4 Things You Need to Know About Sustainability Accounting

Sustainability accounting focuses on collating non-financial business information, such as a company’s environmental impact or social responsibility efforts with a business’ financial data. This allows companies to more accurately balance their financial, social, and environmental contributions. This branch of financial accounting emerged in the ’70s, yet only hit the mainstream in the last decade, as businesses learned that thinking beyond their financial situation was the key to long-term success. Below are four things you may not know about this developing field.

1. Sustainability Accounting Drives Corporate Strategy

4 Things You Need to Know About Sustainability Accounting

Image via Flickr by Walmart Corporate

In the not so distant past, the bottom line drove business strategy. Today, however, many companies are striving to become better corporate citizens. Some businesses care about more than dollars and cents, focusing part of their attention on their carbon footprint, social responsibilities, and other factors. Reports, generated through sustainability accounting, detail how companies perform in these areas. With this data available, companies can more accurately create strategies to meet their environmental and social goals.

2. Sustainability Reporting Is About More Than Legalities

Many people don’t realize that sustainability reporting isn’t a legal requirement in most countries. So why do it? Many companies have truly altruistic motives. These businesses want to create a better world, determined to operate in a way that doesn’t harm the environment and its people. Others realize the benefit of transparency. These businesses believe that an open company can be trusted. These entities share what they can with shareholders and the public. Some may look to earn favorable sustainability ratings to improve their public image.

By October 2014, 150 of the U.S. Fortune 200 companies had published their sustainability goals, according to Andrew Winston who authored the book, “The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World.” Winston also claims seventy-nine percent of these companies had committed to chronological deadlines for meeting them. It’s clear that most local companies see real benefits to sustainability accounting, despite the lack of legal obligation.

3. Sustainability Reporting Should Follow Established Frameworks

Sustainability accounting might be a new field, but it still follows rules from other accounting branches. Unfortunately, as with many emerging fields, some discussion remains about which rules are best.

The Global Reporting Initiative’s sustainable reporting guidelines are the most popular for sustainable reporting. The Organization for Economic Co-operation and Development and the United Nations Commission on Sustainable Development also offer sustainable reporting frameworks. The Sustainability Accounting Standards Board began in 2011 with the goal of creating one single reporting system that could be agreed upon. However, this board has not reached the mainstream acceptance the nonprofit might have hoped for.

While some disagreement exists about the best process to use, companies that don’t follow one of these established frameworks risk reducing their credibility in these reports.

4. Sustainability Accounting Influences Advanced Accounting Degrees

Sustainability accounting may be a relatively new accounting field, but experts are already realizing its importance. The topic has become a part of Master of Science in Accounting degrees offered by universities and colleges around the world, including institutions offering online courses. These courses help teach students how to critically consider non-financial reporting frameworks, find the factors affecting the non-financial information companies disclose, and show how corporations can use non-financial reports.

Sustainability accounting is a fascinating new branch of accounting that’s certain to become even more prominent with the growing concern over the environment. You might even join a company whose mission is to become more environmentally and socially responsible.