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Introduction to Sustainable Development & Corporate Sustainability

Indicators for Corporate Sustainability:

A review of literature and suggestion of methods for accounting of socialenvironmental costs towards long term corporate sustainability
Robin Singla, BM-C (2015-17), XLRI Jamshedpur
Roll No: B15164


he world today is displaying increased

attention towards understanding and
identification of sustainability issues.
Corporate these days talk about Triple Bottom
Line, i.e. People, Planet and Profit against the
traditional bottom line Profit. The triple bottom
line concept offers an accounting framework which
deals with three pillars of sustainability: Social,
Ecological, and Financial. Management intent
towards incorporation of sustainability concerns can
be gauged from their efforts towards adoption of
environmental and social reporting within annual
This article puts forth an argument for the
inclusion of social and environmental costs in
evaluation of performances of the businesses. The
article looks into the pros and cons of adopting triple
bottom line approach, followed by discussing the
factors influencing corporate decisions associated
with it. The Article hopes to provide an approach
towards standardization of social and ecological
indicators to enable truthful evaluation of corporate
Sustainability accounting is an approach to
address accountability issues for environmental
damages. It is based on the assumption that
sustainability crisis is the result of our failure to
account social and environmental costs in
businesses. This assumption is true to some extent,
as Peter Drucker said, What gets measured gets
managed. Thus,

socio-environmental accounting can serve an

effective tool to calculate social and environmental
costs of managing the system better.
The other side of the above assumption is that
this approach may lead to the commoditization of
ecological services. Assigning economic value to
ecological services neglect the inherent values of
these services. Thus, environmental accounting may
be seen as our failure to appreciate the inter-linkages
and complex nature of environmental. Thus the idea
that environment must be protected for the sake of
protection might get obscured.
Further, Sustainability accounting involves a
lot of subjectivity. Its difficult to arrive at
standardized parameters that can reasonably capture
social and environmental costs. Further, the impact
of business operations on the environment is not
fully understood. Thus the subjective nature of
accounting parameters may provide a scope for
Creative Accounting.
Disclosure of environmental information is a
costly affair. One, companies are required to make an
effort towards the collection of raw data. Second, the
information needs to be converted into comparable
quantitative parameters. For example, not all types of
pollutant emissions and environmental damages can
be assigned numbers in equivalent carbon terms.
Further, corporate responsibility would not end with
mere reporting of numbers. Once the environmental
losses are calculated within a reasonable degree of
certainty, its natural to expect companies to bear the
cost of rehabilitation, protection, and conservation of

Introduction to Sustainable Development & Corporate Sustainability

A number of factors can be identified that motivates
management to disclose environmental information.
The increased awareness about environmental issues
in the general community is one such factor that
pushed companies for voluntary disclosure of their
efforts towards environmental protection. Since,
members of the community are interested in
understanding the environmental impact of
companies; management can enhance their
relationships with community by taking a more
proactive position on environmental issues.
Secondly, the government, being an elected
body, is expected to respond to pressure groups and
community at large. It is the outcome of this
response that there has been significant growth in
legal requirements and regulations imposed on
business activities in the last few decades. Normally,
a company would adopt social-environmental
reporting under the influence of some or all the
factors mentioned below:
To address community concerns about the operations
of the company
To meet requirements of financial institutions
To meet legal obligations or pre-empt legally
imposed requirements
To address customers concerns about its products
To thwart environmental lobby pressure
To gain strategic advantage over its competitor: preemptive response to environmental issues
To provide information to shareholders/investors
To address supplier concerns
Out of all these, a shareholder or an investor
right to information is considered the most
significant factor influencing the decision of the
management. Given the significant increase in
environmental legislations, desire to meet legal
obligations is identified as the second most
significant factor. Factors such as supplier concerns,
financial institutions concerns are of lowest
importance to management in disclosure of
environmental information.
From the above discussion, it can be
concluded that social-environmental reporting
provides an opportunity to project a new and
different image of the company. It provides visibility
into corporate environment activities and social
activities. It increases their legitimacy and

acceptance in the wider world. On the other hand,

accounting changes will make environmental costs
more visible. By taking environmental accounting in
consideration, one would be better equipped to
analyze pros and cons of a business decision from
the environment stand point The concept of
environmental accounting also entails polluter pays
principle, as it encourages the corporate to share the
burden of environmental damage caused by its
operations and not just the profits.
A lot of research is taking place towards unification
of various approaches to arrive at standardized
indicators to account for environmental, however,
not enough time and energy is being devoted towards
standardization of indicators to account for social
costs. Some of the recent initiatives on
environmental indicators are:

WBCSD Report on Eco-efficiency Metrics

ISO 14031 Environmental Performance

Environmental Performance Index (EPI) developed by Yale University and Columbia

University in collaboration with the World
Economic Forum and the EU
World Resources Institute (WRI) Report ( Ditz &
Ranganathan, 1997)
Association of Chartered Certified Accountants
(ACCA) Report on Environment-Related
Performance Measurement (Bennett & James,

Theoretically, we would like to design an

index, which can account complex interrelationships
of environmental, which can provide us a solution
from the standpoint of Life Cycle Approach.
However, a development so such an index is next to
impossible. The article suggests the following a
combination of approaches to arrive at the relevant
index to capture social-environmental costs.
A. To serve the purpose of practical utility, a relevant
social-environment index should satisfy the
following four conditions:
Workable- An indicator should be such that it is
easier to capture the value in quantitative terms.
Further, it should be easier to gather data.

Introduction to Sustainable Development & Corporate Sustainability

Credible- Index should flexible enough to offer third
party verifiability. It should be responsive to the
stakeholders expectations.
Comparable- Index should be such that it allows
comparison over the years. Therefore, it should be
guided to form value judgement.
Relevance with objectives- Index should encourage
management to focus on achievement of socioenvironmental objectives. Thus, it should bring out
improvement in performance in clear terms.
B. Apart from the satisfying the above four
conditions, it can be argued that type of indicators
would depend on the type of industry and the
audience of the social - environmental report.
There cant be one size fit approach.
B.1. Industry type: Type of pollutants, emission
levels, and stress on the environment are very
different from industry to industry. For example, a
paper industry requires much more water compared
to other industries. Some industries, such as
chemical industry, may not wish to reveal
information because that information may be
sensitive for the survival of their businesses. Thus, it
is better compared companies within an industry
than designing a universal indicator valid across




Job security
Investment in
Fair wages

Safe & healthy

necessary safety


Opportunity for

Reasonable Prices

B.2. User Segments: Similarly, as each user segment

has different expectations from the report, there is a
need for standardization of information as per users
category. Audiences of the report can be divided
into two broad segments: Direct stakeholders and
Indirect stakeholders.
B.2.1. Direct Stakeholders: Direct stakeholders are
those who have direct interactions with the company,
its operations, finance, processes, products, and so
on. These include companys own employees,
consumers, investors, competitors, and members of
the community who lives in the vicinity of the
B.2.2 Indirect Stakeholders: Indirect stakeholders are
those who dont have any direct involvement in the
companys operations, finance, processes, and
products etc, but carry concerns about the
environment in general. These include members of
media groups, political parties, activist groups etc.

The table below tries to capture the interests of four

Customers major stakeholders viz. Employees, Customers,
Communities, and suppliers, across all the three
Quality of product
Socially sensitive
environment and economy. Tables offers a starting
Corporations point for the design of a sustainability index as per
should meet themajor interest groups. For example, corporate social
basic needs of performance can be evaluated for employees based
society such as
on parameters like companys investment in
food, water etc.
employees health, education, etc. Appropriate
weights should be assigned to each category of users.
The product
should be safe to
Product disposal
Product labelling
for consumers

Environmental Impact categories

Introduction to Sustainable Development & Corporate Sustainability

Material consumption

Material Composition
Type- biodegradable vs. Metal (reusable) vs.
Material consumption efficiency

Energy consumption

Renewable vs. Non-renewable energy sources

Energy intensity/efficiency of processes

Waste- types

Solid vs. Fluid waste

Decomposition life
Process of treatment
Costs involved in disposal/reuse/recycle


Air pollution- GHGs

Land pollution/soil pollution
Water pollution
Ozone layer depletion
Dispersion of toxic substances

Biodiversity loss

Depletion of biotic resources

Marine and coastal biodiversity loss

Climate change due to temperature changes

Health hazards
Environmental spending
Spending on Protection
Spending on conservation
Spending on improvement of existing
Spending on cleanup of existing facilities
Acquiring new technology
Payment of fines and green taxation
C. Socio-Environmental Impact Categories: Any
environmental pressure has an impact across
categories. Under each category there are a number
of parameters. Therefore an agreement should be
sought to list relevant impact categories. The table
below mentions the list of broad impact categories.
Under each environmental category, a number of
socio-environmental indicators are identified. For
example, the categories Material Consumption and
Energy Consumption seek to capture organization
Consumption category will involve studying the use
of material through a life cycle approach. By
including factors like material type which could be
either a petrochemical, metal or a green material, it
offers an opportunity for management to evaluate
alternate options with regard to material use.
Similarly, inclusion of renewal vs. non-renewal
factor under Energy Consumption will motivate the

management to analyze their energy composition

from time to time.
Several independent efforts towards standardization
of sustainability indicators need to find ways to
unite. The article offered general guidelines
discussed under IV (A), IV (B), and IV (C) that
should to be followed in designing of a sustainability
index. Further, it should be noted that good intent
expressed by corporate will not per se reflect into
actions without the system of incentives and
punishment. Non-calculative society is an ideal for
internalizing the importance of environment.
However, Environmental reporting makes an
environmental crisis more visible. Thus, in the short
run, calculative methods are the most important
means to establish corporate responsibility towards
environmental and social issues. New technologies
and research will provide a methodology to report
social and environmental performance in better
quantitative terms.
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