Accounting Forum 29 (2005) 726

Sustainability accountinga brief history and

conceptual framework
Geoff Lamberton
School of Accounting, Southern Cross University, P.O. Box 157, Lismore 2480, Australia

Abstract
Research linking accounting to the emerging concept of sustainability surfaced in the early 1990s
and has received continuing attention in academic and professional accounting literature. This paper
tracks this brief history through to the release of the Sustainability Reporting Guidelines at the World
Summit on Sustainable Development in August 2002, consolidating the various approaches into a
sustainability accounting framework. The result is a comprehensive reporting model that presents
an enormous challenge to business organisations, requiring a significant commitment of resources
to achieve widespread implementation. Failure to meet this challenge enables business organisations
to continue to avoid accountability for their continuing unsustainability. The paper concludes with a
personal view as to how implementation of the sustainability accounting framework could proceed.
2005 Elsevier Ltd. All rights reserved.
Keywords: Global Reporting Initiative; Sustainability Performance Indicators; Sustainability Accounting
Framework

1. Introduction
Environmental accounting and its most evolved form sustainability accounting
(Elkington, 1993), have received continuing attention in the academic accounting literature beginning with the work of Gray in the early 1990s, through to the release of the
Sustainability Accounting Guidelines at the World Summit on Sustainable Development
in Johannesburg in August, 2002. This paper reviews and consolidates this research into a
sustainability accounting framework that captures the breadth and complexity of this new
form of accounting. The framework draws on the traditional financial accounting model for
its structure, whilst the content of the sustainability accounting framework is derived from
E-mail address: glambert@scu.edu.au.
0155-9982/$ see front matter 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.accfor.2004.11.001

G. Lamberton / Accounting Forum 29 (2005) 726

the various approaches taken by accounting researchers to link accounting to sustainability

over the past 10 years.

2. A brief history of sustainability accounting

Gray is attributed with much of the conceptual development of sustainability accounting.
Gray (1993) identifies three different methods of sustainability accounting
1. Sustainable cost.
2. Natural capital inventory accounting.
3. Inputoutput analysis.
These three methods together with full-cost accounting and triple bottom line (TBL)
accounting are discussed in Sections 2.12.4, leading to the identification of common themes
in Section 2.5 and the specification of a comprehensive sustainability accounting framework
in Section 4.
2.1. Sustainable cost and full-cost accounting
Sustainable cost is the (hypothetical) cost of restoring the earth to the state it was in prior
to an organisations impact; that is
. . . the amount of money an organisation would have to spend at an end of an accounting period in order to place the biosphere back into the position it was at the
start of the accounting period. (Gray, 1994, p. 33)
Gray draws on the accounting concept of capital maintenance, and applies it to the biosphere, recognising the need to maintain the stock of natural capital for future generations.
A sustainable organisation would be one that maintains natural capital intact for future generations (Gray, 1994). Sustainable cost is deducted from the accounting profit (calculated
using generally accepted accounting principles) to arrive at a notional level of sustainable profit or loss. Where the sustainable cost exceeds the accounting profit the degree of
unsustainability is measured in monetary terms.
The practical problems of valuing external costs such as pollution have been well documented (Mathews, 1993; Pearce & Turner, 1990). Any damage to critical natural capital
would, in theory, be valued at infinite cost because it is irreplaceable, leading to the conclusion that the activities of an organisation which damage critical natural capital are unsustainable (Gray, 1994). Unfortunately the science of ecology does not provide clear and
unchallenged solutions to environmental problems (Holland & Petersen, 1995); whilst placing costs on a range of possible solutions to environmental problems may prove exhausting
(Mathews, 1995).
Sustainable cost provides an example of using an established accounting principle, in
this case capital maintenance, and applying it to natural rather than financial capital. Gray
(1992) acknowledges the inherent dangers of accounting for natural capital within a pricedriven framework, as do critical accounting theorists (Cooper, 1992; Hines, 1991; Lehman,
1996; Maunders & Burritt, 1991).

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Preliminary research projects exploring the practical issues of applying the sustainable cost framework have begun; (see Bebbington & Tan, 1996, 1997 and Howes, 1999).
Bebbington and Gray (2001) provide a fascinating account of the difficulties of applying
the sustainable cost framework. Difficulties in determining a meaningful estimate of sustainable cost resulted in the recasting of the sustainable cost framework to provide data
concerning a range of more sustainable options. This requires the organization to let go of
its attachment to the business-as-usual assumption exploring possibly radical alternatives
that require costing within the (revised) sustainable cost framework.
Another important conclusion drawn by Bebbington and Gray (2001) is that the process
of working with an organization and attempting to estimate sustainable cost may prove
more valuable than the financial data produced. This is not surprising given that ecological
destruction and social inequity have much to do with the (un)ethical underpinnings of our
consumer and wealth-obsessed culture (Sivaraksa, 1992), rather than a lack of information.
If this is true, the process of disclosing specific aspects of unsustainability, with a detailed
exposure of its causes and consideration of alternative paths could prove a significant and
cathartic experience. Similar conclusions have been drawn regarding the process of preparing life cycle analyses (Ayres, 1995; Christiansen, 1997) which may indicate we need to
spend more energy applying sustainability accounting using field work and case oriented
research methods.
Sustainable cost and full-cost accounting are not necessarily equivalent forms of accounting (Atkinson, 2002), although both methods attempt to capture environmental costs
external to the organization which together with internal costs, provide a more complete picture of total cost. Full cost accounting as with Mathews total impact accounting (Mathews,
1993), attempts to capture the total costs resulting from an organisations economic activities, including social and environmental costs (CICA, 1994; Deegan & Newson, 1996),
attempting to value these impacts in financial terms. This method of accounting is an attempt to counter the misinformation contained within market prices from the omission of
social and environmental cost, which leads to a misallocation of resources and widespread
social and ecological destruction (Hawken, 1993).
2.2. Natural capital inventory accounting
Natural capital inventory accounting involves the recording of stocks of natural capital
over time, with changes in stock levels used as an indicator of the (declining) quality of
the natural environment. Various types of natural capital stocks are distinguished enabling
the recording, monitoring and reporting of depletions or enhancements within distinct categories (Gray, 1994). Gray suggests four categories of natural capital.
1.
2.
3.
4.

Critical, for example, the ozone layer, tropical hardwood, biodiversity.

Non-renewable/non-substitutable, for example, oil, petroleum and mineral products.
Non-renewable/substitutable, for example, waste disposal, energy usage.
Renewable, for example, plantation timber, fisheries.

Natural capital inventory accounting could be predominantly non-financial, tracking

resource flows in quantitative, but non-monetary units (Gray, 1992), although Jones (1996)
suggests exploring the valuation of natural assets using financial units. Jones (1996, 2003)

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G. Lamberton / Accounting Forum 29 (2005) 726

applies the inventory approach to the problem of accounting for biodiversity, adopting a
three part process involving the recording, valuing and reporting of natural asset wildlife
habitat, flora and fauna, and suggests aggregating records of individual organisations to
build national records of natural inventories.
The influence of conventional accounting over natural capital inventory accounting is
evident in the application of the capital maintenance concept, as well as utilization of the
management accounting tool of inventory control. Invoking the axiom of strong sustainability, the capital maintenance concept could be applied to each category of capital (natural and
humanmade) recognising that opportunities to substitute humanmade physical or financial
capital for natural capital are limited (Costanza & Daly, 1992).
Accounting for natural inventories is in its exploratory stage. Both the accuracy and
potential usefulness of this information needs to be tested with further theoretical and
empirical research. Major challenges involve the identification of the relevant accounting
entity to which to apply this method, which may be at the community (Lehman, 1999) or
regional level (Gray, 1992), rather than corporate level. Similarly the accounting principle
of materiality is critical in identifying the level of detail and the degree of precision required
at the data capture stage and reporting stages. Notwithstanding the preceding discussion,
whether natural inventory accounts could meaningfully reflect natures interconnectedness
and enormous diversity is extremely doubtful.
2.3. Inputoutput analysis
Inputoutput analysis accounts for the physical flow of materials and energy inputs
and product and waste outputs in physical units. It aims to measure all materials inputs
into the process, and outputs of finished goods, emissions, recycled materials and waste
for disposal (Jorgensen, 1993). Resource flows are accounted for using units of volume,
although accounting in financial units is considered feasible (Gray, 1994). Inputoutput
analysis uses a balancing technique familiar to accountants, applying the principle what
goes in must come out, providing a disciplined approach to the provision of environmental
information.
Reported advantages of inputoutput analysis include identification of potential resource
and energy savings, it is often the first step in an environmental audit process, and it can
facilitate product innovation and pollution prevention strategies, particularly when it forms
part of a product and/or process life cycle analysis (Jasch, 1993). Inputoutput analysis
does not measure sustainability or unsustainability; rather it provides a transparent account
of the physical flows into and out of a process, enabling further analysis of environmental
impact and ultimately sustainability strategies (Gray, 1994; Jasch, 1993).
Unlike the previous forms of sustainability accounting discussed, inputoutput analysis
has its origins in materials accounting techniques used in the physical sciences, rather than
in financial or management accounting principles or practice.
2.4. Triple bottom line accounting and the Global Reporting Initiative (GRI)
Elkington (1999) describes a form of sustainability accounting referred to as triple bottom
line (TBL), which aims to report on an organisations economic, social and environmental

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11

impacts. Underpinning TBL accounting is the evolving three dimensional definition of

sustainable development (Van den Bergh, 1996; WCED, 1987; Westing, 1996).
Some versions of TBL attempt to use monetary units to measure economic, social and
environmental performance, whereas others versions such as that used in the GRI Sustainability Accounting Guidelines utilise a wide array of indicators to measure performance
toward the goal of sustainability. The use of indicators to estimate variables that cannot
be measured precisely has a long history of use in environmental science (Moldan et al.,
1997), and is considered appropriate where variables that are inherently complex cannot be
directly observed.
The latest version of the GRI Sustainability Accounting Guidelines, released at the World
Summit on Sustainable Development (WSSD) in Johannesburg in August 2002, provide a
rigorous framework for the application of TBL reporting.
The Global Reporting Initiative (GRI) is a long-term, multi-stakeholder, international
process whose mission is to develop and disseminate globally applicable Sustainable
Reporting Guidelines (Guidelines). These Guidelines are for voluntary use by
organisations for reporting on the economic, environmental, and social dimensions
of their activities, products and services. (GRI, 2002)
The Guidelines draw on the accepted three-dimensional definition of sustainability using
a series of performance indicators to measure each of the economic, environmental and
social dimensions, as well as a set of integrated indicators capturing multiple dimensions.
The hierarchy of performance indicators included in the GRI framework is provided in
Table 1.
The economic category of indicators is designed to supplement financial information
contained in conventional financial accounting reports, providing information concerning
the impact of an organisations activities on the
1. economic circumstances of stakeholders;
2. local, national and global economies (GRI, 2002, p. 45).
A clear link to sustainability is difficult to observe from these performance indicators
(Baker, 2002) particularly given that long term economic impacts are a critical aspect of
sustainability. However, the reporting of an organisations financial relationships with customers, suppliers, employees and investors discloses the extent of these stakeholders reliance on the reporting organization for financial support, and some indication as to potential
financial risk if the reporting organization ceases to operate.
The environmental indicators specified in the Guidelines are contained within many
state-of-the-art environmental reports. Each aspect identified in Table 1 represents criteria
relevant to measuring an organisations environmental performance. It is recommended in
the Guidelines that environmental performance indicators be expressed in absolute and relative (or normalized) terms (GRI, 2002, p. 48), with the latter method enabling comparisons
between organizations.
A major contribution of the Guidelines is the four categories of social performance
indicators covering employee, consumer and human rights, as well as societal issues such
as corruption and bribery. Given many of the social performance indicators are difficult
to measure in quantitative units, the Guidelines require a range of social policies to be

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G. Lamberton / Accounting Forum 29 (2005) 726

Table 1
GRI framework for performance indicators
Category

Aspect

Economic

Direct economic impacts

Customers
Suppliers
Employees
Providers of capital
Public sector

Environmental

Environmental

Materials
Energy
Water
Biodiversity
Emissions, effluents, and waste
Suppliers
Products and services
Compliance
Transport
Overall

Social

Labour practices and decent work

Employment
Labour/management relations
Health and safety
Training and education
Diversity and opportunity

Human rights

Strategy and management

Non-discrimination
Freedom of association and collective bargaining
Child labour
Forced and compulsory labour
Disciplinary practices
Security practices
Indigenous rights

Society

Community
Bribery and corruption
Political contributions
Competition and pricing

Product responsibility

Customer health and safety

Products and services
Advertising
Respect for privacy

Source: GRI, 2002, p. 36.

specified, together with a description of the system used to monitor compliance with the
policy and results from the monitoring process.
Gray (2002) describes social accounting as the universe of possible accountings. This
implies that social accounting practice requires careful prioritisation of relevant social information. Sustainability accounting draws its social dimension from the evolving definition
of sustainability, which includes the goal of intragenerational equity, usually interpreted as

G. Lamberton / Accounting Forum 29 (2005) 726

13

the elimination of poverty. The problem of poverty is not directly targeted in the GRI social
performance indicators, although some of its causes (human rights violations, health and
freedom) are evident, and the financial value of donations is specified as a core economic
performance indicator. Limited disclosure could be due to a belief that primarily it is the
role of government and not business organisations to eliminate poverty. Nonetheless the
business sector does have an obligation to ensure it does not contribute to poverty or its
continuance, and activities which do need to be disclosed.
In summary, the Guidelines form a noble initiative aimed at increasing the transparency
of organisations social and environmental impacts, in the belief that if the quality of this
information is improved organizational change toward sustainability will occur. However,
Broadhead (2002) draws attention to the inherent danger in the incremental management of
selected environmental problems at an international level. According to Broadhead regime
formation (for example the international regime concerning ozone depletion) and its resulting compromise not only fail to initiate decisive action, but also mask lack of progress
toward averting environmental crisis, creating a false impression of material change.
Similar to Broadheads concerns is the potential misuse by corporate interests of information produced using the Guidelines, reducing sustainability accounting information to
environmental propaganda, masking the reality of the environmental crisis and the role of
business as a primary cause (Gray, 1992; Lehman, 1995). Critical implementation issues
include: voluntary versus statutory compliance; the audit of sustainability reports by qualified and independent third parties; as well as identifying who will bear the cost of producing
sustainability accounting information. These issues are discussed in the conclusion to this
paper.
2.5. General themes to sustainability accounting
In this section five major themes evident in the varied approaches to sustainability accounting discussed in Sections 2.12.4 are identified. These themes contribute to the specification of the sustainability accounting framework in Section 3.
2.5.1. Preferred denition of sustainability
Applications of TBL are based on contemporary definitions of sustainable development which necessarily include economic, ecological and social dimensions. Absent is any
guidance as to how these competing elements are prioritised, although this is more a decision making rather than reporting issue. The three dimensional approach has its roots
in the WCEDs definition published in Our Common Future in 1987, where the social
evil of poverty was inextricably linked to environmental degradation (WCED, 1987), and
economic growth was identified as an essential weapon to fight poverty. However, it is
extremely doubtful whether continuing volume measured economic growth is compatible
with ecological sustainability (Costanza & Daly, 1992).
2.5.2. Use of indicators
Sustainability being a multi dimensional concept is not directly measurable and requires
a set of indicators to enable performance toward its multiple objectives to be assessed. Research into the identification of sustainability indicators at the macro level is continuing (see

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G. Lamberton / Accounting Forum 29 (2005) 726

for example Azar, Holmberg, & Lindgren, 1996; Moldan et al., 1997; Nilsson & Bergstrom,
1995), and more recent research has focussed on sustainability at the organisational level
(Bebbington & Gray, 2001; Lamberton, 1998). Application, for example, of established
rules for achieving ecological sustainability at the macro level are inherently difficult to apply at the organisational level (Victor, 1991), and this will continue to hinder the derivation
of meaningful micro level sustainability targets.
2.5.3. Multiple units of measurement
Although some forms of environmental accounting rely on monetary units to measure
environmental and social impacts, an increasing trend, evident in the GRI Guidelines, is the
use of multiple units of measurement to assess performance toward the three dimensions of
sustainability. Financial units of measurement, the preferred choice for measuring economic
performance, are not necessarily suitable for capturing social and ecological impacts, which
require an array of measurement tools to capture natures multiplicity (Cooper, 1992) and the
social equity dimension of sustainability. Qualitative tools, such as narratives to describe
an organisations social and environmental impacts form a critical part of sustainability
accounting (Lehman, 1999).
2.5.4. The interdisciplinary nature of sustainability accounting
Given the three dimensional definition of sustainability, it necessarily becomes a concept
reaching across and requiring cooperation between the accounting, social and ecological
disciplines. This necessitates the construction of a common dialogue to facilitate transdisciplinary discourses, and the formation of interdisciplinary teams to prepare and audit
sustainability accounting reports.
2.5.5. Use of traditional accounting principles and practices
Most of the various approaches to sustainability accounting draw on traditional accounting principles and/or practice. The capital maintenance concept used in sustainable cost and
natural resource inventory accounting, full cost accounting, inventory accounting, and the
valuation of environmental assets and liabilities are examples of this reliance. Not surprisingly, the accounting professions response to environmental crises draws on the traditions
of financial and management accounting, providing familiar principles to navigate through
the unfamiliar territory of ecology and sustainability.
The five themes listed together with the traditional financial accounting model enable the
specification of the sustainability accounting framework in Section 3.1. The components of
the traditional financial accounting model are discussed in the next section.

3. Components of the nancial accounting model

Solomons (1995) describes an accounting model as consisting of the traditional financial
statements (profit and loss statement and balance sheet) and the generally accepted accounting principles that underlie their preparation. Elliot and Jacobson (1991) take a similar view
of the traditional financial accounting model, including the statement of cash flows in the
set of final reports produced.

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15

Ijiri (1983) identifies accounting records and accounting reports as the major tools of the
accountant. Fundamental to the preparation of traditional financial statements are accounting records compiled using tools such as the journal, ledger and trial balance, and most
significantly the double entry principle, which increases reliability and influences the form
of final reports. According to Ijiri the design of these tools is directly linked to the performance evaluation function of accounting. He states that accounting records and reports are
designed to account for
. . . performance evaluation relative to the goal assigned to the accountor based on the
underlying accountability relationship. (Ijiri, 1983, p. 77)
Underlying the provision of financial statements is the assumption that users are primarily
interested in the accounting entitys financial performance, measured by accounting profit
and cash flow, and the entitys financial position measured by the balance sheet. The financial
accounting model has evolved to provide information relevant to these assumed primary
financial objectives of entrepreneurs. In sustainability accounting the goal assigned to the
accountor is the objective of sustainability (or sustainable development). Using a deductive
approach (Martin, 1994) a sustainability accounting model can be designed to provide
information enabling performance toward this objective to be evaluated.
Information provided for general purpose financial reporting should possess the qualitative attributes identified in statement of accounting concept SAC 3 (2002). Similarly,
the GRI Guidelines provide a comprehensive set of qualitative attributes of sustainability
accounting information, which are included later in this paper as part of the sustainability
accounting framework.
From the discussions in this section five components are identified as integral to the
financial accounting model
1.
2.
3.
4.
5.

The accounting reports (Elliot & Jacobson, 1991).

Accounting principles (Solomons, 1995).
Accounting records (Ijiri, 1983).
The objective of the accounting model (Martin, 1994).
Qualitative attributes (SAC 3).

In Section 3.1 a sustainability accounting framework is specified drawing on the general

themes identified in Section 2.5 and the five components of the financial accounting model.
A justification for sustainability accounting research is that stakeholders, and in particular
business decision makers, require a balanced information set, including economic, social
and environmental information if decisions are to achieve the multidimensional goal of
sustainability.
If the accounting profession is to make a constructive contribution to the environmental
crisis, it will draw on the accumulated knowledge and experience of accounting tradition. Accountants have significant experience and long established standards for reporting
corporate financial performance which should prove useful when preparing sustainability
accounting information at the corporate level.
What else have accountants to offer? Accounting knowledge may also be used to inform
users as to the limitations of and critical assumptions underpinning accounting information
(Hines, 1991). Alternatively, as some critical theorists argue, accountants will exacerbate

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G. Lamberton / Accounting Forum 29 (2005) 726

the problem and the environment will suffer from attempts by accountants to capture and
report its value (Cooper, 1992; Maunders, 1996).
The financial accounting model identified in this paper represents a general framework
for the capture and reporting of information that has evolved from financial accounting
practice. Specifying a sustainability accounting model in the form of the financial accounting
model is attempted in this paper to provide structure to sustainability accounting which has
developed in a relatively ad hoc manner over the past 15 years. It is difficult to speculate
whether this approach will ultimately benefit the environment. Certainly the process of
reporting sustainability accounting information is open to manipulation by vested interests.
A potentially critical role for accounting is the design of systems to reduce manipulation
and increase the qualitative attributes of sustainability accounting information.
3.1. Sustainability accounting framework
Fig. 1 displays five components of a sustainability accounting framework drawn from
the preceding discussion of the financial accounting model which is expanded into a comprehensive framework later in this paper (refer Fig. 2). An assumption underpinning the
specification of this framework is that the issues of: the objective of the reporting model; the
principles which underpin application of the model; data capture; reporting frameworks;
and the qualitative attributes of the information produced, are critical issues which need to
be addressed during the developmental phase to add rigor and structure to the reporting of
sustainability accounting information.
The five components depicted in Fig. 1 represent the
1.
2.
3.
4.
5.

objective(s) of the sustainability accounting framework;

principles which underpin application of the framework;
data capture tools, accounting records, and measurement techniques;
reports used to present information to stakeholders;
qualitative attributes of information reported using the framework.

Fig. 1. Components of the sustainability accounting framework.

G. Lamberton / Accounting Forum 29 (2005) 726

Fig. 2. Comprehensive sustainability accounting framework.

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The primary objective of the sustainability accounting framework is to measure organisational performance toward the objective of sustainability. Information measuring performance toward sustainability could serve either the accountability or decision useful objectives evident in the provision of conventional accounting information (Ijiri, 1983). Critical
to this objective is the chosen definition of sustainability, which determines the depth and
complexity of the accounting framework. If, as is becoming increasingly common, a three
dimensional definition of sustainability is adopted, the accounting framework must report
on organisational performance from an ecological, social and economic perspective.
The primary objective of the sustainability accounting framework together with the
chosen definition of sustainability determines the principles which guide the capture and
reporting of accounting information. These principles are analogous to the principles and
conventions that underpin financial accounting, such as the historical cost, going concern and
conservatism principles, and conventions concerning the accounting period and reporting
entity.
Data management tools used to capture and record sustainability accounting data are
analogous to the financial accountants journals, ledgers and trial balances used to record
financial data. Measurement techniques include the use of performance indicators and valuation methods used to estimate for example, environmental assets and liabilities.
Data captured by the sustainability accounting framework would be reported to users in
the form of both quantitative and qualitative information and must conform to a series of
qualitative attributes. These attributes, listed in Fig. 2, are drawn from the GRIs Sustainability Reporting Guidelines, and are equivalent to the attributes prescribed for financial
accounting data in SAC 3 (2002).
In the next section, Fig. 1 is expanded into a comprehensive sustainability accounting
framework.

4. Theoretical framework for sustainability accounting

Fig. 2 depicts a comprehensive sustainability accounting framework and displays some
of the interconnections between the various components within the framework.
This framework draws together the five general themes (identified in Section 2.5) evident in environmental accounting research and practice, up to and including the release
in 2002 of the GRI Sustainability Accounting Guidelines. Central to the sustainability accounting framework presented in this paper and the Guidelines, is the use of performance
indicators to measure the environmental, social and economic dimensions of sustainability. Given the complexity of measurement across the three dimensions of sustainability,
multiple units of measurement including narratives of social policy and procedure is envisaged, preferably guided by the supervision of multidisciplinary teams of professionals.
The fifth general theme listed in Section 2.5 acknowledges the influence of traditional
accounting principles and practice over environmental accounting research. The influence
of accounting tradition in this paper is evidenced by the application of the five components
of the traditional financial accounting model depicted in Fig. 1, to form the sustainability
accounting framework presented in Fig. 2. This structure provides objectives, principles,

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19

measurement and reporting methods directed at achieving the extensive list of qualitative
attributes listed in the Guidelines and discussed in Section 4.5 of this paper.
In Sections 4.14.5 each of the components of Fig. 2 is discussed in detail.
4.1. Objectives of framework
The primary objective of the sustainability accounting framework is to measure performance toward sustainability. Central to this is the debate as to whether sustainability
is a relevant goal at the organisational level, and whether it is measurable at this level.
The sustainable development concept is widely recognized as a multi-level concept (Starik
& Rands, 1995) where levels are highly interdependent. Genuine progress toward global
sustainability requires action at every level. Rules have been set for achieving sustainability at the macro level (Daly, 1990) but translation of these rules to the micro level is
problematic.
As with conventional accounting information, potential internal users of sustainability
accounting information can be distinguished from external users. Use by external parties
would aim to discharge the accountability of business organisations for their environmental
and social impacts to a broad set of external stakeholders. Sustainability accounting information must exhibit the qualitative attributes of transparency and comparability in a relevant
sustainability context to enable stakeholders to assess the environmental and social impact of
the organization. Society requires information which renders the impact of an organisations
operations transparent so its contribution to the goal of sustainability can be assessed. An
important aspect of sustainability accounts is to establish measurable sustainability targets
to enable stakeholders to assess an organisations level of unsustainability.
The provision of sustainability accounting information to internal users would focus on
the provision of relevant and decision useful information to management. For example, an
array of performance indicators and life cycle data compared to relevant sustainability targets
would assist the internal management of the organization toward the multidimensional
sustainability objective.
4.2. Underlying principles
Major principles that underpin the application of the sustainability accounting framework are listed in the second column of Fig. 2. The chosen definition of sustainability will
shape the scope and content of an organisations sustainability accounting framework. The
increasingly accepted three dimensional definition expands the sustainability concept to
include ecological, social and (specifically longer term) economic objectives. Measuring
performance toward a multidimensional conception of sustainability requires an array of social, environmental and economic indicators. The problem of prioritization of the competing
dimensions of sustainability leads to differing interpretations of sustainability accounting
information by, for example, business management compared to environmentalists. One
response to this is to develop integrated performance indicators which attempt to measure
two or more dimensions of sustainability, such as eco-efficiency indicators.
A contentious issue relates to identifying the appropriate entity for which sustainability
accounts are prepared. Applying the sustainability concept at the micro level by construct-

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ing sustainability accounts for individual organisations is based on the (possibly mistaken)
assumption that reported information will lead to organizational change toward sustainability (Lehman, 1999). Research exploring sustainability accounting at the household,
community, regional and national levels is necessary to exert sufficient pressure to drive the
transition to sustainability.
Given the systemic nature of human impact on the natural environment the boundaries of a
sustainability accounting system need to be clearly defined to limit the scope to a manageable
exercise. First-level environmental impacts refer to direct impacts on the environment.
Second-level environmental impacts are impacts caused by suppliers of inputs. Third-level
impacts are incidental to the provision of inputs. In prior research boundaries have been
drawn to include first and second level environmental impacts, but to exclude third level
impacts (Bebbington & Tan, 1997).
Similarly the period over which organisation performance toward the goal of sustainability is assessed needs to be defined. Alternatives to the financial accounting conventions
of (typically) reporting monthly, quarterly and/or annually are reporting continuously by,
for example, updating websites (maybe many times per day) with latest information, and/or
reporting over the life cycle of an organisations products and services. The use of life cycle
analysis is considered critical to the sustainability accounting process as it contributes to
changing the time horizon of decision makers from the short term accounting period to the
longer term product life cycle (Christiansen, 1997).
Including social and environmental factors in the sustainability concept necessitates the
use of an array of measurement units. Monetary units are relevant for assessing economic
performance, but are not appropriate for assessing social or environmental performance.
Attempts to monetarise social and ecological impacts risks seriously misrepresenting and
understating the significance of these issues relative to economic issues.
The accounting principle of capital maintenance is applied to sustainability accounting
in Grays suggested sustainable cost and natural capital inventory approaches (Gray, 1993).
Defining sustainable development in the context of the capital maintenance principle implies
maintaining stocks of ecological, social and economic capital, and leads to the contentious
issue of substitutability between categories of stock, and the distinction between weak and
strong versions of sustainability (Costanza & Daly, 1992).
The financial accounting concept of materiality is also relevant to the sustainability
accounting framework. Given the interconnectedness inherent in the natural environment,
it is not feasible to capture and report all human caused environmental impacts. Impacts
need to be prioritised depending on their significance as a potential threat to humankind
or the natural environment and their relevance to stakeholders. Lesser threats that would
not influence users could be excluded from sustainability reports based on the principle of
materiality.
The principle of materiality needs to be considered together with the ecologically based
precautionary principle, whereby action to alleviate environmental impacts is not delayed
due to scientific uncertainty (Chiras, 1992). Impacts that may not be precisely measurable, or where the risk is low still may require reporting to users. An example is highmagnitude-low-probability risks (Rubenstein, 1994) which need to be considered given
their potential to influence users given their potential for ecological, social and economic
destruction.

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4.3. Data capture and measurement techniques

The use of a wide array of indicators to measure performance toward sustainability is
recommended in the GRI Guidelines. Performance indicators have a relatively short history
of use in management accounting with the development of balanced scorecards which
identify critical indicators (Kaplan & Norton, 1996) in recognition of the multidimensional
nature of organizational performance.
Environmental accounting research has focused considerable attention on the valuation of environmental assets, liabilities and costs, in an attempt to account for the environment using generally accepted accounting principles. Milne (1991) reviews a range of
estimation techniques for facilitating the valuation process. Lehman (1996) warns that valuing environmental assets is potentially destructive, and suggests sustainability accounting
is more about providing narratives of the social and environmental impact of corporate
activities.
Life cycle analysis provides an enormous challenge given the complexity and detailed
measurement of environmental impacts. As an evaluation technique it is inherently imprecise (Ayres, 1995) and simplified, non-quantitative versions which encourage the transition
to life-cycle thinking may be more cost effective.
Environmental data can be captured using generalised scientific models to estimate
emission levels and resource consumption. In cases where resources are purchased
from suppliers, direct measurement by technical instrumentation is possible. For example water meters record consumption by the consumer at the source, as do electricity meters. In many cases sampling method is the only cost effective method of
data capture due to the excessive cost of measuring all emissions and natural resources
consumed.
The poor quality of data required to calculate environmental performance indicators and to perform life cycle analysis is well documented (Lee, OCallaghan, & Allen,
1995). Methods and sources used to capture data are broad, varied and potentially unreliable, due to the practice of environmental accounting being at an early stage in its
evolution.
Primary records forming part of the sustainable accounting system could include, for
example, a pollution inventory and a resource consumption inventory. As with subsidiary
records maintained in conventional accounting systems these inventories are used to record
data from which the final reports are extracted.
4.4. Reporting formats
The fourth component of the sustainability accounting framework depicted in Fig. 2
concerns the dissemination of information to users and involves two key questions:
1. What is the appropriate format of sustainability accounting reports?
2. How frequently should sustainability accounting information be disseminated to users?
Examples of reporting formats used to present sustainability accounting information
include

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Tables of performance indicators which measure actual values of each indicator for a
specified accounting period (CICA, 1994). Usefulness of information is increased where
actual values are compared to relevant sustainability targets (Lamberton, 2000).
Inventories of stocks of natural capital segregated into various categories (Jones, 1996).
Cost estimates of sustainable alternatives to current business practice (Bebbington &
Gray, 2001).
Inputoutput analysis (Jasch, 1993).
Life cycle analyses.
Lists of non compliance with relevant legislation incidents (for example, see WMC,
2001).
Narratives of environmental and social impacts.
These reports could be prepared periodically, or in the case of LCA, as required over the
useful life of a product or process, and preferably prior to the design decision being taken.
Some types of sustainability accounting information could be disseminated using web sites
as it becomes available, rather than conforming to a fixed reporting schedule. This places
the onus on users to check web sites regularly for updates.
4.5. Qualitative attributes
The fifth component of the sustainability accounting framework identifies qualitative
attributes of sustainability accounting information which have been drawn from the GRI
Guidelines. The Guidelines provide a comprehensive list of attributes knitted together into
a cohesive framework. These attributes are referred to as reporting principles; refer Table 2
which is taken from page 23 of the Guidelines.
These attributes, drawn predominantly from financial accounting are designed to inform
users as to how reports have been prepared by the reporting organization (GRI, 2002, p.
22). The primary attributes specified in the Guidelines are
1. Transparency which requires
(f)ull disclosure of the processes, procedures, and assumptions in report preparation
(GRI, 2002, p. 24).
2. Inclusiveness which requires
(t)he reporting organization [to] systematically engage its stakeholders to help focus and
continually enhance the quality of its reports (GRI, 2002, p. 24).
3. Auditability which requires
(r)eported data and information [should] be recorded, compiled, analysed, and disclosed
in a way that would enable internal auditors or external assurance providers to attest to
its reliability (GRI, 2002, p. 25).
The remaining eight qualitative attributes are designed to ensure the quality, reliability
and accessibility of information reported which is relevant to the organizational objective
of sustainability. As stated in SAC 3 Qualitative Characteristics of Financial Information,
sustainability accounting information must possess these qualitative attributes to enable
preparers of reports to discharge their accountability to users (SAC 3, 2002, p. 23).

G. Lamberton / Accounting Forum 29 (2005) 726

23

Table 2
Reporting principles

Source: GRI, 2002, p. 23.

5. Conclusion
This paper reviews the relatively short history of sustainability accounting theory and
practice, and draws upon the structure of the financial accounting model to develop a sustainability accounting framework. The aim of the framework is to provide direction for future
development of sustainability accounting at both conceptual and applied levels. Whether or
not it will prove beneficial to apply the structure of the traditional financial accounting model
to the sustainability accounting framework is unknown. Ideally sustainability accounting
practice should benefit from the history of financial and management accounting, although
such an approach may stifle creative development and reinforce existing (environmental)
problems and their (accounting) causes.
The sustainability accounting framework depicted in Fig. 2 presents an enormous challenge to business. The breadth of reporting to include aspects of environmental, social

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G. Lamberton / Accounting Forum 29 (2005) 726

and economic performance which conform to the stringent qualitative standards set in
the GRI Guidelines requires a large commitment of resources to achieve widespread application. Given that the desired outcome from the dissemination of sustainability accounting information is radical change to sustainable business practice; it is unrealistic to expect business to voluntarily commit the resources required for full implementation. Furthermore, humankind has too much to lose if this transition does not take
place.
This paper views the development of sustainability accounting through the lens of the
traditional financial accounting model. What this reveals is that sustainability accounting as
theorised and practiced exhibits some of the attributes of the traditional financial accounting
model but much work is required for sustainability accounting practice to achieve the rigor
and integrity defined by the list of qualitative attributes.
One option for financing the implementation of sustainability reporting would be to
use environmental taxes to both raise revenue and to discourage negative environmental
impacts. Once the sustainability accounting system is established tax rates could be linked
to (sustainability) performance outcomes to encourage the transition to sustainability at
the organizational level. Environmental taxes are a common policy option within green
political parties, and have been established as policy during the 1990s in Europe (Ekins,
1999).
A critical assumption of this research is that corporate impacts on the environment can
be changed by the provision of relevant information to stakeholders. Linking sustainability
performance to rates of tax incurred at the corporate level should increase the likelihood
of corporate management responding to the information produced. The expectation that
business organisations pass environmental taxes on to consumers would partially offset
the widespread underpricing of economic goods and services from the failure to include
environmental and social costs in market prices.
The formation of independent transdisciplinary sustainability teams to prepare and audit sustainability accounts would add credibility to the process. Accountants will need
to broaden their knowledge and establish a common dialogue to facilitate discourse with
social and ecological professionals. A more cost effective alternative to the regular and
continuous preparation of sustainability accounting information could be to prepare sustainability reports (say) every 3 years, using data the company is required to collect
annually.
The future direction of sustainability accounting research must continue to display the
essential quality of diversity. Attempts to increase the coverage, depth and quality of sustainability accounting information need to be complimented by research which draws on
knowledge from outside conventional accounting and business. An interesting example is
provided by the joint project between GPI Atlantic and the Centre for Bhutan Studies, who
report work in progress toward the measurement of human, social and natural capital including environmental quality, health, security, equity, education and free time (Coleman,
2004, p. 5). This project draws on the Buddhist foundation and commitment of the Bhutan
Government to achieve genuine progress toward operationalising the objective of Gross
National Happiness. Innovative projects drawing, where appropriate on alternative cultural perspective are needed to inform an accounting that is capable of making a genuine
contribution to sustainability.

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25

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