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Social, environmental and

sustainability reporting and
organisational value creation?
Whose value? Whose creation?

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Rob Gray
Centre for Social and Environmental Accounting Research,
School of Management, University of St Andrews, St Andrews, UK
Abstract
Purpose The objective of this essay is to examine the extent to which social, environmental and
sustainability accounting and reporting (SEA) can or should contribute to shareholder value and,
correspondingly, to consider the challenge that SEA can offer to the conventional views of value that
underpin traditional financial accounting. The essay is then used as a vehicle to introduce some
relatively new data about sustainable development that has implications for our consideration of
value.
Design/methodology/approach Although drawing from a wide range of secondary contextual
data, the paper is primarily argumentative and seeks to challenge a number of implicit assumptions
within both conventional and more critical accounting.
Findings Substantive social and environmental reporting and, especially, high quality reporting on
(un)sustainability will demonstrate that modern international financial capitalism and the principle
organs which support it are essentially designed to maximise environmental destruction and the
erosion of any realistic notion of social justice. This paper seeks to demonstrate this contention and the
powerful and fundamental implications that this has for conventional financial reporting and for the
superficial and cosmetic adjustments to that reporting through new models of organisational
reporting.
Research limitations/implications The paper questions whether any research which is not
either cognisant of or directed towards sustainability and/or sustainable development makes any real
sense in the context of current data about the planet. More especially, the paper asks whether any
notion of value employed in the accounting (and wider) literature can be anything other than
self-delusional and empty if it ignores a crucial wider context.
Originality/value Apart from taking debates about value and, especially shareholder value
into another dimension, the paper is one of the first (at least in accounting as far as I am aware) to
formally introduce and confront data about planetary sustainability.
Keywords Sustainable development, Shareholder value analysis, Social accounting
Paper type Research paper

The assistance of Jorgen Randers was essential to the inclusion of the figures taken from Limits
to Growth: The 30 Year Update. It is a privilege to be able to acknowledge his help. The author
thanks James Guthrie for his comments on an earlier draft of the paper and without whom this
paper would not have been necessary. The author is pleased to also acknowledge very helpful
comments from participants at European Accounting Association Symposium on New Models of
Business Reporting, Goteburg, May 2005; Crawford Spence, David Owen and David Collison,
and an especially thorough and supportive anonymous reviewer.

Accounting, Auditing &

Accountability Journal
Vol. 19 No. 6, 2006
pp. 793-819
q Emerald Group Publishing Limited
0951-3574
DOI 10.1108/09513570610709872

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1. Introduction
Few ideas could be more destructive to the notion of a sustainable planet than a system
of economic organisation designed to maximise those things which financial reporting
measures. Conversely, few notions could be more fundamentally antagonistic to
financial reporting and all its cosmetic adjustments than a planet wishing to seek
sustainability[1]. It is these tensions which inform and motivate this paper.
The objective of this essay is to examine the extent to which social, environmental
and sustainability accounting and reporting (SEA) can or should contribute to
shareholder value and, correspondingly, to consider the challenge that SEA can offer to
the conventional views of value that underpin traditional financial accounting. The
essay is then used as a vehicle to introduce some relatively new data about sustainable
development that has implications for our consideration of value.
Addressing the issues of social, environmental and sustainability reporting,
predicated as an extension to the financial reporting model and as a potential source of
value creation has been a considerable challenge[2]. As the implicit assumptions of
financial reporting and those of social, environmental and sustainability reporting (as
understood here) derive from fundamentally different views of the world, those views
must be exposed before we even begin to consider social, environmental and
sustainability reporting in any sensible way. This, in turn, involves raising and
communicating a range of issues which are not, arguably, part of the usual argot of
mainstream accounting literature. So this paper takes two issues as its departure point.
First, it considers whether the question of how SEA might contribute to shareholder
value creation is the wrong question or not and, in doing so, raises a broader
question as to whether or not such value creation is in any way feasible and/or
desirable. The second departure point is the belief that social, environmental and
sustainability reporting has (or will normally have) a quite different, even antagonistic,
relationship with the normal assumptions of corporations as value creating entities.
These concerns have made this paper more of a challenge to write and, quite
probably, more of a challenge to read.
The paper is structured as follows. The next subsection explains why it is
necessary, in Section 2, to address some of the fundamental questions which underlie
financial reporting itself. This proves to be an essential precursor to the rest of the
papers (albeit brief) exploration of accountings relationship with the assumptions of
liberal free market capitalism. Consequently, Section 3 drives deeper into questions
about the nature of accounting itself before we get to the heart of the matter in Section
4. Section 4 offers some recent insights from the Limits to growth project and uses
this as an empirical basis for arguing that the relationships generally assumed in
accounting between corporations, capitalism and, consequently, accounting, are
mis-specified, addressing that mis-specification is (one of) social accountings
motivation. Section 5 offers a tri-partite conception of approaches to social,
environmental and sustainability reporting while Section 6 seeks to identify what
each of these might mean for value creation. Section 7 offers some brief conclusions.
But first, we need to get back to basics and reconfigure how we might examine
financial reporting and why some reporting might be thought of as good or bad. To
do this, it seems necessary to take a longish detour a peregrination around the
context of our taken-for granted assumptions concerning accounting. The purpose of
this is to lift our heads in order to see more expansively the vast context that lies

outside the detail and problem-solving that characterises so much of accounting debate
and concern. This is because it is only at this level of resolution on a global, societal
scale, informed by imagination that it is possible to really question what it is that
financial reporting achieves, what financial reporting could achieve, and,
correspondingly, why attempts to reform it are, at best, typically ill-advised. And it
is only from this lofty height that it is possible to see why measures that drive towards
accountability and sustainability are profoundly and substantively different in every
regard from problem-solving enquiries and teasingly querulous examinations of
relatively trite and unimportant matters like the balanced score card (BSC) and
intellectual capital[3].
2. What is financial reporting for?
Financial reporting is so much a part of our landscape, so deeply embedded into modern
financial capitalism and so central to our place as academic accountants that it is rare to
see the practice challenged in any fundamental way within the mainstream of accounting
research and practice[4]. It remains, by and large, taken for granted. But if we are to seek
its improvement we need to make decisions about the characteristics we admire and
the characteristics we wish to enhance. Similarly, we need to identify those
characteristics that we wish to eliminate or whose impact we might wish to reduce
(see Appendix). That is, what is it about financial reporting that we need to improve?
In considering improvement, we must (in the interests of open-mindedness if
nothing else) accept that among the array of possibilities for improving financial
reporting, lies simplification of the complexity and reduction in the volume of that
reporting. Equally, the possibility must be considered that financial reporting is a
baleful activity and, consequently, the greatest improvement might be to reduce its
ubiquity and influence over organisational life, the economy and, consequently, the
lifeworld (Thielemann, 2000).
We know that financial reporting takes its moral authority from pristine liberal
economic democracy. We also know that it takes its economic authority from its primacy
in legislation and its ability to serve those with the most obvious access to economic
power. The moral authority of financial reporting is principally[5] consequentialist in
nature, in that the moral content derives from the consequences of the reporting, not from
the act of reporting itself. These consequences are believed to arise from the way in
which pristine liberal economic democracy is assumed to function. That is, rational
economic information (in this case financial reporting) provides rational actors (typically
shareholders and other financial market participants) with the wherewithal to pursue
their economic self-interest. In doing so, the actors move funds from less economically
desirable ends towards more economically desirable ends and thereby encourage the
development and innovation of better economic activities through the maintenance and
stimulation of competition[6]. It is this process, apparently, which produces economic
growth. As the economy grows (the successful organisations grow and the successful
investors become even richer) it floats all boats as a result of the trickle down theory
in that the spending by the rich ensures that all people are financially better off. Being
financially better off, they are also better off in every other way, that is, their welfare is
increased. As a result, we can see that, based on these assumptions, the empowerment of
the rational investor (sic) will lead to improved welfare for all or at least most in
society.

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Variations on this set of assumptions and justifications are at the heart of liberal
economics. They are developed in detail in Friedmans writing and are implicit and
essential to all finance theorising and to most financial accounting theorising[7]. It is
disturbing, therefore, to discover that there is no direct evidence to support this
precarious construction. The view relies, for its empirical support, on generalised
argument, for example, that we are all better off than we ever have been; that we are all
getting better off all the time; and that this increase in well-being has coincided with
the triumph of international financial capitalism. Such arguments are, at best,
contestable[8]. While for many in the West this statement has a superficial veracity, it
ignores the growing gap between rich and poor (Hertz, 2001); it ignores the increasing
levels of defensive expenditure that the economically successful feel forced to
undertake (Robertson, 1990; Ekins, 1992); it is challenged by estimates of, for example,
well-being or sustainable welfare (Van Dieran, 1995; Jacobs, 1991; Daly and Cobb,
1990)[9]; and it entirely ignores the increasingly parlous state of the environment
(UNEP, 2002; WWF, 2004; Meadows et al., 2004; Millennium Ecosystem Assessment
Board, 2005; EEA, 2005) which has, if we remain with economistic argument, been
treated and measured as income when it is in fact capital (Pearce et al., 1989; Ekins,
1992).
But all of this is misses the more basic point that liberal economic democracy and its
undoubted successes (much owed to financial reporting no doubt), provides us with
only one model[10] of how a society might be, how success might be treated and
conceived, and only one view of what the good life might look like. It is not necessary
to offer a symphony to poverty to recognise that in the human experience there are
other matters more significant than the purely economic. Life has more to recommend
it than the manifestations of the dismal science.
Capitalism is able to offer this single, simple and dominating view of the world
through its hegemonic ability as Gramsci would suggest to control, maintain and
renew itself. The place of financial reporting in capitalism can clearly be seen as
hegemonic. Financial reporting is an essential component of financial capitalism and is
mandated by the State. The State does this, it might claim, in order to impose order on
economic organisation and to permit the allegedly desirable mechanisms of liberal
economic democracy to function. In doing so, the State mandates one of the few true
monopolies in capitalism accounting to serve almost exclusively those who are the
power holders. Whatever the benefit or otherwise of financial reporting to the economy
and society as a whole, there is no question that those who are intended to benefit most
from financial reporting are those who already hold economic power, namely, the
shareholders.
And here is where the economic authority and implicitly a secondary moral
authority for financial reporting develops. If financial capitalism and its organs are
self-evidently desirable, taken for granted, hegemonic, then it goes without saying that
as financial reporting so closely serves capitalism it must also, without question, serve
society. The issue of whether financial reporting is a genuine boon for a self-actualising
society remains unasked, and indeed often appears to be un-askable[11].
The point of this meandering excursion through the hinterland of liberal theory is
that we can only seek to applaud financial reporting as we know it if we believe the
means by which it came (and comes) into being are just and apposite and if the world
that it supports, encourages and reifies is, at the very least, an acceptable one.

On reading almost any mainstream accounting literature one would find little, if
any, examination of the question of whether or not we currently are living in, and
building towards, the best of all possible worlds. Progress is taken for granted and,
arguably, to ignore such questions is to conclude that there is universal agreement that
all is well with the world (Or, perhaps, that what is not well is nothing to do with
accounting, equally which is indefensible.). How is it then, as we have seen above
and will discuss below that an increasingly alienating and alienated society is intent
on a path of clear environmental unsustainability? Viewed in this light it would seem
that the very tenets of the kind of society in which financial accounting plays a starring
role are grounded in injustice masquerading as decency[12]. This is the kind of society
where the only responsibility is to maximise profits or to lie about ones responsibility
(Bakan, 2004 p. 34); where growth is supported and made possible through accounting
and organisations become so big they are too strong for the State to control, indeed too
strong for the State to want to control let alone allow a society any choice in the matter
(Korten, 1995; Hirst and Thompson, 19968; Bailey et al., 1994). The march of a financial
market-driven, financial reporting-enabled international capitalism leaves in its wake a
planet barely able to continue supporting life (Meadows et al., 2004), a growing
disengaged underclass, and notions of reality and decency that find the most ludicrous
of contradictions the norm. So we learn and are expected to believe, for example, that
profit and social responsibility are in harmony; that all of capitalism is committed to
accountability; and that all sensible corporations fully and enthusiastically embrace
the sustainability of the planet[13].
This is the world of financial reporting. Is it the world we actually wish to develop
and support? Such questions must surely be, at a minimum, issues of open debate?
The primary organs of capitalism have much to recommend them but the qualities
of compassion, decency, responsibility and restraint are not among them. Indeed, the
less fettered capitalism becomes and the greater its organs, the more rapacious the
organisations must become. It is the very nature of the beast (Tinker and Gray,
2003)[14]. To speak therefore of responsible capitalism or sustainable capitalism is
probably the most ludicrous of oxymoronic dishonesty. If mankind wishes to enlist the
power of capitalism, and there is a case for doing so (Porritt, 2005), it must only do so
under the most careful and concerted and clear-minded control of those rapacious
organs[15]. If, however, Marxs disturbing prescience about the inevitable spread of the
viral influence of the corporate form and the inevitable failure of the State to stand
against it are inevitable, then perhaps capitalism as we understand it must be
eschewed entirely.
3. What is the nature of accounting?
Basic bookkeeping and financial accounting for small enterprises is arguably an
elegant and broadly benign technology. However, there comes a point at which the
influence of financial reporting grows beyond any simple notion of a useful technique.
Closeness (in Rawlss terms) is no longer necessary; control at a distance becomes
possible, even desirable (Robson, 1992); the social constructionist power of the
technology grows (Hines, 1988); the representation of the numbers come to, and must,
dominate and suppress the lived experience of the those things the numbers originally
represented. Size, it seems, matters[16]. More substantively, when accounting passes
this size threshold (wherever it may be) its potential as a baleful activity seems to

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become virtually irresistible. For example, it seems to be a relatively simple matter to

demonstrate that environmental degradation and wastefulness are inevitable and
direct consequences of the way in which we do our accounting (Gray, 1990; Gray and
Bebbington, 2001). It is a straightforward matter to demonstrate that conventional
accounting as we know it intentionally excludes almost anything that might be
thought of as wonderful, aspirational or desirable in the human condition happiness,
fun, sunshine, love, relaxation, poetry, laughter, time to goof off. (Bebbington et al.,
2001). All of these are lost, nay relentlessly pursued and expunged from experience, in
the interest of economy (Thielemann, 2000), as measured and driven by financial
accounting. Accounting produces a social construction of a world of precision and
accuracy, of measurement and rationality, of bleakness and inhumanity (Hines, 1988).
The very purpose of financial reporting is to show how much more the rich people[17]
will receive as a result of economic activity while ignoring how that surplus (sic) has
been appropriated or calculated.
Daly and Cobb (1990), for example, have successfully demonstrated that while it
seems relatively unequivocal that the development of an economy is a valuable and
unavoidable artefact in human experience, there is a point beyond which it can cease to
deliver anything recognisable as welfare. A series of fairly persuasive studies has
suggested that this point has long since been passed in the West (Meadows et al., 2004;
Brown and Flavin, 1999). If this is so, the economy cannot currently be said to
unequivocally deliver long-term welfare in any real and/or spiritual sense. If that is the
case, then what is it that accounting and business reporting is serving? Clearly
accounting serves our current forms of capitalism. And there is a growing and
persuasive body of data which tells us that capitalism, at least the current
unrestrained, international, financially-based, out-of-control version, is proving
increasingly inimical.
Current modes of accounting are crucial to capitalism and therefore can be argued to
serve an (increasingly? potentially?) inimical system. Does it have to be this way?
Current systems of accounting measurement working through financial markets
ensure that the components of capitalism must pursue profit above all else ruthlessly
and regardless of any other factors which are, by definition, externalities. Social and
environmental accounting, and increasingly, sustainability accounting, offer (in
principle at least) alternative accountings in which these externalities are central and
the costs of economic success for the few are expressed in terms of the many and of the
environment.
And yet, conventional accounting, its professions and organs, seem determined to
avoid the development of an accountability which might reveal whether or not the
above assertions have substance. Consequently, they seem determined to ignore all
other forms of account which might offer alternative views of the current situation.
Only the most anodyne, confirmatory and trite of possible social, environmental and
sustainability accounts are able to find their way past the guardians of accounting
and capitalism. This is probably evidence enough of the self-perpetuating beast that is
capitalism. Are, then, its principle servants, accountants, just Igor to capitalisms
Frankenstein? (Tinker and Gray, 2003; Cooper et al., 2005.)
If one part of the problem lies with financial accounting, only the most radical
re-working of accounting is likely to influence change. None of the mainstream debate
that surrounds financial accounting localised transformations of accounting, change

within its existing parameters, and the teasing out of hidden components addresses
the fundamental issues. To what extent has social, environmental and sustainability
reporting risen to this radical challenge?
To assess that and that is, ultimately, the intention of this paper requires a
somewhat more considered review of the context that makes such broader questions so
important.

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4. The world for which we account
It is difficult to convey clearly what it is to take a global, social and/or environmental
view and, because most folk believe themselves to be globally orientated, why this
view is substantively different from a more frequently observed mainstream view, (see
Gray, 2002b). Put simply, there is a range of local, national and global problems whose
identification and amelioration (if not eradication) seems to be a central requirement for
any society with claims to civilisation. Our current and dominant forms of economic
organisation, accounting and performance measurement which intertwine notions of
success with ever higher levels of, inter alia, waste and consumption, are among the
most likely suspects when we seek to identify the cause of these problems (the usual
misery and doom list, see, for example, Brown and Flavin, 1999; Brown et al., 1998).
Consequently, any analysis of accounting must acknowledge these problems. To
ignore the problems in any analysis is, arguably, to condone the problems themselves.
There are many syntheses of the health of the planetary homeland. Many of these
are troubling analyses and are undertaken with varying degrees of balance and
passion, (Eden, 1996; Hertz, 2001; Bakan, 2004; Kovel, 2002; Klein, 2001; Korten, 1995).
One of the more consistent, considered and informed of these analyses, Limits to
Growth (Meadows et al., 1972), will suffice for our purposes here.
Limits to Growth was the result of work commissioned by the Club of Rome to
examine contemporary global social and environmental trends. The purpose behind
this was to identify the more pressing and potentially threatening trends in order that
government policy might respond to address concerns before they became critical. The
text stands as one of the first and most influential analyses of the global environment
and its interaction with global human and economic society.
While Limits to Growth is mostly remembered (somewhat inaccurately) for its
alleged predictions of doom, it provided a careful, considered, dynamic and interactive
view, based on such data and scientific knowledge of the global environment, its
economy, its people and its systems as was available at the time. Importantly, the
analysis was not an attempt to predict doom as such but, rather, to model, in a dynamic
and interactive manner, the overshoot that would result under a variety of
assumptions if current trends continued without interference.
The conclusion of the analyses was that, under a range of different assumptions,
humanity was likely to face a series of significant resource constraints that were
expected to affect the quality of (human) life significantly. What caught the attention
was that these constraints were predicted to have discernible impact in the early part of
the twenty-first century. But that seemed too far away for a sceptical public, a
growth-obsessed business community, a weakening State and a range of affluent
societies keen on greater consumption.
The analyses were re-run in 1992 (as Beyond the Limits, Meadows et al., 1992) and
again, most recently, in 2004 (Meadows et al., 2004). In broad terms the conclusions are

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the same as those reached in the earlier work, except that the early part of the
twenty-first century has arrived, there is more data on which to base the analyses, the
models are more sophisticated, the computers more powerful, and any room for
manoeuvre has declined drastically.
The following four figures (Figures 1-4) are taken from Meadows et al.(2004)[18] and
provide a glimpse of the issues that may be at stake here.

800
4.1 Limits to Growth: The 30 Year Update
Briefly, the four figures presented here (which are a small extract of the whole data set
and report) may be read as follows.
Figure 1 represents an estimate of the amount of land use (the ecological footprint)
of humanity through time. The ecological footprint is an increasingly widely used
heuristic to assess, in a single measure, both the relative and absolute levels of land
that are necessary to support a particular level of consumption and waste
(Wackernagel and Rees, 1996). The figure suggests that the world is now using, for
the variety of activities that it undertakes, more land than it has available to it, i.e. more
than one planet! In one sense this is impossible but the interpretation is that resource
availability and planetary carrying capacities are being exceeded. That is, we are using
as income that which is capital. The figure almost certainly understates the position, as
issues such as water requirements are not included here and estimates based on
optimistic level of technological progress suggest that mankind will need three
planets to provide for the basic needs of India and China as well as for the West
(Porritt, 2005).
Figure 2 is one of the many representations of human welfare that does not take
financial measures of national income at face value. Figure 2 compares well-being

Figure 1.
World ecological footprint
1961-2001

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Figure 2.
GDP and well-being, USA
1950-1997

and wealth, in this case gross domestic product (GDP) and genuine progress based
on the work of Herman Daly. There are many such attempts to adjust GDP for matters
as diverse as defensive expenditure, measures of social dislocation and environmental
damage. The essence of the measure is to challenge whether a simple economic
calculation can be used as the principal gauge of approximate well-being and, in doing
so, to question our typically implicit assumptions about progress and the benefits we
derive from current forms of capitalism.
Figures 3 and 4 are just two of the examples that could be extracted from the detail
of Limits to Growth: The 30 Year Update. The core of The limits to growth project
and, especially that of Meadows et al. (2004), is a series of runs of detailed, modelled,
interactive data under different assumptions. They use these runs to produce a range

Figure 3.
Scenario 2 pollution
crisis

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Figure 4.
Scenario 9 sustainability

of scenarios, which are then employed to produce estimates of the ensuing

relationships between the ecological footprint and a measure of (what the authors call)
the human welfare index. In Scenario 2, we can see a growing population, growing
food production and rapidly growing industrial production. However, we also note the
rapidly declining natural resources and the growth of pollution. At the year 2004, these
data would be consistent for all scenarios (as that is the state of the world given the
data available to us). The human ecological footprint is rising rapidly and the human
welfare index is already in decline by 2004. Scenario 2 then extrapolates and posits a
pollution crisis (of which global climate change would be just such an incident)
arising from the growth in industrial production. This pollution crisis is then played
through the model to interpret typically under the most optimistic of possible
assumptions the impacts on the other primary series. Here we see the resultant
decline in food, industrial output and, consequently, human population, before the
human economy re-establishes itself. It is a chilling scenario.
Figure 4 models one possible approach to sustainability a what might happen if
scenario based on a significant government policy shift to mitigate the rise in pollution
in the very near future. In essence this scenario involves the truly significant diversion
of wealth (in all its forms) away from industrial output and the production of food
towards the lowering of the pollution level to a manageable state. In this scenario the
use of non-renewable resources is more carefully managed, the ecological footprint is
sent into decline from about 2010 and the human welfare index flattens out.
The key matter of this discussion of which Meadows et al. (2004) is an exemplary
proponent is that the world as we think we know it may either be very different from
what we think it is, or be about to change drastically. Business as usual, which is key
to virtually all accounting and economic analysis (and not only in the going concern
assumption) is, therefore, quite simply untenable.
If one assumes that the planet can no longer support life as we currently understand
it, then only the most drastic of change in the mechanisms by which economy is
organised and by which success is judged can possibly be of any substance or

interest to us. As a result, tinkering with a more accurate financial accounting is

irrelevant at best and, in all probability, irresponsible.
It is just such a perspective that provides at least one departure point for social
accounting.
5. Social, environmental and sustainability reporting and value creation
A convenient place to begin our discussion of social, environmental and sustainability
reporting and accounting (SEA) might be with the contrasts which have energised (or
emasculated, depending on your point of view) the whole social accounting
enterprise. The contrasts include: the considerable potential for change that can lie
within social accounting versus what is actually achieved; the central and potentially
radical importance of holding capital to account (accountability) versus what we
actually see with voluntary disclosure the management of legitimation and
perceptions; the considerable energy which is exerted by business in maintaining
social accounting as a discretionary and voluntary activity whilst promoting a rhetoric
which supports the general lack of importance of social accounting; the cherry-picking
partiality of current reporting practice versus the claims that business and government
make for that reporting; and the anodyne nonsense of much current practice in
self-reporting versus the intense radical potential of the external social audits (Tinker
et al., 1991; Neu et al., 1998; Owen et al., 2000; Gray et al., 1996).
At the risk of over-simplification, we might tease out a number of these tensions by
considering three different levels of resolution (Gambling, 1985) which loosely relate
to how one reacts to the vision offered by Meadows et al. as outlined in the previous
section of this paper. Each of these three levels also envisages a different, and often
implicit, approach to the reform of the corporation and the system of economic
organisation. The three levels are certainly not discrete but may serve as convenient
heuristics. They are: the managerialist, business-as(-almost)-usual approach to SEA;
the triple bottom line, there-is-a-common-ground approach to SEA; and, finally, an
ecologically- and eco-justice-informed approach to sustainability reporting, (Gray and
Bebbington, 2000). Each of these approaches has a fair amount in common. In
particular, they are all based on the belief that reporting is of value (both
deontologically and consequentially), they are all founded on a degree of optimism,
and, in most of the cases discussed here, they all take the accounting entity as the
reporting entity and work within the framework of self-reporting by the accountable
entity[19].
Following is a very brief overview of these three approaches and an examination of
whether or not they can be thought of as value creating and, if so, whose value it is
they are seeking to create.
5.1. The managerialist, business-as(-almost)-usual approach to SEA
This is evident in the vast majority of current reporting practice. It is company-based,
voluntary, partial and, mostly, fairly trivial[20]. Under this approach, data is selectively
reported. There is assumed to be little or no conflict between traditional economic
criteria and social or environmental desiderata or the exigencies of sustainability. With
such data, no reader could make any kind of reliable estimate of the organisations
social or environmental performance. The approach, moreover, is founded on the view
that if there is any social and environmental crisis, it is soluble through existing

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mechanisms, assumptions and pre-conceptions. It seems increasingly only possible to

hold such a view if one of two states of mind prevail. First, one might hold such view as
a result of an inability to imagine that there might be any worthwhile goals which
cannot be achieved via the pursuit of commercial profit (a kind of commercial tunnel
vision, what might be called kerdosopia or profit-focus). Equally, one might hold views
such as these as a result of either ignorance about and/or a lack of intellectual energy
concerning the social and environmental state of the planet and how these are
connected to the way in which organisations function.
Whatever the reason for such views, it is important to recognise that as this
approach to social accounting is manifest in the principal area of practice in this field, it
is about this reporting that most can be said. Thus, we can so easily find that our
debates unintentionally illustrate the lack of importance of social accounting because
the current practice of social accounting is so trivial.
5.2. The triple bottom line (TBL) there-is-a-common-ground approach to SEA
This is the approach to reporting that one occasionally sees in truly innovative
reporting companies such as the UKs Traidcraft and Cooperative Bank. Such
reporting draws from Elkingtons call for an equal three part approach to
accountability (Elkington, 1997, 2001) and looks to a time when an organisations
annual report would comprise three equally emphasised and equally reliable sections
relating to the economic, social and environmental activities of the organisation. The
approach seeks to grow beyond the current standards of the Global Reporting
Initiative (GRI)[21] and, probably, envisages a form of reporting to which the GRI
might eventually aspire. The approach tends to recognise that current emphases and
balances within society are probably inimical but also seems to believe that whilst we
may need to reform organisational emphases and perhaps even the structures and
governance of organisations, the basic systems of economic organisation are probably
satisfactory, salvageable and reformable[22]. If one had to typify this approach it
would probably look something like less Nestle more Ben and Jerrys, less HSBC more
Cooperative Bank, less Shell more BP. It is an approach which takes its inspiration
from the isolated exemplars of achievement Interface, BSO Origin, Bristol Myers
Squibb, etc. (SustainAbility/UNEP, 1997, 2002). At its best, the approach offers a very
real opportunity to expose the contradictions inherent in current practice and debates
around corporate behaviour. As we shall see, reformist it may be but the extent of that
reform might very well be substantial and would probably require a vivid
imagination to envisage what a world of substantive TBL reporting might look like.
Nevertheless, it is important to record that the TBL is not an approach to sustainability
reporting and has attracted considerable criticism as a mis-representation of the issues,
as a means of buying off conflict, and as an active failure to recognise that the financial
will always dominate any kind of bottom line in capitalism (Gray and Milne, 2004).
5.3. An ecologically- and eco-justice-informed approach to reporting directly on
sustainability
This approach relates to those experiments which are still embryonic but which would
be built around critical notions like ecological footprints (Wackernagel and Rees, 1996)
and social justice. Such reporting might well draw from current experiments such as
sustainability assessment models (SAMs) (Baxter et al., 2004), sustainable cost

(Bebbington and Tan, 1997; Bebbington and Gray, 2001) and The Forum for the
Futures work (Howes, 2004). (Note, however, that these approaches tend to emphasise
environmental sustainability rather than social sustainability.) The methodology has
two elements. First, all approaches to ecologically-based reporting are founded on the
need to establish whether or not organisations are socially and environmentally
sustainable. The default assumption, from this deep sustainability point of view,
would be that they are not. Indeed, the evidence would suggest that most organisations
are not even close to anything that could be said to look like sustainability[23]. Equally,
the approach would assume that the causes of un-sustainability are the result of a
systemic failure. That is, the causes are not isolated concerns they are related and
integrated. Consequently, the solution of un-sustainability would be predicated on
some drastic, radical revision of how economic organisation is achieved and managed
in addition to who and what is privileged in that system. The approach based on these
assumptions then diverts into two, potentially competing, schools of thought. The first
school comprises those who think such reporting can usefully be based at the
organisational level because the entity is what we are used to, social accounting at this
level offers a challenge to financial accounting (which is extremely powerful and
self-evidently entity-based), and the entity is the locus of decision-making and,
probably, power. The second school believes that the economic organisation is the
problem and that all reporting needs to be based on regions, ecological regions and
local eco-systems, and the boundaries between organisations must, consequently, be
re-drawn or even removed. (Gray and Milne, 2004).
Each of these approaches offers a significantly different take on value-creation
and organisational performance, and these notions are examined in the following
section.
6. Whose value? Whose creation? Three approaches to social,
environmental and sustainability reporting
This paper started out with an exploration of what new reporting models are
sometimes seeking to achieve. This was identified as being: to improve the description
of the entity (or some element of it), to more accurately identify some factor intrinsic to
the entity, and/or to help management release some pent up potential for value creation
(or other metaphors for the super-human talents that managers are presumed to
exhibit). But what does this all mean? No matter how the bottle is spun our current
versions of international capitalism reward and punish, admire and chastise, on the
basis of the profit figure, whether in the short or long run (where the long run is
unlikely to be beyond the next stock market upsurge and the next merger/takeover
talks[24]. This single focus may, we are led to believe, be tempered by anxieties over
the riskiness of the organisations performance which, in essence, means: Is there
anything observable which may put the longer-than-next-years-profit into jeopardy?
So, when we try and cut through the verbiage, when we concern ourselves with
organisation performance and/or value creation[25], we are really only concerning
ourselves with variations on the profit figure. The question is, therefore, a truly simple
one: Can social, environmental and sustainability reporting and accounting add
anything to the pursuit of profit figures? The answer is also a simple one: Probably, but
only to a very small degree and only as long as the reporting is trivial and anodyne.
This is what needs to be examined here.

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6.1. The managerialist, business-as(-almost)-usual approach to SEA

There has been a considerable number of studies over the last two or three decades
which have sought to examine whether companies with either an observable social
responsibility performance and/or a better social and/or environmental reporting
performance also have a better financial performance (Richardson et al., 1999). That is,
in a crude sense, research has pursued the question of whether or not social disclosure
and/or social responsibility creates or releases value. The results from these
studies, so far, are broadly inconclusive. There is a hint in a number of studies (but it
would be inappropriate to state this as a conclusion), that the better financially
performing companies do, indeed, manifest a better level of observable social
responsibility and/or social and environmental reporting behaviour (Murray et al.,
2006). Such a conclusion is normally taken to indicate that such social responsibility
and reporting behaviour is indicative of a better-managed organisation and/or that the
directors are successfully signalling to the financial participants that the risks
associated with social and environmental issues are being properly managed, (see
Gray, forthcoming).
There is a notable point to emphasise here. The steady increase in social,
environmental (and sustainability sic Gray, forthcoming) reporting over the last 15
years suggests that a proportion of managers sees a business case for such an activity.
We must presume, therefore, that such reporting is perceived by managers to be of
value. Any such value must be as a contribution to profit, and/or the freedom to pursue
profit and/or the freedom from future constraints on profit-seeking. So whether or not
research studies can formally identify a financial effect a contribution to value
creation we can probably assume that marginal and business-as-usual reporting
does make a financial contribution to the company or such a financial contribution is
believed by managers to exist[26].
Perception of such a relationship, or empirical evidence of such a relationship, is
most likely to be influenced by the fact that the reporting on which it is based is
itself trivial in nature. Reporting can, quite plausibly, release value if it is
reporting which has no substantive claims to anything that looks like
accountability. As an admirable attempt to try and bridge the gap within
voluntary reporting and to thus introduce accountability (if only
accountability-lite) and thereby allow states to avoid regulating the field, the
moves toward something that looks a little like triple bottom line reporting are of
some significance. Without doubt the dominant influence on attempts to push a
business case and develop what at least starts to look like a substantive current
reporting practice has fallen to the global reporting initiative (GRI).
6.2. The triple bottom line (TBL), there-is-a-common-ground approach to SEA
It is too early to say whether or not there would be any conventional value creation
arising from the production of a full TBL report. Indeed, it must doubted whether any
organisation has yet produced a definitive TBL[27]. By default, therefore, it seems
likely that a business case for full TBL reporting is elusive. Until we have data
available to study we will not be able to make any formal assessment of whether or not
TBL reporting delivers shareholder value or somesuch. It is, however, far from
obvious prima facie why something approaching a rigorous and detailed
accountability reporting by corporations would increase the financial returns to

rational, i.e. cash-seeking, investors. In the meantime, the GRI attempts, with often
considerable difficulty, to push the boundaries of the acceptable and, in so doing, to
bring current practice into line with a form of substantive reporting. The elements that
are required of organisations reporting under the GRI are shown in Figure 5[28].
The greater intentions of the GRI approach are fairly clear from the figure to
develop a broadly-based TBL approach. However, it is equally apparent that the
economic and social dimensions are struggling to catch up with the environmental
and, equally worth noting, even the environmental data is well below anything that
could sensibly be used to assess environmental sustainability. In this, the GRI
reflects current practice where environmental data is much more readily disclosed
than other forms of information. The GRI is a step towards a TBL approach, but
there are many further steps to go, conformance with GRI certainly does not deliver
a full TBL report.

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Figure 5.
State of the art in social,
environmental and
sustainability reporting?

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One might, indeed, be tempted to conclude that the difficulties that GRI is having in
encouraging a higher proportion of companies to adopt the GRI guidelines, getting a
higher level of compliance among those who adopt their guidelines; and advancing the
guidelines to embrace fuller social and environmental responsibility, suggest that the
business-case for reporting anything much beyond the trivial is still proving
elusive[29]. However, what is underlying the TBL is a matter of much greater
substance. At its heart is the notion that all major organisations must be held
accountable for their social and environmental, as well as financial, activities. There
seems little question that to undertake accountability-based reporting would expose
the extent to which conflict might exist between social accountability and the pursuit
of economic self-interest. The extent to which such conflict exists at the moment is
shrouded, often obfuscated in fact (although it seems likely that such conflict must be
inevitable and significant). But the potential of the TBL lies, arguably, in tantalising
glimpses it offers us of the decreasing importance placed on financial information and
a significant increase in the data relating to an organisations interactions with society
and the natural environment. The price of that accountability may well be a reduction
in what we currently judge to be economic well-being, but whether that is so and
whether it actually matters are issues which remain unresolved.
Such musings are important because they bring us closer to the questions which
are, or should be, at the heart of any concern with reporting. These questions relate to
the discharge of accountability (What is the relationship between power and
responsibility?) and the pursuit of sustainability (Is the present system of economic
organisation likely to threaten this or any future generations ability to sustain itself?).
The TBL opens up such questions but does not address them fully. For that, we need to
develop a sustainability accounting system.
6.3. An ecologically- and eco-justice-informed approach to reporting directly on
sustainability
Virtually all the evidence from ecology points unerringly to the unsustainability of
current systems of economic organisation and behaviour. As the engines of that
organisation and behaviour, it is arguably the companies which owe the greatest
accountability to society and about whom most (but not all) of ecological reporting is
concerned. There remains the question of whether reporting at, say, an eco-systems
level would be desirable, how it could be operationalised and how the reporting might
be used. These are questions for further study and are not developed here, but see Gray
and Milne (2004).
At the heart of entity-based reporting for sustainability are two questions:
(1) What is the organisations ecological footprint and how might that footprint be
reduced to potentially sustainable levels?
(2) How might the essentially socially unjust capitalistic corporate form be brought
under control?
It is relatively clear that the basic conditions of sustainability are not being met by
corporations (see Table I), and so corporations must be reformed if they are to be
moved even a little more towards sustainability. Moving organisations towards
sustainability (and ergo away from unsustainability) would involve, at a minimum: the
systematic reduction in the organisations ecological footprint, i.e. a reduction in the

resources used in total and not just as efficiency gains; a systematic attempt to increase
the access which disadvantaged sections of society have to environmental resources;
and a systematic attempt to reverse the increasing disparities in wealth and
consumption. Such an approach would clearly be exceptionally unattractive to
corporate strategists and investors because it challenges the major tenets of current
corporate life including growth of profit and perhaps even capitalism itself (Gray and
Bebbington, 2000).
Thus, it seems perfectly clear that an organisation in serious pursuit of
sustainability will, in almost every likelihood, be significantly unpopular with most, if
not all, conventional financial participants. Whether reporting on the blatant
un-sustainability of economic performance would also lead to the financial rats
abandoning the economic ship is still an open question.
In a move of some optimism, a number of individuals and organisations have
sought to explore what such (sustainability) reporting might actually look like. In so
doing the question of how society might respond and whether such honesty would
necessarily fatally disadvantage companies is kept alive. Current experiments are
currently underway, or have been undertaken, in the UK by, inter alia, Forum for the
Future, CSEAR and BP (Howes, 2004; Gray and Bebbington, 2001; Bebbington and
Gray, 2001; Baxter et al., 2004), and these demonstrate the economically significant
extent to which organisations are failing to meet the exigencies of sustainability. These
experiments do, however, make it explicitly clear that there is other value than that of
money the value of life, the value of society, the value of quality and, if one is of a
religious bent, the value of creation itself.

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7. Conclusions
If we look to, say, release shareholder value or in some other way seek out increased
profit potential from substantive accountability and/or sustainability, reporting we
are either misguided, entirely missing the point or thinking about something which is
blatantly not substantive accountability or sustainability reporting. Insofar as
additional forms of social and environmental management and reporting can, at the
margins, proxy for risk, stakeholder management and morale issues, then there are
win-win situations to be had some improvement can be found for both society and
the environment and the profit figure. But this is not accountability and it is not about
sustainability.
The evidence is mounting that sustainability is a pressing and demanding issue
which we, as a species, are failing to address with sufficient diligence. And, it should be
said, there are strong a priori cases in support of a non-negotiable requirement for
substantive accountability anyway. In these circumstances, significant social
accounting becomes an essential, but as yet unfulfilled, component in
business-society interaction (Lehman, 2001). By contrast if, indeed, the data on the
Elements of sustainability
Social justice
Eco-efficiency
Eco-effectiveness

The needs of the present generation

The needs of future generations

X
X(?)
X

X
A (??)
X

Table I.
A simplified view are
the conditions of
sustainability being met?

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state of the planet and social dislocation has even potential credence and if the case that
these factors bear a direct, if perhaps complex, relationship with the very things that
we pursue in our accounting and in our businesses, looking for new ways to release
shareholder value, etc. is just about the worse thing we could do.
It may be, of course, that you do not find this scenario utterly compelling and it may
be that the planetary crisis is unavoidable but it certainly deserves our attention and it
deserves that attention soon. Addressing accountability through substantive
accountability reporting, i.e. substantive social accounting, and sustainability
through substantive sustainability reporting would be a first significant and
sensible step to begin to expose the extent to which the potential doomsday scenarios
are worthy of our attention or not. The action that such accountability might prompt
could, in turn, actually release shareholder value in the sense that it might lead to
activities that ensured shareholders might still be alive. The lifeworld of economics is a
very strange place indeed!
So how might we as scholars respond to such concerns? Offering research
agendas, even when disguised as areas of future research, is always fraught.
Nevertheless, it may be worth spelling out a few thoughts. At its simplest we have
exhausted the analysis of annual report disclosures and our research needs to tease out
more substantive data sets, such as the stand alone reports and national social data.
Such data sets, together with research questions more clearly motivated by issues that
matter, that have cash value in the pragmatist sense, that address matters of life and
death, will, arguably, demand considerable imagination and free play imaginings. So
perhaps the first requirement is a more imaginative social accounting, (Gray, 2002a).
The second issue we need to work more on is engagement. In particular, there seems to
be an essential need to challenge the utterances of organisations and representative
bodies. Whether this be in direct engagement, or through active reconstruction like that
undertaken in Adams (2004) or through the construction of silent and shadow
account (see, for example, the CSEAR web site for discussion and illustration of these),
possibly matter less than the act of confrontation and the active design of research
questions motivated by a desire to facilitate change.
Whatever else, we certainly need more good and imaginative social accounting
research and less repetitive and predictable work, but it was probably ever thus.
Notes
1. The focus of what follows is almost exclusively on business entities and, more obviously,
companies. Indeed, the primary focus of these comments is large companies. There are many
reasons for this, not least the power and size of these companies and the ubiquity of
international capitalism. However, the principal reasons for this focus are that financial
reporting has its primary moment in commercial capitalistic organisations (for all the
obvious reasons) and that the issues arising with social, environmental and sustainability
reporting in non-commercial organisations are quite different. (For an introduction to these
issues see, for example, Pearce, 1993, 1996; Dey, 2002; Dey et al., 1995; Gray et al., 1997.)
2. This paper was commissioned for the European Accounting Association Symposium on
New Models of Business Reporting in Goteburg, May 2005 and this implication that SEA
may have value creation potential was an element of the commission that needed to be
addressed as an essential precursor to the essay. It is worth recalling that the early social
accounting debates (see especially Solomons, 1974) tended to assume that social accounting
was a possible addendum to conventional financial accounting.

3. An important,but by no means solitary, exception to this slight is the paper by Roslender and
Fincham (2004) which explores not only the relationship between BSC and intellectual capital
(and was an important stimulus for the present paper) but also the emancipatory potential of
intellectual capital accounting through, what it calls intellectual capital self-accounts. In
essence, the distinction here is a tautology based on whether or not the research question
addressed recognises the state of humanity or other species and its/their habitat.
4. Accounting in all its forms receives considerable critique in the literature, of course. See, for
example, Tinker (1984a, b, 1985); Tinker and Gray (2003); Gambling (1985); Mouck (1994);
Cooper (1992); Puxty et al. (1997); Mitchell et al. (1991). And see also more critical themes
which occasionally surface from more mainstream analyses such as Page and Spira (1999).
5. There may also be a motivist authority deriving from the economic authority, that is,
financial reporting is a good thing because the law requires it. We will deal with that
question shortly. See Gray et al. (1994) for a simple introduction to these arguments, and
Donaldson (1988) and Jacobson (1991) for more detail.
6. The efficient capital market hypothesis plays a very important role in the argument here
but that need not detain us as it will complicate the story further and it is a complication
which has even less factual evidence or persuasiveness behind it than does the broader case
discussed here. See, for example, Hines (1984).
7. These arguments are rarely spelt out but they are more clear than is typically the case in
Benston (1982a, b) and Walker (2004).
8. Other arguments in support of liberalism derive their moment, not from their economic
generosity but from the central placing of individual freedom. See, particularly, Hayek (1960,
1982).
9. There has been a range of attempts to either measure some other factor like welfare or to
adjust current measures of GDP so that they better represent welfare or something like it.
The issue is an enormous one and too large for proper treatment here.
10. Again, an over-simplification. There are many different models of capitalism but the key
difference tends to be whether or not the system is controlled by the people which, in turn,
seems to be a function of the extent to which financial markets hold sway over corporations.
For a simple introduction see Porritt (2005).
11. One should offer some caution here as there are famous and profound analyses of liberal
society that have sought to rescue liberalism from itself. Particularly significant examples
include Rawls (1972) and Sunstein (1997), but see also Chwastiak (1996).
12. If the data (as will be reviewed below) suggest that there is something fundamentally wrong
with the planet, and society and business and accounting are central components of the sort
of society we are building, then business and accounting must be, by definition, implicated in
the ills of the society and the planet. And yet we maintain a concern for progress, for more
profit (as opposed to less), and accede to a business-led PR machine that tells us about our
increasingly glorious world. The tale of the Lotus Eaters springs to mind.
13. This argument is developed with great learning and wit in Bakan (2004). It is at its most
manifest in two quotations: The performance of companies implementing sustainability
principles is superior because sustainability is a catalyst for enlightened and disciplined
management . . . ; and The concept of corporate sustainability has long been very attractive
to investors because of its aim to increase long term shareholder value . . . Dow Jones
Sustainability Group Indexes Report Quarterly 3/99.
14. That is, as financial markets become more ubiquitous and as the zones of discretion left to
management decline, as more reward is given for greater and greater efficiencies squeezed
from ever more competitive situations, then the bad must drive out the good. Some of
this is hinted at in Estes (1996) and Schwartz and Gibb (1999).

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15. Parkinson (see, for example, Parkinson, 1997, 2003) a lawyer, argues that organisations can
either have their activities closely regulated or they can have their disclosure about those
activities regulated. Both are not needed but no democracy can exist without either area
being controlled.
16. The issue of scale is difficult to resolve. A vegetable patch in ones garden seems a fairly
benign activity, while industrial scale agriculture has much malign influence. Trade between
equals in the market seems an unremarkably benign activity but the World Trade
Organisation might well be the consort of Beelzebub. Deadfall branches for firewood versus
clear-felling, stream versus floods, warmth of fires versus firestorms. And yet a simple
technology like gunpowder can so easily be malignant at almost any level of scale. The
concern may be an existentialist one and derived from loss of closeness, intimacy and
integrity in social interaction (see again, for example, Thielemann, 2000; Rawls, 1972).
17. This is partially intentional hyperbole. Most reading this and certainly most reading this
in the West will be wealthy by any ordinary standards. Those who own shares, directly or
not, are wealthy, and it is for the wealthy that the corporation creates its surplus and to
whom that surplus is passed in due course.
18. The indispensable support and help of Jorgen Randers (one of the principal authors of the
report) is very gratefully acknowledged. The four figures are all drawn directly from a public
lecture given by Jorgen Randers in November 2004 sponsored by the Dow Chemical
Company, Midland, Michigan, USA. The first figure (World Ecological Footprint 1961-2001)
does not appear in the book but the data on which it is based does, and that in turn is based
on Wackernagel and Rees (1996). The second figure (GDP and Well-being, USA 1950-1997)
does not appear in the book but can be derived from any study with Herman Dalys work
(Daly and Cobb, 1990) or that of the New Economics Foundation (2000), for example.
Figures 3 and 4 (Scenarios 2 and 9) appear on pages 173 and 245, respectively, of Limits to
Growth: The 30 Year Update.
19. Of course, there is a range of issues and concerns that one must have with all of these
assumptions but these lie outside the parameters of this paper (see, for example, Tinker et al.,
1991; Cooper, 1992; Lehman, 2001; Power, 1997; Cooper et al., 2005; Gray and Milne, 2004.)
20. It should be emphasised that the use of the word trivial does not refer to the effort that
some individuals and groups have taken to promote and develop this reporting nor does it
refer to the commitment that organisations have often had to provide to take a significant
step in undertaking an innovative approach to reporting. (See, for example, Bebbington et al.,
1994; Gray et al., 1995; Gray and Bebbington, 2001; Gray et al., 2001.) Rather, trivial here
relates to the extent to which the reporting fully, honesty and completely addresses the
societal interaction, the environmental stewardship or the social and environmental
sustainability of the reporting entity. In that case, the reporting is trivial see even ACCA
(2005) for an illustration of this. See also Shah and Marks (2004).
21. The GRI is a multi-stakeholder initiative intended to derive best practice guidelines for
organisations wishing to report on their iterations towards sustainability. See ICAEW (2004)
and www.globalreporting.org. See also Figure 5 in this paper.
22. I have been informed by close colleagues that I should make a confessional on this point. It is
true that until nearly ten years ago I clearly and firmly fell into this camp. I no longer believe
that a comfortable, reformist agenda will be sufficient or even possible. However, neither do I
believe (as a pacifist) that revolution is desirable but that does not mean that revolution
may not be essential. This would depend on two questions: How viciously will the vested
interests fight to retain their privilege? And how stupid will the demos really turn out to be?
Will it be capable of taking decisions that involve more than single, pre-packaged ideas
about celebrity face-lifts? I reluctantly wonder if we do not already know the answers to
these questions.

23. This claim derives from a number of sources. First, if the data reviewed above is correct then
current systems of economic organisation are not sustainable. This probably means that
some combination of population and that populations economic engagement are
un-sustainable. Companies, and especially MNCs, are a major component of economic
engagement and therefore, a priori, we may be justified in assuming that they are
unsustainable. Second, simple calculations of sustainable costs suggest most, if not all,
companies pay dividends out of environmental capital (Gray, 1992). Third, there is no
evidence, despite protests to the contrary, that explains how a company can be sustainable,
let alone actually achieves this.
24. Recognising that there are different profit figures and that such figures differ from other
financial performance measures (such as share price returns) does not deflect us from the fact
that success is being motivated by a combination of periodic economic numbers which
emphasise the short- (to perhaps medium-) term, albeit numbers which may allocate at the
margin to different accounting periods. Other measures, whether customer-, sales-,
reputation-driven or not all, boil down to a variant on these economic numbers. They are all
virtually identical when compared with a performance measure for, say, happiness or
contribution to social justice. By way of comparison, a really successful business might be
one which does not grow, but just breaks even and makes lots of people happy. There are
many small businesses which fall into this category.
25. It is necessary to record a profound scepticism and distaste for this notion of managers and
companies as creators of wealth. It adds such an aura of magical power (as in
Abracadabra, look I have created some wealth!) to the mantle of the directors and so helps
justify the awe in which they are held and the ludicrous remuneration packages that they
seem comfortable in negotiating and accepting. Whilst it is impossible at this stage to be
certain, and there seems a fairly plausible case that human ingenuity and effort can make a
value where previously there was none, a great deal of value created is almost certainly the
appropriation of environmental capital, the appropriation of someone elses capital, and/or
the appropriation of somebody elses effort and income. It is relatively easy to demonstrate
that a considerable proportion of current profits are the result of the appropriation of
environmental capital and therefore entirely fictitious (see, for example, Howes, 2004; Gray,
1992; and Bebbington and Gray, 2001).
26. There are still attempts, both local and global, which are intended to cajole more companies
into this approach to voluntary reporting. However, the limits of any business case in the
current climate appear to have been reached as voluntary reporting seems to have reached a
plateau (KPMG, 2002, 2005). Innovation in both annual report and stand-alone reporting
seems to be ebbing. There is also an absence of any serious likelihood of substantial
advances in compulsory reporting and other regulation-driven developments in the field (at
least in the UK) at the moment.
27. The UK organisations of the Cooperative Bank, Traidcraft and FRC have all come close,
however. Consultation of the ACCA website will introduce readers to the reports of these
organisations one of which (FRC) is a non-commercial organisation and the other two are
values-based companies.
28. It should be noted that the GRI Guidelines were undergoing revision at the time of writing
and new Guidelines may have been issued by the time this paper is published.
29. At March 2006 there were 823 companies worldwide that had signed up to the GRI
guidelines and of these 150 had produced reports in accordance with the guidelines. And
these are pretty undemanding guidelines in the face of the path from TBL to sustainability.

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Appendix. If we treated financial accounting and reporting like social accounting
and reporting . . .
Chairmans Report to the Shareholders of TrustWorthy plc
Completeness and honesty are our watchwords
It is my pleasure to announce that your Board has decided to provide a financial report to you
this year. (It has been a few years since we last did it and we doubt we will do it for a few more
years, so it seemed like a good idea.) You will, of course, expect no less from your company which
continues to show its utter commitment to total accountability and transparency.
The report, which we have named Trust Us! is predominantly a pictorial record of the
financial year. Research shows that most shareholders neither read nor understand the
unnecessarily technical and detailed reports that some commentators believe should comprise a
financial report. As your Board cares passionately about your well-being we will not burden
you (and, incidentally, squander the companys resources) with irrelevant financial data.
In this years report I would particularly commend to you the excellent photographs of a
number of our buildings and machines (which we have inserted in place of the section Fixed
assets in technical parlance. See pages 2-3.) You will see how clean they are. I also draw your
attention to the excellent diary of the Guatemalan machinists work trip to the seaside (pages
4-15) which the foreman of the group kept. We thought this diary much more indicative of the
excellent management of the company than the so much drier Employee costs and conditions by
region which one sometimes sees in these reports.
You will see from the positive letter from one of our suppliers that we have reproduced in
place of the section marked Liabilities and creditors (page 16), that the company is managing
its external risks and the firm in the professional manner that you would expect. We have not,

consequently, bothered to provide any more detail in this area of operations (although our
finance team are keen to do something in this area in the next year or two so watch this space!).
Following extensive stakeholder dialogue and a series of superb focus group discussions (see
pages 17-67 and further detail can be found on the web site) we have agreed to merge the sections
normally referred to as Turnover by products and region, Cash and liquid/near-liquid assets,
Working capital management and Funds flow. You will find all that you need to know on
pp. 68-70 where we show, diagrammatically, the cash through-flow of the company and, as a case
study on page 70, show the detailed breakdown of cash receipts from sales of our new novelty
paperclip in Vietnam.
In other companies reports you may have heard of things like Depreciation and
amortisation; Movement in shareholders funds; Movement of reserves; Intangible assets;
and Off-balance sheet finance. One of the innovations of which we are especially proud is the
way we have chosen to communicate with you the intensity and importance of these matters.
You will find on the back cover a specially-commissioned poem from the winner of our Poetry
from the smelters competition entitled Ephemera. This briefly and pithily captures the
exciting and dynamic growth potential contained in these items that your management team is
set to unleash.
Finally, I would like you to note that your Board is not in any way complacent and does not
expect you to take our word on trust (however hurtful we might find any suggestions that we are
ever less than 110 per cent truthful). We have therefore engaged the highly regarded Willsden
Railway Modellers Society to express their view on whether or not any of the figures contained
in this report (and there are a few if you look for them) are lies or not. The remuneration agreed
for this essential task is 250 and will be paid after the report has been published.
All of us in the transparency team await your comments on this exciting innovation with
great anticipation. I know you will join us in seeing this report as a seminal leap out of the box of
convention and into the furnace of innovation. Join us there.
Cedric Hubris CBE
Corresponding author
Rob Gray can be contacted at: rob.gray@st-andrews.ac.uk

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