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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
Accounting for Sustainability and the Environment in the US:
Environmental and Social Reporting
Javed Miraj
1
, Aleeza Afreen
2
and Muhammad Ghazanfar Abbas
3
Abstract
Sustainability accounting and reporting has gained much attention from many U.S. multinationals
and their stakeholders. The trend has become more rampant recently and was almost non-existent
before the 1970s. It necessitated the research into the overview or historical analysis of
sustainability accounting and reporting in the U.S. as the first part of the paper following the
introduction. This paper addresses the aspects of sustainability reporting and assurance, starting
with a brief analysis of corporate social responsibility and sustainability. It is followed by
analyzing several elements of sustainability reporting, standardization, and assurance;
sustainability Reporting, guidelines in sustainability reporting, and assurance of sustainability
reporting. This study then conducts a survey of sustainability accounting reporting for Five U.S.
Companies: 3M, American Express, Citi Group, Exxon Mobil, and Verizon Communication. This
paper highlights inconsistencies in sustainability accounting and reporting, emphasizing the
importance of third-party assurance and independent verification of major US corporations'
sustainability reports.
Keywords:
Sustainability
Accounting,
Sustainability
Reporting,
Corporate
Social
Responsibility, Assurance, Environment.
Introduction
Sustainability Accounting has emerged as a necessity for most corporations with the growing
investor interest in incorporating sustainability and environmental protection activities in the U.S.
The earliest evidence of corporate sustainability reporting in the U.S. can be traced to the 1970s
(Guo & Yang, 2014). There have been massive advancements in the reporting of sustainability
activities, with the accounting of the value of these activities to the business investments showing
its significance (Lee & Chaltegger, 2018). One in every four dollars invested under professional
management in the U.S. has been injected into sustainability activities as of 2016 (US/SIF, 2019).
Individuals and organizations at different levels, including credit unions, hospitals, foundations,
religious institutions, venture capitalists, and public pension funds, have participated in
sustainability activities in the U.S. (US/SIF, 2019).
Sustainability
can be defined as any activity
that is advanced by a company over and above its legal and business mandate to improve society's
environment or social welfare. This paper is a detailed analysis of Sustainability Accounting and
Reporting in the U.S. and reviews the trends in reporting and the standards used in several publicly
listed companies.
1
Assistant Professor, Faculty of Management & Finance, Lasbela University of Agriculture, Water and Marine
Sciences, Baluchistan, Pakistan. Email:
javed_meraj2@hotmail.com
2
Department of Management Sciences, Lasbela University of Agriculture Water and Marine Science, Baluchistan.
Email:
aleezafreen@luawms.edu.pk
3
Department of Management Sciences, Lasbela University of Agriculture Water and Marine Science, Baluchistan.
Email:
ghazanfar.abbas@luawms.edu.pk
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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
Overview of Sustainability and Sustainability Reporting in the U.S.
Sustainability reporting has evolved significantly since it was first documented in the 1970s
(Brockett & Rezaee, 2012). The progression is based on the main sustainability issues that have
taken center stage in companies' annual reports over the years. The 1980s literature on
sustainability accounting reveals that the reporting concentrated on social issues, which evolved
into environmental issues in the 1990s. However, in the late 1990s, the focus of sustainability
reporting shifted again to social and ethical issues from just environmental issues. Recent
sustainability reports reveal no particular trend, but their content has been observed to revolve
around sustainability, governance, and accounting in the literature review. According to
Thompsons (2007), the literature on sustainability reporting was concentrated on the numerical
review of environmental and social disclosures in the reports, with the support of legitimacy and
contingency theories. Despite the significant advancements in the accounting-sustainability
literature, a review of the 2008 to 2012 sustainability reporting patterns reveals that a pattern is re-
emerging.
The future of sustainability reporting is still debatable because of the complexity and technicality
of defining it and the format and content of its reporting, which has split the research of accounting
sustainability into two separate paths. The first path relied on the critical theory that blames the
corporate sustainability issues as emerging from corporate sustainability accounting (Gray, 2010).
Because of the vagueness of the definition of sustainability, its necessary supporting accounting
treatment remains unknown and unclear. In strict reliance on the critical theory, corporate
sustainability accounting has no function and will fade away or be replaced by better structures.
On the other hand, the second path is a management-oriented route that appreciates the significance
of management decision-making. In addition, it defines
Corporate Sustainability Accounting
as
management tools used to handle multiple decisions from different actors, a variety of managers,
and stakeholders. This path believes that sustainability accounting is an emerging trend that is
expected to grow into the future. Burritt and Schaltegger (2010) posit that both the critical theory
and management decision making paths contribute differently to the development of sustainability
accounting and reporting. However, they argue that sustainability accounting should be skewed
towards strengthening and facilitating management decision-making.
Sustainability Reporting and Assurance
Corporate Social Responsibility and Sustainability
Despite their individuality, sustainability, and corporate social responsibility are used
interchangeably in multiple studies. The earliest definition of CSR in 1989 revolved around
running a business sustainably, reliably, and desirably in a manner that values society, ethics,
people, and the environment (Anderson, 1989). In 2001, the definition shifted to circumstances
where a company performs beyond its legal and business compliance requirements to advance
social advancement (McWilliams & Siegel, 2001). At this point, the definition of CSR includes
corporate governance, environmental impact, work ethics, and social impact. In 2005, CSR was
identified as a subset of sustainability where the former is short-term oriented, while the latter aims
at pursuing the long-term goals of a business or corporation (Finch, 2005). The long-term goals of
sustainability include attaining the financial and operational requirements and managing its social
and environmental to be in line with society's expectations and moral ethics.
Sustainability
can be defined as the ability of the present generation to meet their current needs
without interfering with the future generation's ability to achieve the same. Also,
sustainability
can
be defined as a firm's ability to increase its value while existing as a going concern. Other terms
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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
that assist the understanding are sustainable and sustainable development. Being sustainable is the
ability to be sustained. On the other hand, sustainable development means the ability to be
sustained at a defined level of economic development using the existing natural resources without
exhausting them or causing significant changes to the ecological system.
Sustainability Reporting, Standardization, and Assurance
Sustainability Reporting:
The significance of sustainability and sustainability development to
society is not in question to most; however, proper reporting must be developed and easily
disputable. The need to clearly depict how a sustainable business or society should be operated
makes reporting sustainability accounting seem very complicated. Buhr (2007) posits that the
sustainability reporting process starts with employee reporting, environmental reporting, triple
bottom line reporting, and sustainability reporting.
The growing interest in sustainability activities makes its reporting very significant. Sustainable,
responsible investments grew exponentially between 1995 and 2005 from $639 billion to 2.29
trillion or approximately 258.37% (Social Investment Forum: 2006). It can be compared to the
growth in professionally managed investments in the same period from 7 trillion to 24.4 trillion or
248.57% (Social Investment Forum, 2006). More recently, the 2017 Report on the U.S.
sustainable, responsible, and impact investing identified 12 trillion as having been invested in
various SRI investment strategies within the U.S. Between 2016 and 2018, SRI investments grew
by 38% from 8.7 trillion (US/SIF, 2019). One-quarter of the professionally managed investments,
or approximately 26%, have been invested in SRI investments (US/SIF, 2019).
Guidelines in Sustainability Reporting
: Reporting sustainability issues is a key in sustainability
reporting. Thus, multiple public and private initiatives have attempted to offer guidance on
effectively performing sustainability reporting. Among these institutions is the Global Reporting
Initiatives (GRI), which develops and distributes the acceptable Sustainability Reporting
Guidelines. The United Nations Environment Programs and CERES established the GRI, which
later became independent in 2002 (Villiers, 2017). In addition to the GRI, other institutions include
the International Standards Organization (ISO), Account-Ability, The World Business Council for
Sustainable Development (WBCSD), the United Nations Global Compact, and the Sustainability
Integrated Guidelines for Management Project (SIGMA). Also, an Australian and two Canadian
sustainability initiatives have been involved in developing the guidelines for sustainability
reporting.
Assurance of Sustainability Reporting:
GRI recommends but does not require external
assurance for sustainability reports to support the internal resources dedicated to the same efforts
(GRI, 2019). The definition of external assurance, according to GRI, revolves around any activities
that have been designed to generate conclusions about the sustainability reports and information
therein. Also, it can be defined as any activity that develops publicized conclusions about systems
or processes that define the contents of the sustainability report, like the application of the principle
of materiality (GRI, 2019; Schaltegger et al., 2006). External assurance providers and external
individuals and groups have become necessary to the sustainability report preparers as one of the
most reliable approaches to external assurance. Individuals and groups conducting external
assurance should be competent and external to the assurance providers.
Necessary Traits of the Assurance for Sustainability Reporting
:
Several qualities are necessary
for every external assurance provider to possess for their publicized conclusion to be considered
unbiased and objective. The primary requirement for external assurance is that the assurance
providers be independent enough to allow their published conclusions on the sustainability reports
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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
to be considered objective (GRI, 2019). Secondly, the competence of the assurance provider in the
subject should not be questionable to make their publicized conclusion as informed as possible.
Also, the assurance engagement should be able to implement quality control procedures. Fourth,
the assurance engagement should be documented, systematic, evidence-based, and have a known
procedure. Fifth, the accuracy of the information in sustainability reports, whether qualitative or
quantitative and the content selection should be used to determine whether the report reflects a
balanced and accurate account of the performance (GRI, 2019). Also, the determination of whether
the correct guidelines were relied upon by the preparer of the sustainability report to conclude.
Lastly, a published report about the conclusions arrived at in the report's assurance must be
generated.
Assurance Standards
:
There are assurance standards for reporting corporate sustainability at
national and international levels. There are two assurance standards at the international level,
including ISAE 3000 and AA1000AS (GRI, 2019). The International Standards on Assurance
Engagements ISAE 3000 was developed by a subsidiary corporation of the International
Federation of Accountants (IFAC) named the International Audit and Assurance Standards Board
(IAASB) in 2003 and updated in 2013 (GRI, 2019). The ISAE 3000 is a general standard for
assurance activities except for reviewing historic information and audits. It is based on the assurers'
independence and the procedures for collecting evidence. Assurance using ISAE 3000 can only be
delivered by a professional accountant in strict compliance with the IESBA Code of Ethics for
Professional Accountants (GRI, 2019).
The Accountability AA1000 Assurance Standards is used by companies that rely on the
Accountability Principles Standard (AA1000APS 2008) (Accountability, 2003; Accountability. b,
2003). The assurance standard was developed and later reviewed in 2008 by Accountability, an
advisory and think-tank corporation that implements AA1000APS Principles in external assurance
engagements (GRI, 2019). The principle ensures that the assurance engagement is based on
whether the firm and its sustainability reporting address stakeholder concerns.
Survey of Sustainability Accounting Reporting for Five U.S. Companies
This survey will review the existence of sustainability reports or CSR reports in the companies'
annual filings. In addition, several factors about the report will be reviewed, including the first date
of reporting, the guidelines used, and reporting assurance used.
Different websites mention that the earliest sustainability report or its equivalent published by
3M:
3M was before 2006 (US/SIF, 2019). However, according to its website, 3M has published annual
sustainability reports since 2011 (3M, 2019). The report represents the state of sustainability in the
company's operations on a multinational level and touches on job seekers, employees,
sustainability media, and customers. The company's mission is to enhance every life, and the
sustainability reports communicate its efforts towards attaining it. The report's development relies
on Accountability's Assurance Standards (AA1000) and G3 Sustainability Reporting Guidelines
(3M, 2019). Bureau Veritas conducted and published the external or third-party assurance for 3
M's 2019 Sustainability Report (3M, 2019).
American Express:
The American Express has published Corporate Social Sustainability Reports
since 2007/08 (American Express, 2018). Based on the 2017/18 CSR reports of American Express,
the sustainability reports have been developed using the (Global Reporting Initiative) GRI
guidelines. Thus, the report contains several key sustainability issues addressed under various
spheres of service: promoting responsible business practices, delivering for partners and
customers, serving our colleagues, and responsibly managing operations (American Express,
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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
2018). The sustainability reports of American Express have no third party or external
assurance(US/SIF, 2019).
Citi Group:
The entity has issued sustainability reports titled - Corporate Citizenship Report since
2000. Based on Citi Group's latest Corporate Citizenship Reports in 2018, the Global Reporting
Initiative: Core Option guidelines were relied upon to develop them (Citi, 2019). Also, the U.N.
global impact and the U.N. guiding principles on Business and Human Rights frameworks were
complied with in developing the corporate citizenship report. A stakeholder of Citi Group named
Ceres initially provided third-party assurance of the Corporate Citizen Reports (US/SIF, 2019).
Sustainable growth, affordable housing, climate risk, future of work, valuing diversity, financial
inclusion, volunteerism, human rights, and prioritizing safety are among the critical sustainability
issues highlighted in this report (Citi, 2019).
Exxon Mobil
: The company has been publishing corporate citizenship reports annually since
2006. The sustainability reports have been developed and published strictly following the IPIECA
guidelines and indicators. In addition, the reports followed the strict guidelines of the American
Petroleum Institute and the International Association of Oil and Gas Producers. The latest
sustainability report by Exxon Mobil is based on 260 data points scattered around six focus areas:
climate change, environmental performance, employee relations, human rights, philanthropy,
corporate governance, and financial performance (Exxon Mobil, 2017). Lloyd's Register Quality
Assurance (LRQA) has been relied on by the company to provide external assurance services for
their Corporate Citizenship Reports (Exxon Mobil, 2017). The sustainability efforts of Exxon
Mobil have led to its recognition among the top 50 of Corporate Responsibility Magazine's Best
Corporate Citizens in both 2017 and 2018.
Verizon Communication:
Verizon has been publishing annual corporate responsibility since
the year 2004, with its latest being released in 2018 (Verizon, 2019). The GRI Index guidelines
were relied on in the development and reporting of the 2018 corporate responsibility report.
Ernest and Young provided external assurance services to Verizon’s 2018 corporate
responsibility scope 1, 2, and 3 reports (Verizon, 2019). However, the external assurance of the
sustainability reports were secondary to the internal reviews at Verizon Communications. Verizon
has used its technology to attempt to resolve the issues under the United Nations Sustainability
Development Goals as its sustainability efforts. Verizon Communications focus areas on
sustainability includes growth and customers, performance excellence, and trust (Verizon, 2019).
Survey Results
The survey results reveal several factors about sustainability reporting in the US. First, all the five
major US multinationals selected in the survey published annual sustainability reports showcasing
their contribution to environmental, social, and geological issues affecting society for at least ten
years. Apart from American Express, the other four multinationals that were surveyed submitted
their sustainability reports for external assurance by an independent party. The GRI standards are
the most commonly used guidelines in preparing the surveyed sustainability reports, which create
elements of uniformity. The surveyed reports were generated by the AA1000, the UN global
impact, and industry-specific reporting standards.
Conclusion
This report raises awareness of the non-uniformity in sustainability accounting and reporting,
which hinders the accuracy, comparability, and effectiveness of sustainability accounting
reporting. The report reviews the evolution of the definitions of sustainability and corporate social
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Journal of Asian Development Studies Vol. 12, Issue 3 (September 2023)
responsibility and the significant issues in sustainability reporting because of the growing
stakeholder interest in reporting sustainability activities. Multiple initiatives have been advanced
toward generating standards and guidelines for sustainability accounting reporting and its third-
party assurance. The surveyed firms reveal the growing significance of sustainability reporting to
their businesses, which has been progressing exponentially recently. In addition, the significance
of the third-party assurance of the sustainability reports of major US multinationals.
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