Standard-setting - Saving the environment

Ramona Dzinkowski looks at the role of international accounting standards-setters in moving the sustainable development agenda forward.

Since the early 1990s, when the ACCA published the poignant work of Rob Gray (1990) entitled The Greening of Accountancy: The Profession After Pearce, a substantial body of research and practice has emerged in the area of environmental management and sustainability accounting and disclosure.

Almost 20 years since, environmental accounting and reporting, and more broadly, sustainability reporting, have become common components in annual reports. Through their collaborative work with international environmental standard-setting organisations (such as the Global Reporting Initiative (GRI); Environment Australia - Public Environmental Reporting; United Nations Environmental Program (UNEP); US Environmental Protection Agency; ISO 14000 standards), and through a multitude of communications, research and policy initiatives, many of the world's professional accounting bodies have responded to the need for generally accepted environmental management and accounting principles, standards, and best practice guidelines that can both accommodate and motivate corporate sustainable development agendas.

These include: the International Federation of Accountants (IFAC) 2005 international guidance document, Environmental Management Accounting; the Canadian Institute of Chartered Accountants' MD&A Disclosure about the Financial Impact of Climate Change and Other Environmental Issues; the ICAEW's Environmental Issues in the Audit of Financial Statements; Practitioner Guidance on Provider Assurance on Greenhouse Gas Emissions Information - (CICA/American Institute of Certified Public Accountants); and the Institute of Management Accountants' Management Accounting Statement - Implementing Corporate Environmental Strategies, among others.

Much of the work of the international accounting bodies addresses the implications of the underlying principles of environmental accounting and reporting, the need for uniform environmental performance indicators, as well as the need to establish a common set of environmental accounting tools. Ultimately, the way in which we account for environmental costs and liabilities can have profound impacts on financial results.

As an extreme example, in 1992, Gray, professor of social and environmental accounting at the Centre for Social and Environmental Accounting Research, pointed out that if an accounting system were implemented to capture all the potential internal and external environmental and social costs of production and these numbers were deducted from calculated accounting profit, 'this will thus lead to a recognition that organisational income has been grossly overstated for some considerable time and that current generations have been benefiting at the cost of some future generation. The probability is that no western company has made a sustainable profit for a very long time, if ever.'

Uniform framework

It is hardly debatable that the body of literature on accounting standards, guidelines and practice around the world is immense. However, with the widespread adoption of International Financial Reporting Standards, there is hope that a uniform framework for environmental and sustainability accounting will emerge, which will tie information on environmental costs and benefits, and sustainability to the financial statements - beyond the box of current thinking.

Ramona Dzinkowski is a Canadian economist and business journalist. She can be reached on in Toronto

1. 'Coming Clean' - International Institute for Sustainable Development, Deloitte Touche Tohmatsu International and SustainAbility Ltd. 1993 (first ever guideline for environmental reporting)

2. Belaggio Principles - International Institute for Sustainable Development

3. GEMI tools and publications - Global Environmental Management Initiative

4. DIN Norm 33922 for an environmental report - The German Standardisation Body DIN

5. Handreiking Maatschappelijke Verslaggeving en Richtlijn 400 - Dutch Advisory Board for Annual Reporting 2003

6. CMA Management Accounting Guideline Writing and Evaluating Sustainable Development and Environmental Reports - CMA Canada 1998

7. UNCTAD report: Environmental Financial Reporting Accounting and Reporting at the Corporate Level - The Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting UNCTAD 1998

8. Guideline Corporate Environmental Reporting. Why and How of the NSW EPA in Australia - EPA Australia 1997

9. The ACCA Guide to Environment and Energy Reporting - ACCA UK 1997

10. The INEM Sustainability Reporting Guide - International Network for Environmental Management 2001

11. INEM Environmental Reports, Environmental Statements: Guidelines on Preparation and Dissemination 1998

12. CICA guideline: Reporting on Environmental Performance - CICA 1994

13. Environmental Reporting: Getting Started - UK Department of the Environment, Transport and the Regions 1999

Adapted from 'The Site on International Corporate Sustainability Reporting':


Despite the progress made by international accounting bodies in the area of environmental accounting and reporting, much remains to be done to improve disclosures to the general stakeholder community.

According to Alister Cowan, CFO of BC Hydro in Canada, one challenge going forward in reporting environmental indicators relates to the comparability of the data. Cowan says: 'Developing relevant metrics that are benchmarkable and for which relevant targets can be developed is critical as well as moving from qualitative to quantitative reporting.'

In addition, says Cowan, some of the measures are difficult to interpret and have differing definitions depending on the country or sector of origin. Furthermore, the sheer volume of information required to be reported on an annual basis adds additional complexity to the management process, as well as to understanding what is actually being disclosed.

BC Hydro, one of Canada's largest providers of hydro-electric power, reports in accordance with Canadian GAAP and is also required to comply with guidelines of the BC Transparency and Accountability Act, to guidelines issued by the Crown Agency Secretariat, and in response to review comments by the auditor general. It also reports in accordance with the UN's Environmental Program's Global Reporting Initiative for sustainability reporting. In addition, its environmental reporting of its environmental management system (EMS) is based on ISO 14001 requirements.

'A vast amount of data is generated that is difficult for users to understand and make meaningful decisions on … and a great deal of internal collaboration is required to collect and consistently report this information,' says Cowan. In his view, in order to make environmental/sustainability accounting reporting more relevant, comprehensive and uniform across industries, accounting bodies need to 'sharpen standards for non-financial reporting, or refer to other reporting standards for other areas, like the Intergovernmental Panel on Climate Change guidance for greenhouse gas reporting, or the Global Reporting Initiative for sustainability reporting.' Furthermore, he says, they should 'provide more guidance on lifecycle reporting, which is especially relevant for companies with expensive, long-lived assets'.

Education is key

Other observers echo these sentiments, pointing specifically to the role of the accounting bodies in providing appropriate training in the environmental/sustainability management and reporting arena.

According to Frank Deandrea, senior manager, corporate accounting and reporting at Hydro-One (the owner of Ontario's 28,000k high voltage transmission system), in order to improve the comparability, verifiability and consistency of social and environmental reports, international accounting bodies need to take two critical steps.

He says: 'First, there needs to be an education outreach programme for capital issuers to increase the understanding of the corporate sustainable reporting issues, and that should form part of the MD&A section of the financial reports. The programme should be consultative and involve governments, regulators, academics and other interested parties. Second is the step to develop a meaningful platform for comparisons of criteria other than financial performance.'

To further support the progress of international standard-setting organisations such as the GRI, the UNEP, and ISO international accounting bodies, says Deandrea, 'further rigorous guidance is needed to allow for a common framework for disclosure, and to measure the extent to which material issues have been identified and addressed'.

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