Accounting and the Public Interest American Accounting Association

Volume 14, 2014 DOI: 10.2308/apin-51125

Pages 79–86

COMMENTARY
The Public Interest Imperative in Corporate
Sustainability Reporting Research
Erin Burrell Nickell and Robin W. Roberts

ABSTRACT: The United Nations, federal governments and their agencies, non-
governmental organizations (NGOs), shareholder activists, private sector standard setters,
and academic researchers, as well as many others, are taking actions to improve
corporations’ accountability regarding the environmental and social impacts of their
operations. These actions have helped propel a rapid increase in voluntary corporate
sustainability reporting. Although the uptake in sustainability reporting has received a
significant amount of support from relevant and respected organizations, academic and
policy debates continue over whether voluntary corporate sustainability reports can monitor
corporate activities effectively. While some researchers view these reports as signals of
superior actions, others argue that they provide corporations with an opportunity to
obfuscate their actual social and environmental performance through selective and
incomplete disclosure strategies. The purpose of this commentary is to advocate for
accounting researchers, regardless of their theoretical framework, research question, or
method, to use a more inclusive definition of the public interest when performing corporate
sustainability reporting research. We believe that a more inclusive public interest definition
is required due to: (1) the broad impact of corporate social and environmental activities on
global climate change and planetary sustainability; (2) a tendency for financial market
accounting research to focus strictly on economic-based, potential corporate net benefits or
costs derived from voluntary corporate sustainability reporting; and (3) the need to
acknowledge the collective action problem inherent in developing policies dealing with
corporate sustainable development activities and reporting. By using a more inclusive
definition of the public interest in corporate sustainability reporting research, the accounting
research community can contribute more positively to society’s understanding of how well
corporations are meeting and reporting on their significant public interest responsibilities
related to the climate change consequences of their operations.
Keywords: corporate sustainability reporting; sustainability accounting research; envi-
ronmental accounting; corporate social responsibility; public interest;
sustainability.

Erin Burrell Nickell is an Associate Professor at the University of Denver and Robin W. Roberts is a Professor at the
University of Central Florida.

We thank Charles Cho for his helpful feedback and suggestions on this manuscript.
Editor’s note: Accepted by Pamela B. Roush.
Published Online: April 2015
Nickell and Roberts 80

INTRODUCTION
Neu and Graham (2005, 585) state that ‘‘the public interest’’ is a phrase accounting
researchers ‘‘associate with accounting almost by reflex’’ and find it ‘‘quite natural to insist that
accounting ought to serve the public interest.’’ The need to consider the public interest when
undertaking accounting research has never been more apparent than it is in corporate
sustainability reporting research. Although a few dissident voices remain, the international
scientific community has spoken clearly on the issue of climate change and its devastating impact
on planetary sustainability. Furthermore, economic growth is considered to be a significant
contributing factor to climate change, placing important planetary sustainability responsibilities in
the hands of corporate management and the investment community. Global society now demands
and deserves that corporate decision makers and investors be held accountable for their discharge
of these critical responsibilities.
The purpose of this commentary is to advocate for a broad and inclusive definition of the
public interest when studying corporate sustainability reporting. We hope that accounting scholars
will read this and commit to performing sustainability research whose public interest scope moves
beyond narrow, market-oriented concerns. A more inclusive definition of the public interest is
sorely needed in this setting, in part because an overwhelming majority of the scientific community
has concluded that a narrow, economic approach to addressing this problem cannot succeed. For
example, the Intergovernmental Panel on Climate Change (IPCC 2014, 17) Synthesis Report
Summary for Policymakers concludes:
Climate change has the characteristics of a collective action problem at the global scale,
because most greenhouse gases accumulate over time and mix globally, and emissions
by any agent (e.g., individual, community, company, country) affect other agents.
Effective mitigation will not be achieved if individual agents advance their own interests
independently.
Corporate sustainability reporting research that is framed within a narrow, economic definition of
the public interest is, therefore, limited at best, and perhaps misguided in its attempts to provide
policy implications to help solve this collective action problem. In short, corporate sustainability
reporting research should define the public interest, whether implicitly or explicitly, broadly enough
to assess how well corporate decision makers and investors are discharging their responsibilities
to society at large.
Given that planetary sustainability is arguably the most significant, challenging, and pressing
public interest concern global society has ever faced, we believe it deserves much more serious,
concerted attention from our community of accounting scholars. In the remainder of this paper, we
will discuss the definition of the public interest in accounting, review selected corporate
sustainability reporting research, briefly summarize what the scientific community is telling us
about climate change and planetary sustainability, and present our rationale for promoting a
broader and more inclusive public interest definition.

PUBLIC INTEREST IN ACCOUNTING DEFINED

The idea that the accounting profession serves the public interest has been codified in various
professional standards for over 160 years. In June 2012, the International Federation of
Accountants (IFAC) released its Policy Position 5, A Definition of the Public Interest. In this

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document and its supporting materials, IFAC (2012) reports on its analysis and deliberations
regarding the development of a concise definition of the public interest that it can use consistently
as a filter that guides its work. Policy Position 5 states that ‘‘IFAC defines the public interest as the
net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any
action, decision or policy’’ (IFAC 2012). Thus, the public interest should guide the process and the
outcome of accounting standard setting and, therefore, accounting practice. When performing an
assessment of the net benefits, IFAC (2012) states that the cost/benefit analysis is to consider ‘‘the
extent to which, for society as a whole, the benefits of the action, decision, or policy outweigh the
costs.’’ The term IFAC (2012) uses—‘‘society at large’’—points to a definition of the public interest
that reaches well beyond a narrow focus on the investing public.
Of course, the devil is in the details, and IFAC (2012) recognizes this fact. The relevant
‘‘public’’ and the degree of their interest have to be identified, and the calculations of benefits and
costs should reflect these measurements and weights in order to arrive at an assessment of net
benefit. What criteria should be used in this public interest identification, measurement, and
weighting process? How should sustainability accounting researchers operationalize this
definition, either implicitly or explicitly, when conducting research? It is at this juncture that
normative concepts of the public interest must be considered (Neu and Graham 2005).
In IFAC’s (2012) supporting materials, they present a comprehensive review of a variety of
literature related to the public interest. Their review included analyses of historical works,
philosophical literature, contemporary academic and professional research, previous standards,
and their own internal use of the term. Academic accounting research investigating the public
interest was discussed with reference to a number of issues, including concerns about masked
professional self-interest, the need for the profession to take social action, and social inclusion
when defining the public interest.
As IFAC (2012) and many accounting scholars have pointed out (e.g., Baker 2005; Sikka,
Willmott, and Lowe 1989; Thornburg and Roberts 2013), the term ‘‘public interest’’ as it relates to
the practice and profession of accounting is a vague term and is interpreted differently by different
researchers, policymakers, and practitioners. For example, the public interest often has been
defined narrowly to limit the accounting profession’s obligation to society as one of only providing
financial information and its related assurance to financial market participants (Baker 2005). It also
has been defined broadly by the profession to help justify its involvement in federal politics
(Roberts, Dwyer, and Sweeney 2003). The manner in which the public interest is defined is critical
in guiding both accounting research and accounting practice as it strives to contribute positively to
helping solve the social and environmental problems associated with climate change. We will
return to this point several times in our commentary.

A REVIEW OF SELECTED CORPORATE SUSTAINABILITY

REPORTING RESEARCH
Although corporate social reporting can be traced back to at least the 1940s, its relatively
recent reincarnation as ‘‘corporate sustainability reporting’’ has grown significantly, both as a
practice and as a subject of academic research. Much of this growth in practice has been attributed
to corporate management responding to increasing stakeholder demands for social and
environmental accountability (Patten 2012). Also, corporate reporting of ‘‘green’’ initiatives and
social responsibility activities has often produced positive consumer and investor responses.
Consequently, it is common now for corporations to issue voluntary sustainability reports, for which
an increasing number also include some type of third-party assurance (Guidry and Patten 2010).

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Academic interest in corporate social reporting began around 40 years ago. Although a handful of
CSR and sustainability reporting studies have been published in leading U.S.-based journals, the
bulk of serious research in this area has been published in journals located outside the U.S.
Overall, this outcome has resulted in a fractured academic literature on corporate sustainability
reporting that continuously fails to take advantage of a rich stream of diverse, yet clearly related,
work (Roberts and Wallace 2015).
Recent, predominantly U.S./Canada-based research in this area has focused on sorting out
whether the financial markets value corporate engagement in environmentally and socially
responsible activities. Various measures of social and environmental performance (e.g., pollution
data, social indices, and environmental disclosures) have been found by researchers to be
positively associated with many financial performance indicators (e.g., Clarkson, Li, Richardson,
and Vasvari 2011; Ramchander, Schwebach, and Staking 2012). Matsumara, Prakash, and Vera-
Munoz (2014) even conclude that although carbon emissions data negatively impact firm value,
the very act of disclosure more than makes up for the decline.
Other studies purport that CSR activities and reporting can serve as an ‘‘insurance policy’’ for
firms during difficult times. Higher CSR ratings and additional disclosures are found to temper
negative market reactions to bad news or negative events (e.g., Blacconiere and Patten 1994;
Godfrey, Merrill, and Hansen 2009; Minor and Morgan 2012). Corporations that choose to issue
sustainability reports or include additional CSR disclosures also seem to enjoy reduced regulatory
risks (Brown, Guidry, and Patten 2010), improved stakeholder relationships (Cheng, Ionnaou, and
Serafeim 2014), reduced cost of equity capital (Dhaliwal, Li, Tsang, and Yang 2011), and stronger
overall corporate governance structures (Gao, Lisic, and Zhang 2011).
While by no means complete, the brief review of this stream of corporate sustainability
reporting research is meant to highlight findings that build the business case for corporate
sustainability activities and reporting. In other words, this stream of research works on the
assumption that the net benefits arising from corporate sustainability activities and its reporting
should be measured and evaluated primarily in reference to those benefits and costs that accrue to
corporate management and shareholders. These studies help us learn more about how market
participants interpret the financial value of corporate sustainability activities.
While the findings from the studies referenced above infer mostly positive corporate outcomes
associated with the reporting of corporate sustainability activities, researchers also argue that it is
difficult to determine whether the market is reacting to authentic corporate socially responsible
behavior or reacting more to the risk reduction and corporate image enhancement that results from
sustainability reporting. Instead, a corporation’s voluntary disclosures are criticized as having very
little to do with actual engagement in environmentally and socially responsible activities (Gray
2006, 2010). Patten (2012) compares the practice of CSR and sustainability reporting to the
appeal and intrigue garnered by exotic animals at the zoo. Patten (2012) writes:
My fear about the current uptake of voluntary corporate sustainability reporting is that, like
visitors who see white tigers at the zoo and presume all is well in the wild, people will see
the growth of CSR reporting and assume businesses are becoming more accountable,
more sustainable or both. It is easy to be misled.
The ability to voluntarily and selectively report on sustainability efforts allows corporations to
highlight their CSR strengths and ignore their CSR weaknesses (Bebbington, Larrinaga, and
Moneva 2008), thus raising the issue of report completeness. From a theoretical perspective,
researchers argue that corporations achieve legitimacy by utilizing communication strategies to
influence public perception (Dowling and Pfeffer 1975). Prior research has found evidence to

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suggest that companies use environmental disclosures in financial reports as a legitimizing tool,
offsetting poor environmental performance with longer and more positive disclosures (Patten
2002; Cho and Patten 2007). Cho, Roberts, and Patten (2010, 431) find that corporations with
relatively worse environmental performance ‘‘exhibit significantly more ‘optimism’ and less
‘certainty’ than their better-performing counterparts when making environmental disclosures.’’ In
other words, management may attempt to manipulate public perception by carefully crafting
environmental disclosures to cast corporate activities in a more positive light. Overall, this stream
of research provides evidence that corporate sustainability disclosures are used primarily as
strategic communication tools, not as accountability reports fully documenting how a corporation’s
public interest responsibilities have been discharged.
Although the two streams of corporate sustainability reporting research we discussed present
different perspectives on corporate sustainability activities and reporting, they both help to raise
the level of academic interest in the topic. It is likely that corporate management engages in both
signaling and image management when developing and distributing their sustainability reports; for
example, by reporting hand-picked items of achievement such as relative reductions in energy
usage while ignoring actions that increased their overall CO2 emissions. However, we wonder if
research focusing solely either on the net financial benefits a corporation receives from selectively
reporting on its sustainability activities or on the obfuscation present in a corporation’s reporting is
the best way for the academic and practicing accounting community to meet its public interest
responsibilities regarding climate change and the resulting devastating impact on planetary
sustainability. This worry is reinforced in our discussion below.

CLIMATE CHANGE AND PLANETARY SUSTAINABILITY

The Intergovernmental Panel on Climate Change (IPCC), the international body for assessing
the science related to climate change, recently issued its 2014 Synthesis Report. This
comprehensive report provides the most complete and balanced science-based assessment of
the severe consequences that face humanity and the natural environment if our global society
continues on its current trajectory of population and economic growth. The report examines a
broad array of economic, ethical, and social issues that need to be considered when developing
potential solutions to the challenging problems associated with climate change. We believe that
every accounting scholar should read this report and reflect on how our academic profession can
contribute to solving this preeminent global problem in the interest of the public. This is especially
true for researchers who are interested in corporate sustainability reporting.
In its Summary for Policymakers, the IPCC (2014, 4) states clearly and with high confidence
that:
Globally, economic and population growth continue to be the most important drivers of
increases in CO2 emissions from fossil fuel combustion. The contribution of population
growth between 2000 and 2010 remained roughly identical to the previous three decades,
while the contribution of economic growth has risen sharply.
The increasing contribution of economic growth to climate change has repercussions for how the
academic and practicing accounting professions view their roles regarding the purpose,
construction, contents, and evaluation of corporate sustainability reports. The fact that a
corporation’s economic activities most likely exacerbate the problem of climate change
necessitates that every corporation be held accountable to all stakeholders impacted by its
actions.

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When it comes to climate change, the set of stakeholders affected by corporate actions
greatly expands. Also, many of these stakeholders need the protection and support provided by a
more inclusive definition of the public interest. The IPCC (2014, 13) makes this point in its
summary report for policymakers by stating:
Climate change will amplify existing risks and create new risks for natural and human
systems. Risks are unevenly distributed and are generally greater for disadvantaged
people and communities in countries at all levels of development.
It is clear to us that a narrow, market-based public interest definition privileges the investing public
and fails to sufficiently take disadvantaged stakeholders into proper account when considering
universally accepted notions of ethics and social justice. Research that focuses solely on the
potential market effects of corporate sustainability reporting risks advocating a narrow public
interest viewpoint, thus ignoring issues of ethics and social justice.
It is important to acknowledge that several significant corporate sustainability-related reporting
efforts continue to be underway. These efforts include, for example, the Global Reporting Initiative,
Triple Bottom Line Reporting, the Principles for Responsible Investment, and the Sustainability
Accounting Standards Board. Although each of these initiatives might improve corporate
sustainability accountability and reporting, we view them as promoting incremental, as opposed
to transformative, changes in reporting because they are being developed primarily for the
investing public. The IPCC (2014, 20) Synthesis Report also appears wary of these types of
efforts, stating:
Restricting adaptation responses to incremental changes to existing systems and
structures, without considering transformational change, may increase costs and losses,
and miss opportunities. Planning and implementation of transformational adaptation
could reflect strengthened, altered or aligned paradigms and may place new and
increased demands on governance structures to reconcile different goals and visions for
the future and to address possible equity and ethical implications.
We infer from their conclusions that corporate sustainability reporting research needs to focus
less on corporations’ and investors’ net benefits from sustainable activities and reporting, and
more on corporations’ climate change impacts for other stakeholders—a focus on transformational
change.

CONCLUSIONS
The purpose of our commentary is to advocate for a broader and more inclusive definition of
the public interest when accounting scholars undertake corporate sustainability reporting research.
Our reasoning is based on our assessment of several factors associated with our profession’s
commitment to the public interest, the current status of corporate sustainability reporting research,
and the significant and urgent challenges of climate change and its devastating effects on
planetary sustainability.
The IPCC’s (2014) Synthesis Report Summary for Policymakers (and the full report) makes
for a sobering read. It provides detailed and convincing ethical and social justice arguments for
undertaking collective action to mitigate the atmospheric and environmental damage caused by
economic growth. Herein lies the problem with defining the public interest responsibilities of the
accounting profession as one primarily concerned with providing corporate financial information to
financial market participants. This definition, when applied to corporate sustainability reporting

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research, privileges the importance of economic growth, implies there is a market solution to
climate change, ignores the social collective action problem, and denies the accounting
profession’s broader responsibilities to society as a whole (Gray 2010; Malsch 2013).
Given the social collective action problem inherent in combating climate change, we believe a
shift in the focus of corporate sustainability reporting research is warranted. If corporate
sustainability reporting research will ground its work in a more inclusive public interest definition,
then it can focus more clearly on understanding how well corporations are mitigating the
atmospheric and environmental damage caused by their economic activities, and how well
corporations are adapting their economic activities to ensure long-term reductions in the
atmospheric and environmental damage they cause. Global society demands and deserves that
accounting researchers who study corporate sustainability reporting focus their efforts on
advocating transformative, rather than incremental, changes in corporate sustainability activities
and reporting.
We must close by acknowledging that our commentary is far from comprehensive. Our
purpose was not to present an exhaustive review and critique of relevant literature. A great amount
of corporate sustainability reporting research has been published that offers significant public
interest-oriented policy prescriptions regarding climate change and ways to reduce its negative
impact on planetary sustainability. For all of these efforts, we are grateful. Please accept our
commentary for what it is—a plea for more accounting researchers to use their time and talents to
help global society solve the immense social, environmental, and economic challenges of climate
change and help reduce its devastating effects on planetary sustainability.

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