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Principles of Accounting, Volume 2: Managerial Accounting

13.3 Discuss Examples of Major Sustainability Initiatives

Principles of Accounting, Volume 2: Managerial Accounting13.3 Discuss Examples of Major Sustainability Initiatives

In 2017, a KPMG report noted that 93% of the world’s 250 largest companies by revenue produced corporate responsibility reports. When looking at the top 100 companies in each of 49 countries, the report found an underlying trend of 75% of companies that reported corporate responsibility and this was up from 18% only 15 years ago.70 Given these figures, sustainability reporting is clearly responding to a need by investors, lenders and other stakeholders to provide information beyond what financial reports can produce.

However, for these reports to be comparable and useful, there needs to be a standard that users can rely on. Just as financial statements are produced using GAAP or IFRS, there is a need for some type of uniformity within corporate social responsibility reporting. The non-mandatory nature of CSR reporting has made the emergence of a single set of standards a challenge.

Three of the most well-known reporting frameworks are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and Integrated Framework. Each framework relies on materiality (how significant an event or issue is to warrant its inclusion or discussion) as its basis of reporting, but each describes it slightly differently.

Global Reporting Initiative (GRI)

In 1997, a not-for-profit organization called the Global Reporting Initiative (GRI) was formed with the goal of increasing the number of companies that create sustainability reports as well as to provide those companies with guidance about how to report and establish some consistency in reporting (such as identifying common themes and components for reports). The idea is that as companies begin to create these reports, they become more aware of their impact on the sustainability of our world and are more likely to make positive changes to improve that impact. According to GRI, 92% of the Global 250 produced sustainability reports in 2016.

Although businesses have been preparing reports using GRI standards for some time, in 2016, the GRI produced its first set of global reporting standards,71 which have been designed as modular, interrelated standards. Every organization that produces a GRI sustainability report uses three universal standards: foundation, general disclosures, and management approach (Figure 13.9). The foundation standard (GRI 101) is the starting point and introduces the 10 reporting principles and explains how to prepare a report in accordance with the standards. General Disclosures (GRI 102) is for reporting contextual information about the organization and its reporting practices. Management Approach (GRI 103) is used to report how a firm manages each of its material topics. Applying the materiality principle, the organization identifies its material topics, explains why each is material, and then shows where the impacts occur. Then, it selects topic-specific standards most significant to its own stakeholders.

A pyramid chart has three levels. The bottom level is labeled GRI 200, 300, 400, with a bracket labeled Topic-Specific Standards. The middle level is labeled GRI 102, 103. The top level is labeled GRI 101. A bracket from the middle level to the top level is labeled Universal Standards.
Figure 13.9 Global Reporting Initiative (GRI). Every entity reporting under GRI must use three universal standards, covering foundations, general disclosures, and the firm’s management approach. Then topic-specific standards are chosen. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Though the GRI has provided a framework, a firm’s decision about what to report rests on its definition of materiality. GRI defines materiality in the context of a sustainability report as follows: “The report should cover Aspects that: Reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders.”72 In its 2016 report, Coca-Cola listed these areas as its primary sustainability goals:

  • Agriculture
  • Human and Workplace Rights
  • Climate Protection
  • Giving Back
  • Water Stewardship
  • Packaging and Recycling
  • Women’s Economic Development73

Dow Chemical issues a different type of report and lists these categories:

  • Who We Are—Strategy and Profile
  • Why We Do It—Global Challenges
  • What We Do—Our Products and Solutions
  • How We Do It—Our People and Operations
  • Awards and Recognitions74

Sustainability reporting is not confined to manufacturing or merchandising. Service organizations report as well. For example, Bank of America states in its 2016 sustainability report: “At Bank of America, we are guided by a common purpose to help make financial lives better through the power of every connection. We deliver on this through a focus on responsible growth and environmental, social and governance leadership. Through these efforts, we are driving growth—investing in the success of our employees, helping to create jobs, develop communities, foster economic mobility and address society’s biggest challenges—while managing risk and providing a return to our clients and our business.”75 For more information about the GRI can be found on the web.

Concepts In Practice

Sustainability in Mobile Telecommunications

With more than 460,000 employees, China Mobile Limited is the largest mobile telecommunications company in the world. The company published their first GRI report in 2006, and, since then, the company has been able to review and disclose key sustainability performance indicators. Wen Xuelian, responsible for CSR reporting and management told GRI that sustainability reporting has helped the company to keep track of material sustainability issues and to improve overall performance each year. Xuelian notes that “at China Mobile we have built our CSR management systems by combining elements of the GRI framework with the operational infrastructure that we already had in place.”76

Another challenge, Xuelian explains, was quantifying costs and benefits of the company’s sustainability efforts. “Over the years of reporting, we have gradually built up relevant systems and incorporated social and environmental impact assessments into the early stage of business development and introduced external assessment methods for better evaluation.”77

The company addressed material issues such as network connectivity, information security, using information to benefit society, energy conservation, GHG emissions, reduction of poverty, employee development and anti-corruption efforts and sustainability reporting helped them to be more transparent in their operations. In the 10 years since implementation, they have reduced their electricity consumption per unit of business volume by 94%, built over 13,000 new energy base stations, reduced timber usage in packaging by over 600,000 cubic meters and introduced smart digital solutions for community emissions reductions.78

Sustainability Accounting Standards Board (SASB)

GRI standards were targeted at a variety of stakeholders, from the community at large to investors and lenders. This meant that the scope of disclosure encouraged by the GRI standards was perhaps too broad for companies that were primarily focused on reporting to investors in routine terms. Investors have their own unique needs related to sustainability information. Their concerns are related to the price and value of the organization, whereas other stakeholders are interested in how the company might affect them specifically. This effect may not even be financial; it could be whether the company pollutes in its local community, or it could be how a firm treats its workers.

For this reason, the Sustainability Accounting Standards Board (SASB) was established in 2011. SASB’s mission is to help businesses around the world identify, manage and report on the sustainability topics that matter most to their investors. The SASB develops standards for disclosure of material sustainability information to investors, which can meet the disclosure requirements for known trends and uncertainties in the Management Discussion and Analysis section filed with the Securities Exchange Commission. SASB’s version of materiality differs somewhat from the GRI’s version.

Whereas the GRI viewed materiality as the inclusion of information that reflects an organization’s significant economic, environmental, and social impacts or its substantial influence on the assessments and decisions of stakeholders, SASB adopted the US Supreme Court’s view that information is material if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available”.79 It is up to the firms to determine whether something is material and needs reporting, and this determination would begin with the initial questions “Is the topic important to the total mix of information?” and “Would it be of interest to the reasonable investor.80

The SASB standards, available for 79 industries across 10 sectors, help firms disclose material sustainability factors that are likely to affect financial performance. For example, a company that has operations in a developing nation may need to disclose its employment practices in that country to inform users of the risks to which the company is exposed because of its operations. SASB Standards and Framework to see the current SASB conceptual framework.

Integrated Reporting

Even though companies were reporting through a range of mechanisms—sustainability reports, triple bottom line, and CSR reports—these methods of reporting were seen as fragmented and not integrating the financial and non-financial information into one report (Figure 13.10).81 Also, the methods “failed to make the connection between the organization’s strategy, its financial performance and its performance on environmental, social and governance issues.”82

In response to these criticisms, the International Integrated Reporting Council (IIRC) was formed in 2010, touting Integrated Reporting as a solution to the shortfalls of financial reporting. Its intent is to act as a catalyst for behavioral change and long-term thinking,83 bringing together financial, social, environmental and governance information in a clear, concise, consistent and comparable format.84

The goals of Integrated Reporting are to:

  • improve the quality of information provided to investors and lenders
  • communicate the full range of factors that materially affect the ability of an organization to create value over time by using a more cohesive and efficient approach to corporate reporting which draws on different reporting strands.
  • enhance accountability and stewardship for the broad base of six capitals (financial, manufactured, intellectual, human, social and relationship, natural) and promote understanding of their interdependencies.
  • support integrated thinking, decision-making and actions so as to create value85.

As outlined, the Integrated Reporting framework identifies six broad categories of capital used by organizations which are: financial, manufactured, intellectual, human, social and relationship, and natural.

Whether information should be prepared and presented, that is, whether it is material in its inclusion is determined by:

  • Identifying relevant matters based on their ability to affect value creation—that is how it increases, decreases or transforms the capitals caused by the organization’s activities. This may be value created for the organization itself or for stakeholders, including society itself.
  • Evaluating the importance of relevant matters in terms of their known or potential effect on value creation. This includes evaluating the magnitude of an occurrence’s effect and its likelihood of occurrence.
  • Prioritizing those matters based on their relative importance so as to focus on the most important matters when determining how they should be reported.
  • Determining what information to disclose about material matters. This may require some judgment and discussion with stakeholders to ensure that the report meets its primary purpose.86

Integrated Reporting has been adopted by a number of companies throughout the world and is mandatory for listed companies in South Africa and Brazil. So far, it has been slow to take hold in the U.S., however, a number of companies have implemented Integrated Reporting, including Clorox, Entergy, General Electric, Jones Lang LaSalle, PepsiCo, Prudential Financial, and Southwest Airlines.

Bar graph shows percentage of usefulness for information sources. Annual report: 31 percent essential, 32 percent very useful, 30 percent somewhat useful, 7 percent not very useful. Integrated report: 18 percent essential, 39 percent very useful, 34 percent somewhat useful, 9 percent not very useful. CSR report 10 percent essential, 34 percent very useful, 42 percent somewhat useful, 14 percent not very useful.
Figure 13.10 Most Useful Non-Financial Information Sources for Investment Decisions. Although Integrated Reporting does not have mandatory status in many countries, an Ernst & Young survey of Global Investors found that integrated reports ranked second after annual reports in importance for decision-making. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

You can find out more information about the IR framework by visiting the Integrated Reporting website.


  • 70KPMG. The Road Ahead: The KPMG Survey of Corporate Responsibility Reporting 2017. 2017.
  • 71Global Reporting Initiative (GRI). “GRI Standards.” n.d.
  • 72Global Reporting Initiative (GRI). “G4 Sustainability Reporting Guidelines. Reporting Principles and Standard Disclosures. 2013.
  • 73Coca-Cola Company. “2016 Sustainability Report: Women’s Economic Empowerment.” August 17, 2017.
  • 74Dow Chemical Company. Redefining the Role of Business in Society: 2016 Sustainability Report. 2017.
  • 75Bank of America. “Responsible Growth.” n.d.
  • 76Xuelian, Wen. “China Mobile: Helping Build a Robust Sustainability Reporting Community in China.” GRI. Nov. 7, 2017.
  • 77Xuelian, Wen. “China Mobile: Helping Build a Robust Sustainability Reporting Community in China.” GRI. Nov. 7, 2017.
  • 78Xuelian, Wen. “China Mobile: Helping Build a Robust Sustainability Reporting Community in China.” GRI. Nov. 7, 2017.
  • 79TSC Indus. v. Northway, Inc. (426 U.S. 438, 449 (1976)).
  • 80The explanation of SASB’s interpretation of “total mix” can be viewed on their website. Sustainability Accounting Standards Board (SASB). SASB’s Approach to Materiality for the Purpose of Standards Development (Staff Bulletin No. SB002-07062017). July 6, 2017.—Ed.
  • 81Wendy Stubbs, Colin Higgins, and Markus Milne. “Why Do Companies Not Produce Sustainability Reports?” November 12, 2012. Business Strategy and the Environment 22(7): 456–470.
  • 82Harold P. Roth. “Is Integrated Reporting in the Future?” April 22, 2014. CPA Journal 84(3): 62-67. GGm1vpw
  • 83Stathis Gould. “Integrated Reporting <IR> Longs for Finance Professionals.” International Federation of Accountants (IFAC). February 2, 2017.
  • 84International Federation of Accountants. “A4S and GRI Announce Formation of the IIRC.” August 2, 2010.
  • 85International Integrated Reporting Council (IIRC). The International Integrated Reporting Framework. 2013.
  • 86International Integrated Reporting Council (IIRC). The International Integrated Reporting Framework. 2013.
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