The growth in environmental accounting research and intersest in the last few years has been little short of phenomenal.For those of us with a long-standing interest in such issues, it is easy to get swept along in the euphoria of seeing environmental issues brought to centre stage in business and accounting debates. Little more than decade ago, any scholar wishing to review the literature concerned with accounting and the natural environment would have been faced with relatively straightforward task. Beyond the new significant and seminal papers (see, for example Dierkes and Preston 1977, Ullman, 1976) environmental issues tended only to surface as one of the themes within the Social Accounting and Reporting literature (Gray et all 1996, Mathews 1997 for summaries).The change in the last ten years has been little short of phenomenal.
Consequently, it would be easy - especially for those of us who have been involved in the area for some years - to get swept along on a tide of enthusiasm now that environmental (and, latterly, social) accounting appears to be occupying an increasingly central place in accounting debate. For years accounting scholars have bemoaned the fact that Accounting (and Finance) teaching and research have largerly ignored environmental matters. Now this has changed and there are few aspect of accounting in which environmental concern is not explicitly recognized as important.Most research in corporate environmental management and environmental accounting indicate a substantial gap between the espoused environmental attitudes of business leaders and the actual practices of their companies.
The primary purpose in writing this paper is to investigate problems and prospects concerning Corporate Social Responsibility, and discuss: (1) Business Interaction with Society, (2) Accountability and Transparency, (3) Environmental Issues and Financial Statements, (4) Financial Markets and Social or Environmental Disclosure, (5) Accounting, the Environment and Sustainability, (6) Environmental issues and Auditing, (7) Social and Environmental Reporting, (8) “Greening Influences” on Companies, Managers and Accountants, (9) Accounting Education, (10) Conclusions1.Business Interaction with SocietyThe nature of relationship between business and society is an over-arching question and it is important to note that interpretations of social behavior will depend upon the perspective adopted. A strong view is that business carries out the economic functions of society (Wartick and Wood, 1998) and that, in free market economies, in carrying out these economic functions, business has some forms of responsibility to society. There are, however, competing perspectives and views that conflict with this dominant perspective. The liberal economist would say that the only forms of responsibility are “economic”, whereas some critical theorist would state that any form of what might be termed “social responsibility” is there to maintain the legitimacy of system.Whether or not business should undertake activities that may be regarded as pro social and the forms that responsibility should take depend upon the perspective adopted.
Those who adopt “neoclassical” view of the firm would believe that the only social responsibilities to be adopted by business are the provision of employment and payment of taxes. This view is most famously taken to the extremes of maximizing shareholder value and reflected in the views of Milton Friedman. The need for companies to undertake activity that might be regarded as socially responsible has been discussed in the literature and has been a topic of academic study for decades (Ullman, 1985).Cannon (1992) discusses the development of corporate social responsibility via the historical development of business involvement leading to a post war re-examination of the nature of the relationship between business, society and government. He identifies that the primary role of business is to produce goods and services that society wants and needs, however there is inter-dependence between business and society in the need of a stable environment with an educated workforce.Cannon (1992) quotes Lord Sieff, the former chairman of Marks and Spencer: “ Business only contributes fully to a society if it is efficient, profitable and socially responsible”.
Similarly Wood (1991) states that: “the basic idea of corporate social responsibility is that business and society are interwoven rather than distinct entities”. The push that business should undertake social activities with a business benefit is not new, the literature has much on “doing well by doing good” (Stroup and Neubert, 1987).From Corporate perspective, Harris and Klepper (cited in Carrol, 1996) find that the main reasons for undertaking contribution activities were: (1) Corporate Citizenship: practice good corporate citizenship, (2) Business Environment: protect and improve environment in which to live, work, and do business, (3) Employee benefits: realize benefit for company employees, (4) Public relations: realize good public relations value, (5) Pluralism: preserve a pluralistic society by maintaining choices between government and private-sector alternatives, (6) Commitment: of director or senior officers to particular causes, involvement.From a practical point of view, Pava and Krausz (1996) observe that “there is no doubt that in some instances corporate social responsibility is nothing more than self advertising.2.
Accountability and TransparencyIn a society of pristine liberal democratic economy, individuals are theoretically better informed and more empowered, whereby, the inequalities of wealth are potentially exposed and such inequalities of power are somewhat minimized through greater accountability and transparency of information. What is meant by “accountability”? This concept is not fully comprehended by managers and few people agree on its definition due to the broad context within which the word accountability has been used – business, law, government, politics and morality. There are those who maintain that the “true test of an accountable organization is specific: whether it measures performance quantitatively – with financial and non-financial numbers – and reports it publicly to audiences inside and outside the organization.Anything less than hard numbers, broadly disclosed, reveals an organization hesitant to commit to full accountability. The act of one party answering to another in qualitative terms alone is not enough. Accountability requires data” (Epstein and Birchard, 1999).
The notion of accountability is commonly described in regards to an organisation’s legal compliance and its financial reporting to shareholders and governmental authorities, and only very recently extended to social, environmental, and ethical reporting. Epstein and Birchard (1999) have defined an “accountable organization” as comprising of four approaches to accountability: governance, measurement, management systems and performance reporting. An accountable organization initiates independent governance; balanced financial and non-financial systems of measurements; incorporates closed-loop planning, budgeting, and feedback systems; and comprehensive transparency through regular public reporting activities.Accountability in the accounting literature is being defined as: The duty to provide an account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible (Gray et al, 1996).
Thus, accountability is concerned with the responsibility of supplying information and the right to receive it. Central to deep green perspective, is the principle of personal accountability from which, the duty to supply information is founded. The right to receive information is a fundamental ingredient of any neo pluralist or participatory democracy.However, do organizations have a social responsibility over above Milton Friedman’s (1962) definition “to make as much money for their shareholders as possible? Are shareholders the only stakeholders that count in business who have the right to be heard and receive information about management performance? On the contrary, when a party is affected by an organization, it has the right to be heard and be informed of that company’s operation. Put it simply, stakeholders are owed some say in the direction of a firm due to their being affected by that company.
In short, their stake earns them the right to be counted in decisions that affect them directly or indirectly (Pruzan and Zadek, 1997).Therefore, it has been asserted that public at large has a right information about the extent to which companies complied with the minimum standards of law and other regulations (Gray et all 1991). Perhaps the most obvious rights and responsibilities emanate from legal promulgation. The law establishes the minimum level of responsibilities and rights and therefore, the minimum level of legal accountability at any given time in any given country (Tinker et al, 1991).
Moral and natural rights and responsibilities in a society are unremittingly shifting overtime and so is the degree of accountability.What is considered to be responsibility is constantly varying and developing (Tinker et al, 1991). Nevertheless, just because the philosophical (natural/moral) responsibilities are difficult, if not impossible to account for with certainty does not mean that such issues have to be neglected. The current waves of response to the natural environment are example for this. Social responsibility is part of the reason for seeking greater accountability from corporate management.
Increasingly, individual and institutional investors, as well as other stakeholders (employees, government, and community) are motivated by the belief, evidence by recent studies, “that well managed companies, including their environmental aspects, are those companies producing the best bottom-line results. An increasingly significant source of these data is corporate (voluntary) environmental reports” (Piasecki, Fletcher, and Mendelson,1999).3. Environmental Issues and Financial StatementThere is probably only one line of research which runs unbroken from the early interest in social accounting through to the current interest in environmental accounting.
That line of research is that which investigate the statistical relationship of corporate environmental (and social) disclosures, corporate characteristics, environmental (and social) performance and financial performance. (See for example, Freedman and Jaggi, 1988, Freedman and Stagliano, 1995, Freedman and Ullmann 1986, etc). Social Accounting is an attempt to redress the balance through recognition that a firm affects, through its actions, its external environment (both positively and negatively) and should therefore account for these effects as part of its overall accounting for its actions.Implisit in this concern with the effects of the actions of an organization on its external environment is the recognition that it is not just the owners who have a concern with its activities. Additionally, there are wide varieties of other stakeholders who justifiably have a concern with those activities and affected by those activities.
Those other stakeholders have not just an interest in the activities of the firm but also a degree of influence over the shaping of those activities.The desirability of considering the social performance of a business has not always however been accepted and has been subject of extensive debate. As recent example, Deegan (2002) presents an overview of the research trends and opportunities in the area of social and environmental accounting research. Similar studies where evidence by Mathews (1997), Gray (2002) with a social accounting literature review of the last 25 years. The suggestion of the area of social and environmental, first arose in the years 70 and a concern with a wider view of company performance is taken by some writers who concern with the social performance of a business as a member of society.
Gray, Owen and Maunders (1991) consider social accounting in terms of responsibility and accountability and distinguish between the internal needs of a business, catered for by management accounting, and the external needs, which are addressed for shareholders by financial reporting but largerly ignored for other stakeholder interest.4. Financial Markets and Social or Environmental DisclosureIn developed countries, financial markets have increasing global power and that power can manifest itself in environmental degradation, social injustice and limitations on the ability of quoted companies to undertake activities which, although experimental and financially fragile, can be seen as socially and environmentally responsible. Markets’ power does not seem to be balanced by their responsibility. Social and environmental disclosure is one possible way in which markets may be re-educated towards more sustainable modes of behavior.Broadly speaking, the research into corporate social and environmental disclosure has not been primarily motivated by concerns for shareholders and other financial participants as such.
Rather, one branch of the research has been concerned to examine the how social and environmental disclosure reflects and discharges the responsibilities and subsequent accountabilities of the organization. This research has taken a societal point of view and has been motivated by democratic concerns to rights to information and the means by which organizational behavior might be controlled by society, (see, for example, Gray et al, 1996).The second branch of research into social and environmental disclosure has been rather more managerialist in orientation and sought to explore (1) how the company uses such disclosure to manage its stakeholders and (2) how such disclosure might used to secure the legitimacy of, either, the individual corporation or, more broadly, capitalism itself (Arnold and Hammond, 1994). Of more direct relevance, a less dominant aspect of the research has sought to explore what, if anything, social and environmental disclosures might mean for shareholders.
There are several themes to this research. In the first place researches have sought to establish whether investors find social and environmental disclosures decision-useful.This research, in keeping with much research into financial reporting theory (see, for example Belkaoui, 1986) has employed a variety of methods to investigate the actions, attitudes and behaviors of the individual investor (see, especially Epstein and Freedman, 1994) as well as the more familiar explorations of aggregate financial market response to such disclosures. Despite fairly convincing evidence that investors often show more than a passing interest in social and environmental disclosures (see, for example, Benjamin and Stangga, 1977; Chenall and Juchau, 1977; Firth, 1984; Epstein and Freedman, 1994), it is still traditional to assume that investors are only interested in maximizing their riskadjusted returns from investment, (see, for example, Benston, 1982; Skogsvik, 1998; Rivoli, 1995). Under such an assumption, there is no immediate or obvious reason for shareholders to have any interest in the social and/or environmental aspects of their investment.
The foregoing offers an a priori argument for why social and environmental data may have potential impact on shareholders’ decisions as to whether or not to buy, hold or sell shares. But, the crucial thing is that such an analysis presupposes that investors are only interested in the financial aspects of their investment, (see, Richardson et all, 1999). There is no evidence, as far as we aware, that all investors are exclusively interested in a purely financial appraisal of their investments. Indeed, they very significant growth in ethical investment funds (for example, Antonio et al 2000), probably suggests quite the reserve.Therefore, as Belkaoui (1976) argues, there is no a priori reason why we should assume that all investments are always treated as purely economic events.
Consequently, social and environmental disclosures may well over an important source of direct input to these “ethical” investors’ decisions. Finally, social and environmental disclosure may have to play a crucial role in moves towards sustainability, (Leggett, 1996; Suranyi, 1999; Case, 1999; Gray and Bebbington, 2000). That is, there is increasing recognition (see, for example, Schmidheiny and Zorraquin, 1996) that moves towards sustainability (or, more realistically, moves away from un-sustainability) cannot be achieved if financial markets remain as rapacious, self serving and short-termist as there are currently.Consequently, financial markets need to be “educated” (see for example, Schmidheiny and Zorraquin, 1996) about the social and environmental challenges that sustainability presents to each and every company. Although social and environmental disclosure is, as yet, not delivering this quality of educative disclosure, (see, for example, Gray 2000) it seems inevitable that Social and Environmental disclosure must play a major part in seeking out the possibilities of transformation that may exists in Financial Markets.