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Social and Environmental

accounting Effectiveness
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Table of Contents
Introduction......................................................................................................................................2

Significance of SEA........................................................................................................................3

Challenges and Opportunities in SEA.............................................................................................4

Arguments on SEA Credibility........................................................................................................5

Reporting Measures to Enforce SEA...............................................................................................6

Conclusion.......................................................................................................................................7

References........................................................................................................................................9
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Introduction
Rapid globalization and increasing complexity in business environment raise concerns for the
social and environmental impacts of large businesses. The use of latest technologies, waste
management procedures, decreasing carbon footprints, and corporate social responsibility
initiatives are some examples of the strategies followed to serve the social and environmental
purpose (Bebbington and Dillard, 2007). However, the Friedman doctrine refers the premium
responsibility of business is to maximize the wealth of shareholders (Owen, 2008). Therefore,
traditional accounting practices are designed to record the financial transactions and evaluate the
final profits of organization. In this situation, a major concern raised about the status of recording
the initiatives impact on businesses in terms of accounting procedures,. The quantification of
CSR projects, justification of the expenses incurred to manage environmental protection, and the
social initiatives of organization need the quantitative records to justify the incurred capital.
Nevertheless, the measurement of social and environmental initiatives is another challenge for
accounting scholars.
The development of consumers’ awareness and concerns of the stakeholders of the businesses
raise pressure on organizations to address the challenge of management of environmental and
social impacts of these businesses (Beattie, et al 2004). Therefore, a new branch of accounting
evolved that contained important areas of Social and environmental reporting. This Social and
Environmental Accounting (SEA) has the ultimate responsibility of recording and measuring the
impacts of business on planet and people, apart from the economic impacts only (Khan, et al
2016). The scandals of ethical misconduct in organizations such as Enron, Toshiba, and in
Volkswagen recently declined the public confidence on practices of these large corporations.
Therefore, there is an increase in demand for ethical conduct and sustainable business practices
in global organizations (de Villiers, & Sharma, 2017). This paper analyse the ability of
accounting to address the issues of social and environmental domains and how organizations
should restructure their accounting practices to handle these issues. The importance, challenges
and opportunities and measures used in SEA are discussed in this paper to provide evidence for
the implications of SEA in organizations.
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Significance of SEA
There is a concern of broad area of social and environmental accountability in SEA due to the
endless list of stakeholders of a business (Bebbington et al 2014). However, scholars have tried
to map the operating areas of SEA, for instance, Bebbington et al (2014: 8) used the Raworth
Map to define the safe ‘operating space for humanity’ as a reference point to determine the
boundaries of accountability. The other vital reason for the significance of SEA lies in the
management accounting roots. The management accounting provides the justification and
rationale for the management decision making. Therefore, a large domain of social and
environmental aspects is already covered in the domain of management accounting (Maas, et al
2016). Moreover, the consideration of ethical and integrity aspects of business practices,
responsibility of sustainable supply chain, and effective human resource incentive systems are
some common practices of businesses nowadays (Hartmann and Schreck 2016).
The importance of SEA increases due to the increases in demand of listed companies’ disclosure
in recent years in post financial recession period (Lungu, et al 2009). The financial recession
resulted in failure of listed companies on large sick exchanges of USA and European Union such
as the case of Lehman Brothers. Lehman Brothers failed to use ethical accounting practices and
used unethical accounting procedures to record financial transactions (Mawutor 2014). In order
to satisfy the market needs for information the required transparency and therefore the need of
social and environment reporting models. According to Plewnia, and Günther (2017), traditional
reporting models are meant for recording quantitative financial information only in back-ward
format.
Moreover, Integration of corporate social responsibility (CSR) and reporting of environmental
initiatives in the traditional accounting system has yet to get accepted from corporation but its
significance is undeniable (Velte, & Stawinoga, 2017). The corporations such as Amazon,
Google, IKEA, Virgin, Starbucks and hundreds others are regularly published their annual
sustainability reports to gain the confidence of shareholders and to record their initiatives worth
in quantifiable measures. Rise in sustainability reporting is another significant factor behind
popularity of SEA since sustainability required the actions of organizations that lead to the
betterment of future generation (Bebbington, et al 2014). Similarly the empirical and theoretical
researches in the domain of SEA are gaining popularity to explore compatible methods of
information recording and to test the implications of the standards of reporting prevailed in SEA.
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More researches are needed to target the significance and practical application of SEA in large
and medium businesses with the help of the successful practices in large organizations. Hannele,
(2008) asserted that the use of inductive research theory and scientific methods of accounting
and reporting elaborated the challenges and opportunities of SEA in real life.

Challenges and Opportunities in SEA

Despite the global realization of sustainability in accounting practices and incorporation pf new
accounting practices, the challenges of establishing SEA as a common accounting practice are
numerous. The amalgamation of broader practices of sustainability and absorption of these
practices in accounting are one of the challenges of SEA.

The opportunities of SEA lie in the demand of transparency for corporate behaviour after
financial crises due to the remuneration and accounting scandals. Moreover, then suspicion on
the actual value of the social and environmental programs and initiatives of multination sais
another concern that lead to the inclusion of SEA models in traditional accounting practices. The
role of stakeholders might not be as influential on management decision as that of shareholders,
but rising media power and increase in consumers environmental and social knowledge force
MNCs to adopt transparent business practices and sustainable production and service
mechanisms. The issues of governance can be resolved through effective implications of SEA in
the company. The impact of different local and regional regulations also plays an important role
in shaping the SEA policies of an organization. The companies’ operations on global level are
forced to lead localization policies to cater the specific needs of human resources, community
development, and consumer quality expectations from products and services. Thus, the scope of
SEA has broadened in the span of last two decades and contained social/ ethical issues, matters
of employees and communities, and a long term perspective of environmental protection policies
(Kolk, 2008).

According to Beretta, and Bozzolan, (2004), despite prevalence of literature on SEA and spread
of awareness about sustainable accounting, the understanding pf management decision makers is
in the beginning phases of the stakeholders expectations understanding and large number of
business are not actually care about the scrutiny of stakeholders that how do they measure the
performance of organizations for the community and society. However, the recording and
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measurement of qualitative aspects of SEA has become a challenge for accounting researchers.
Also, the difficulty in encouraging companies for voluntary disclosures is another important
consideration in SEA. Moreover, there is an overlap in the interests of business and that of the
society, therefore, clear cut accounting principles in a mutually exclusive manner for social,
environmental, and economic transactions are not easy to achieve. Another vital challenge is the
commitment of organization to achieve the desired level of relationship with human resources,
government and regulatory authorities, and other stakeholders in community apart from the
consumers and employees (O’Dwyer and Unerman, 2016). In reality, the functional departments
of organization handle the requirements of only three major groups of stakeholders included
shareholders, consumers, and employees (Oliver, et al 2016).
The elements explained above pose severe challenges for the application of SEA widely in
business entities. However, the companies required balance of responsibilities and growth
parameters to serve the wider environment in communities. In order to adopt the sustainability
reporting and accountability procedures, strategy drivers and new performance sources are
required, In case of failure on the prevailed standards and measures of SEA in society, the
companies cannot be able to show a compatible performance record in the areas o social and
environmental aspects. Furthermore, the turning of organizations towards SEA is not primarily
based on philanthropic reasons. The justification of large profits and increase in growth rate
backed the sustainability initiative to save on corporate taxes and to build a positive image of the
company in stakeholders. Hence, Plewnia, and Günther, (2017) emphasized that the
demonstration of corporate integrity and accountability is only possible through implementation
of SEA on broader perspectives and in holistic manner for all companies.

Arguments on SEA Credibility

There is a large range of criticism on the basis and implementation of SEA I organizations. He
scholars declared it as a means of quitting social responsibilities, an action of promotional
importance, and showcasing of modernization ion organizations (Gray, 2006). Moreover, the
attachment of actions to volunteerism and inclination to liberalism with more tendencies of
theoretical concepts is some other arguments. These arguments were properly addressed by the
recent researches, and the importance of SEA has been demonstrated over the years with the help
of disasters in business qwo0rld, such as fraudulent attempts in Enron and Lehman Brothers,
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delayed response of British Petroleum for Mexico Bay oil spill, and the failure in replenishment
of natural rain forests in Indonesia due to excessive cultivation of palm trees by Unilever. The
researches I SEA target towards the development of models and development of teaching and
thinking environments (Benbbington, 2007).

Consequently, the other major are indicated by Solomon and Lewis, (2002) about criticism on
SEA is the increase in CSR activities of large companies but the decline in disclosures of these
projects. Similarly, Moneva et al., (2006) argued that organization widely use the label of the
sustainable reports of CSR but actually lack the responsibility in handling sustainable business
practices. Despite the promotion of positive intentions towards the implementation of sustainable
business, organizations are found unable to transform the aims and objectives to legitimate
outcomes. Epstein and Birchard (2012) studied the impact of SEA reporting on the management
decision making and behaviour of stakeholders. The study concluded that there is a lack of
institutionalization of enhancement of reporting and measurement of environmental and social
impacts. Therefore, there is a need of awareness in managers to relate their routine activities with
the impacts on the social and environmental initiatives of the company. Hence, the need of
internal reporting found viable to fulfill the commitment of organization with enforcing practices
of SEA.
Furthermore, the mindset of management and nature of organization also play and important part
in enforcing SEA. Milne (2007) argued that social accountants should consider the narrow
mindset of their management and their own behviours related to social responsibility, The
commitment of social accountants and management towards social responsibility also declared
as an important aspect of application of SEA (Cooper, et al 2007: Milne, 2007). The use of
shadow and silent accounts is another big blow to the transparency of the procedures of SEA
(Gallhofer et al., 2006).

Reporting Measures to Enforce SEA

Department of Trade and industry is the responsible body in the United Kingdom which raised
the future prospects of obligatory SEA reporting ion their document of Operating and Financial
Review (OFR) (DTI, 2004). Cooper and Owen, (2007) declared that later on this review become
the statutory requirement for ever listed company in UK. The regulation of SEA provided in this
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review is related to the obligations of standard accounting procedures to provide information to

all stakeholders of the company. DTI (20054) also required from these listed companies to
illustrate their practices impacts on social and environmental aspects of communities. Similarly
the standard measurement and regulatory practices for SEA are enforced in Australia, Japan, the
United States of America, and countries of European Union in later years. The pressure of
governments in the form of social and environmental policies and the force of investors to
receive a transparent picture of the organization performance acted as drivers of SEA in
industries.
Apart from the regulatory initiatives on national levels, international initiatives on corporate
reporting of social and environmental policies and actions are also observed in last decade. The
prominent initiative of Global Reporting Initiative (GRI, 2006) is related with the publication of
global reporting guidelines and monitoring of companies on these GRI guidelines.
PricewaterhouseCoopers, ACCA and CICA are the active GRI partners and act as steering
committee for checking the enforcement procedures. Similarly, the United Nations
Environmental Programme (UNEP) also participated through publication fifty foundation
features of environmental reports and contains many similar grounds with GRI and other
reporting guidelines.
The European Union attempts to ensure the legitimate and ethical conduct of companies is also
found important. The EU Accounts Modernization Directives (AMD) contained a full set of Key
Performance Indicators (KPIs) on Environment and act as a measurement tool for organizations
(Michaels, & Grüning, 2017). In these KPIs, quantifiable measures and performance matrices
are elaborated to assist a business to integrate procedures, departments, and functions with clear
goals and targets of SEA benchmarks.

Conclusion
In conclusion , the above discussion cleanly provide evidence that social and environmental
accounting is a viable practice in listed organizations and contain the quantitative aspects of the
social and environmental reporting. The quality of reporting required by these organization top
provide confirmation fort their transparency and genuine conduct of CSR initiatives. The
significance of SEA found relevant and substantial due to its widespread application in
quantification of CSR initiatives and other social and environmental events. The areas of
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reporting found to be obligatory by the national and international regulatory bodies and the
demand of stakeholders to share information. The importance of SEA is also found evident due
to many fraudulent and unethical business practices of large corporation in recent past.
Moreover, large corporations started sharing reporting information and publishing sustainability
reports to improve their public standing. On the other hand, the demand of effective and
accurate reporting is also evident from users of these reports. These users are shareholders,
employees, customers, financial analysts, and other members of society. Thus, the development
of SEA practices and more appropriate models is found important to increase the credibility of
these reports. In addition, the consistency in standards and measurement tools is also very
important. The important tools of GRI guidelines, KPIs of EU, and other national and
international standards serve to adopt standardization in SEA.
Hence, increased credibility and use of scientific information is important in finalizing the SEA
report and sustainable performance reviews. However, the rapid changes in technology and
increased business complexities demand improvement ion the standards of accounting and
reporting with the passage of time. In addition, the variations in social and environmental
concerns in every culture and operating zone need localization of reporting proceeds and
guidelines for SEA in order to serve the local communities in better ways. The consistency in
accounting procedure and understanding of management about the commitment required for
social and environmental reporting is important to gain success. The perception of stakeholders
demands regular reviews and more public presence of the decision makers of companies. This
measure will surely provide enhancement on abilities of accounting to improve organizational
practices in SEA.
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