Social and Environmental Reporting

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Social and environmental reporting (SER) opens discussion on an interesting subject. SER has been discussed a lot lately insofar as what really motivates companies and corporations to adopt it. Is it ethically driven or does interest have the upper hand on the rationale. Evidence seems to converge towards the fact that, in the end, environmental issues are linked to economic resource allocation decisions. This makes of SER a pertinent subject to the one who is involved in financial accounting, as it is mainly driven by economic considerations.

The Supremacy of Economic Rationale in SER Practice

SER has indeed been drawing the attention of researchers, especially that in the last twenty years companies have been adopting it as an organizational practice (Spencer, 2007, 856). The intensification of the practice has generated an intensification of scholarly research. Using different conceptual parameters, many researchers have tried to understand what pushes companies to adopt SER.

Various approaches have been employed to examine how companies operate under SER. One approach borrows from discourse analysis theory, notably analyzing the discourse adopted by corporate corporate actors who adhere to it voluntarily. In such an approach, the motivations behind SER are being analyzed by scrutinizing the discourse that companies enunciate, with regards to the subject.

Discourse analysis approach starts from the premise that our language does not simply reflect reality. Accordingly, a hegemonic discourse seeks to bring about consent -not necessarily coercively- amongst the masses (Spencer, 2007, 857). Accordingly, a delineation of this attitude in the world of corporation would be using SER in order to take on a leadership role within society.

Underlying this leadership role, interest is still a primary concern. The scrutiny of the language of number of interviewed people who work in companies show that even when they say that adopting SER is ‘the right thing to do’, SER considerations, in the light of Corporate environmental strategy (CSR), these were always seconded to commercial interests (Spencer, 2007, 865).

Some scholarly works would overtly prescribe using SER as an organizational approach to maximize profit. SER can be used for purposes other than altruistic. In view of the fact that CSR has de facto become a policy that companies have to adopt, either to appease criticism or to avoid governmental coercion (just as in the case where governments issue fines for environment pollution), SER has become analyzed as a strategic practice.

A strategic adherence to SER means that the company incorporates it into its strategy with view of maximizing profit out of it (Husted and Salazar, 2006). This approach keeps in sight the fact the primary concern of a company s to make profit. It also finds a way out from the coercion that being exercised by society and sometimes government to invest in altruistic and social activities. This strategic practice of SER is an economic strategy from the position of coerced egoist (Husted and Salazar, 2006), i.e. when firms play altruism but in fact they are forced into whatever social activity they are involved in.

A strategic SER practice would, for example, encourage the distribution of scholarships to students of the community. The benefit of such undertaking would be gaining reputation. This benefit, one can say, fulfills a legitimacy need according to legitimacy theory. Indeed, the gain for the company would be that it satisfies the expectations of society towards it (Campbell, 2002). Legitimacy theory is meaningful, nevertheless, only when considered in a longitudinal analysis framework. Studies have shown that the concern for legitimacy varies according to the managers who are in office. Therefore, quest for legitimacy is also a managerial construct and is not only about some legitimacy per se (Campbell, 2002).

Another medium term benefit that illustrates company environmental strategy as profit-laden, would be, for example, giving away scholarships in technical fields. Such strategy would help train qualified and skillful labor force that could eventually benefit the company (Husted and Salazar, 2006, p.82-83).

Indeed, normative theory or ascribing ethical and moral considerations to managerial decisions is cast away when we consider the strategic use of SER. The various afore-presented analyses of SER show a strong presence of economic rationale behind the environmental reporting practice.

Financial Accounting and the Environmental Challenge

The irrelevance of normative analysis of SER has probably been at the heart of the intensified discussion about positive accounting theory (PAT). A strategic use of SER vindicates the relevance of PAT, which has been introduced in the 1970’s by Watts and Zimmerman (Milne, 2002). Even legitimacy theory can be subdued to positivist considerations. When companies practice is grounded in tangible stakes (be they abstract like gaining legitimacy or concrete getting material profit), rather than abiding by some prescribed ethical considerations, the perception of benefits differ depending on who makes the decision.

A same company, Marks and Spencer, have shown a variant adherence to SER which shows that in the end, it is all about managerial decisions. There is not a legitimacy requirement that exists out there. It is the managers who perceive it and accordingly respond to it variably, depending on their strategy. Reality is a managerial construct (Sinha, 2008). However, as much as PAT is useful, the controversial nature of SER still makes PAT a non exhaustive approach to studying companies’ practice of environmental reporting.

Indeed, the original design of PAT theory by Watts and Zimmerman proposes three paradigms of analysis: “that firms with bonus plans are more likely to choose accounting procedures that shift reported earnings from future periods to the current period; the larger a firm’s debt/equity ratio, the more likely the firm’s manager is to select accounting procedures that shift reported earnings from future periods to the current period; the larger the firm, the more likely the manager is to choose accounting procedures that defer reported earnings from current to future periods” (Milne 2002, 372-373). Not all three variables have been applied in subsequent applications of PAT theory. This is may seem problematic for some researchers (Milne, 2002) but PAT has offered a good departure from normative examination of environmental reporting.

Companies’ environmental practice has gained momentum. However, as much as there is pressure to live up to environmental accountability, vis-à-vis society and government as well, companies do not always disclose their strategies. This element of discretion is probably the greatest challenge for financial accounting; it is difficult with the many companies withholding information makes it difficult to grasp fully the financial implications of some companies’ environmental strategies. Indeed, the communication of accounting issues between those who prepare reports and stakeholders who lobby for their issuance is yet at an early stage (Burritt, 2000). Roughly speaking, the management is still discrete about which environmental issues to recognize, measure, and disclose (Burritt, 2000).

Another related issue, of technical order, is that accounting agencies face a standardization problem. The more standards are required, the higher are the cost born by companies (Burritt, 2000). This fact reinforces the discrete attitude of companies. This poses a challenge of devising a financial accounting system that would encourage the transparency of companies without making them bear exorbitant costs.

A more appropriate standardization would also help the publication of understandable reports. Indeed, in such matters as emission allowances, there is an inconsistency in reporting. This would help conduct comparisons between companies in a coherent and clear manner. A better reporting would, in turn, satisfy the exigencies of stakeholders, notably NGOs and local communities (Burritt, 2000). This could only be positive as the information would be more transparent. The need to reduce the number of standards seems important when one consider the fact that, although they have been growing with time, their growth has not really meant that stakeholders have been growing more informed (Burritt, 2000). The complexity of reporting requirement has been acknowledged by various experts to induce error (Burritt, 2000).


All in all, many conceptual frameworks have been employed to frame the SER practice. The most discussed approach is probably positive accounting theory, as it has provided a departure from normative analysis of voluntary environmental reporting. The theory is not exhaustive but is quite useful. One can borrow some of its variables, notably in the conduction of longitudinal analysis. Financial accounting has also problems of nature other than theoretical. Companies are reluctant to disclose their strategies. This tendency is further reinforced by the lack of a parsimonious and effective standardization system, which in turn may yield streamline reports.


Burritt, Schaltegger (2000). Contemporary Environmental Accounting: Issues, Concepts and Practice, Greenleaf Publishing, UK.

Campbell, David J. (2002). Legitimacy Theory or Managerial Reality Construction? Corporate Social Disclosure in Marks and Spencer Plc Corporate Reports, 1969–1997, Department of Strategic Management, University of Northumbria at Newcastle.

Husted, Bryan and Salazar, José de Jesus (2006). Taking Friedman Seriously: Maximizing Profits and Social Performance, Journal of Management Studies.

Markus J. Milne (2002). Positive Accounting Theory, Political Costs And Social Disclosure Analyses: A Critical Look, Critical Perspectives on Accounting, N 13.

Sinha, Suyash Kamal (2008). Positive Accounting Theory: A Critique, ICFAI Journal of Accounting Research, Vol. 7 Issue 4, p7-16, 10p.

Spence, Crawford (2007). Social and Environmental Reporting And Hegemonic Discourse, School of Management, University of St Andrews, St Andrews, UK.

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