. This is how we are to understand the success and influence of the concept of “the triple bottom line” (TBL): it neatly synthesises the concerns of profit of people and of planet. According to a recent Economist article, “Only a company that produces a TBL is taking account of the full cost involved in doing business”. The TBL underlines the importance of reporting corporate sustainability while providing useful guidance as to how that practice should be undertaken.
Sustainability isn’t only about reporting, however: it is also about commitment. A number of leading companies, notably Dell and Commerzbank, are now devoting themselves to the pursuit of an ‘inside-out’ approach. Here, the focus is on the introduction of sustainability programs right across the corporation’s strategy and core competencies. Adopting this approach, companies rigorously evaluate the environmental and economic impact of the life cycle of a product, process, or service starting from its extraction from natural resources. Focus then moves on to the examination of the consumption of resources in the design, manufacture, distribution and use of the product, and finally onto the question of how waste is eliminated. These initiatives are then transformed into performance indices and information requirements where sustainability targets can be generated and reported upon.
Corporate commitment to sustainability reporting is gaining ground. Companies now voluntarily disclose sustainability information while governments enact laws requiring increased disclosure requirements. The work of the Global Reporting Initiative (GRI) is notable in this regard. This Dutch not-for-profit organisation works to promote economic, environmental, and social sustainability through the establishment of sustainability reporting guidelines. Now at their fourth generation (G4), these require corporations to pursue ‘core’ or ‘comprehensive’ disclosure. While 44 companies followed the GRI guidelines in the year 2000, an impressive 2,280, as of 2013, have now gotten on board.
Critics, however, are very quick to slam sustainability reporting as a fad, nothing more than a marketing exercise. Aras and Crowther claim that the role of sustainability reporting within corporate planning and reporting is not yet properly understood. They describe this as a ‘kind of obfuscation’ which, while not necessarily deliberate, is also not with a degree of disingenuousness.
It is crucial that the sustainability trend continues to get debated by critics and advocates alike. Business Ethics and Stakeholder Theory are becoming a sine qua non in the modern business environment: accountants and corporate reporters will therefore have an increasingly important role to play in the promotion of socially and environmentally progressive corporate initiatives.