0115 966 7955 Today's Opening Times 10:30 - 17:00 (BST)

Effects of Marginalizing Social and Environmental Reporting

Disclaimer: This dissertation has been submitted by a student. This is not an example of the work written by our professional dissertation writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.


The aim of this research work is to observe and analyze the implications of marginalizing Social and Environmental reporting and explain how such reporting can be strengthened.


Problem statement

Conventional accounting reports place more emphasis on the financial performance of reporting entities compared to their social and environmental performance. Guidance on social and environmental reporting is currently provided by organizations outside the accounting profession, such as AccountAbility (AA) and the Global Reporting Initiative (GRI). We are going to discuss the implications of marginalizing social and environmental reporting. We will also shed light on how such reporting can be strengthened.


To shed light on the above we will try to find out the following in our project:

  • Identify what has impelled the need for social and environmental reporting.
  • Identify how and why Social and Environmental reporting is being incorporated by entities into their reporting.
  • Identify the alternative approaches to Social and Environmental reporting.
  • Illustrate the relevance of the guidelines presented by organizations such as AccountAbility and Global Reporting Initiatives on Social and Environmental Reporting.
  • Discuss the nature of voluntary disclosure.
  • State the implications of marginalizing Social and Environmental reporting.
  • Outline how such reporting could be strengthened and be effectively incorporated by reporting entities.


The following methods were used to gather information to compile this project:

Literature review was done. Previous working papers and journal articles of different accounting professionals and authors were analyzed in order to attain information that was both relevant and reliable in regards to social and environmental reporting.

We also interviewed Mr Napolioni Batimala (Audit Manager – PWC) to derive the current information available regarding the issues concerning social and environmental reporting and its current stand.

Case studies on three Fiji companies were conducted, in order to determine the situation in Fiji regarding Social and Environmental reporting. A qualitative data analysis of the results was carried out. These were selected based on their extensive environmental (FSC) and social (BAT) impacts. FMF was also considered, as it is the largest, manufacturing company in the country.

  • British American Tobacco Fiji Ltd
  • Fiji Sugar Corporation
  • Flour mills of Fiji

Library research was also conducted. Extensive archival research and literary research from respective journals was carried out in order to find extensive views and analysis and to get insight on past research and current thoughts on this topic. Annual reports were analyzed such as:

  • British American Tobacco (2005 – 2007)
  • FSC (2005 – 2008)
  • Flour Mills of Fiji (2005-2008)

Internet research was conducted as well. Proquest references were sourced to get hold of electronic journals for the issues of journals that USP library does not hold. The access of Internet references provided more up-to-date statistics and secular information that were available in library references. The South Pacific Stock Exchange (SPSE) website was also extensively visited. Corporate websites for these companies were also visited.

This project was compiled from discussion generated in our group during meeting in which information obtained by the methods mentioned above were extensively analyzed.


The research topic we undertook reflected the social and economic reality of many countries. It no doubt is an indication of the future of many companies in Fiji itself. This project would not have been possible without the contribution of the following authorities and individuals for providing us with latest information and their views on social and environmental reporting.

We are very appreciative to:

  • Mr. Tevita Veituna - Our Tutor
  • Mr. Nacanieli Rika - The Course Co-coordinator
  • Mr. Napolioni Batimala – Audit Manager (PWC)
  • The organizations and individuals who have contributed information

We would like to take this opportunity to thank anyone else who contributed towards the project in any way possible.


We, Rieaz, Moreen, Priya and Zafeen hereby declare that the information presented in this project is our original work and correct to date. All the working papers especially used in the literature review or in guidance of this project are clearly referenced in the bibliography with in text referencing given after the various quotations used.


With the emergence of many social and environmental problems globally including gender discrimination in the workforce, and excessive use of child labor, “the thinning of the ozone layer and global warming, deforestation, species extinction, waste disposal, energy usage land, air, and water pollution, usage of toxic chemicals, and resource scarcity together with the occurrence of significant environmental disasters such as the Exxon Valdez oil spill and the Bhopal gas leak� (Lodhia, S., 2004: p.111) and the growing power of the media to air these issues worldwide together with the apparent popularity of vocal special interest groups such as Greenpeace and Amnesty International, has resulted in “increased community attention towards the identification of approaches to deal more effectively with these concerns�(Wilmshurst & Frost, 2000). This is what the Association of Chartered Certified Accountants (2001) has to say,

A combination of growing awareness of environmental issues by the general population and increased non-governmental organization (NGO) pressure and activity has led many corporations to reflect on and revise their corporate environmental responsibilities.

This heightened anxiety amongst the members of society over the adverse effects of business operations on the physical and social environment has culminated into what is referred to as social and environmental reporting, or synonymously, corporate social responsibility reporting (CSR). Social and environmental reporting as acknowledged by Deegan (2006) is “reporting that typically involves the provision, to a range of stakeholders, of information about the performance of an entity with regard to its interaction with its physical and social environment, inclusive of information about an entity’s support of employees, local and overseas communities, safety record and use of natural resources.�

This seminar paper endeavors to report on the main issues concerning social and environmental reporting. Thus, it will seek to address the following issues in relation to social and environmental reporting: how specific accounting theories help us to understand it, its perceived benefits to the reporting entities and society and some alternative approaches to social and environmental reporting such as AccountAbility and Global Reporting Initiative. It is important to note that in Fiji, social and environmental reporting is voluntary in nature.

Furthermore, the implications of marginalizing social and environmental reporting is also discussed together with suggestions on how this type of reporting can be strengthened.


Conventionally, the accounting function of business organizations have been based on the accounting entity, measurement of economic events in financial terms and users of reports who are only concerned with the financial implications of entity on business position and performance.

However, there has been emerging a new focus in business reporting in this era where there are now various stakeholders who are demanding information on social and environmental performance of entities to be disclosed as well as financial performance. These demands have increased pressures on entities to use social and environmental issues in the decision-making process. This is particularly vital for the South Pacific Island communities, which have been plagued by a range of environmental problems culminating in sea-level rise and unexpected climatic change in the Islands.

These issues are also critical in Fiji and in recent years growing public awareness has resulted in closer scrutiny of the activities of the major industries that may be contributing to environmental degradation. The oil spillages in Suva’s major industrial area, Walu Bay (Fiji Times, 19 April 1998; Fiji Sun, 2 Feb 2000) and many activities as such have provoked the need for appropriate environmental and social legislation in Fiji.

Many companies throughout the world publish reports that discuss their economic, environmental and social performance. This evidently shows that companies today are now embracing sustainability as a corporate goal, rather than simply aiming for profitability. These practices represent moves towards sustainable development by these organizations, which require these entities to unequivocally consider various aspects of their economic, social and environmental performance. ( Deegan 2006 p.327) Such disclosure includes that in-printed form such as- Examples standalone environmental reports, triple bottom line reports, sustainability and annual reports. In addition information that is disseminated on the Internet via corporate websites.

(Hooks & van Staden 2007 p.197)

These social reporting practices are often referred to as corporate social responsibility reporting, or sustainability reporting. The latter covers aspects of both financial sustainability and performance, and social and environmental sustainability.(Deegan 2006 p.329) The moral arguments for greater corporate social responsibility arise from the increases in size, power and spread of multinational companies, as well as an increased awareness of the impact of companies on the environment and local communities.(Adams 2004 pg.731) This increase in awareness has been brought about by the media, the Internet, and the action of non-governmental organizations.

These social reporting practices are often referred to as corporate social responsibility reporting, or sustainability reporting. The latter covers aspects of both financial sustainability and performance, and social and environmental sustainability.(Deegan 2006 p.329) The moral arguments for greater corporate social responsibility arise from the increases in size, power and spread of multinational companies, as well as an increased awareness of the impact of companies on the environment and local communities.(Adams 2004 pg.731) This increase in awareness has been brought about by the media, the Internet, and the action of non-governmental organizations.

Social and environmental reporting developed as stakeholders began to demand information on other aspects of an organization’s operations, apart from their financial performance. Stakeholders’ expectations and needs have extended to the entities’ social and environmental performance. These were in the form of widespread interest of stakeholders in terms of demand for social reports of entities, pressure from environmental lobby groups to increase environmental disclosures, and also the increased competitiveness of the business environment where stakeholders today demand more accountability and transparency from organizations, concerning the utilization of their resources.

Our project will basically emphasize on social and environmental reporting by business firms. We will also shed light on the organizations outside the accounting profession namely, AccountAbility (AA) and the Global Reporting Initiative (GRI) who are providing guidance on social and environmental reporting. It also incorporates the implications of marginalizing social and environmental reporting and how such reporting can be strengthened and effectively be incorporated by reporting entities.

The various theories relating to voluntary disclosure are looked at, such as the legitimacy theory, stakeholder theory and institutional theory etc. How the information is reported and what implications it might have on the users of social and environmental information, in helping make decisions is also discussed. An analysis on some Fiji companies has also been undertaken to determine the extent of environmental and social reporting. However, social and environmental reporting in Fiji, is voluntary in nature to this day.


The different theoretical perspectives need not be seen as competitors for explanation but as sources of interpretation of different factors at different levels of resolution. In this sense, legitimacy theory and stakeholder theory enrich, rather than compete for, our understandings of corporate social disclosure practices. (Gray, Kouhy and Lavers 1995 )

Specific accounting theories help us to understand social and environmental reporting, by seeking to explain why many organizations publicly release information about their social and environmental performance, even with the general lack of regulation in this area. That is, it helps us understand what motivates entities to release this information voluntarily.


According to Lindblom, legitimacy is “...a condition or status which exists when an entity's value system is congruent with the value system of the larger social system of which the entity is a part. When a disparity, actual or potential, exists between the two value systems, there is a threat to the entity's legitimacy.�[1]

This theory asserts that organizations continually seek to ensure that they are perceived as operating within the bounds and norms of their respective societies (which change over time), that is, they attempt to ensure that their activities are perceived by outside parties as being legitimate. Information disclosure is therefore vital to establishing corporate legitimacy.(Deegan 2006 pg.275)

Under Legitimacy Theory, an entity would undertake certain social activities (and provide an account of this), if management recognizes that the particular activities were expected by the society in which it operates. It is part of their social contract, or as is often stated by companies, part of their license to operate. If an entity fails to undertake these activities that are expected by the community, it would be identified as breaching its social contract. This will result in the entity no longer being considered legitimate.

Therefore this will have an effect on the support the entity receives from the society, and consequently its survival. Hence, success for an entity under this theory is impendent on it fulfilling its social contract. Lindblom, 1994 and Patten, 2000 state that “according to legitimacy theory, social disclosure is a means to deal with the firm’s exposure to political and social pressures� (as cited in Freedman & Jaggi 2005).

Those companies without much regard to environmental and social performance might find it faced with sanctions or explicit regulations imposed on them. In addition, they may also find it very difficult to obtain resources and finance or find the support of the community in which it works in the form of employee dissatisfaction.

Legitimacy theory assumes that society will allow an organization to continue operations up until the firm meets the society’s expectation. And the firm generally meets expectations to avoid further government regulations on operations or bad effects on reputation. But if there are some expectations that the management feels are unreasonable, they may try to change stakeholder expectations or try to justify their actions.

Legitimacy theory has been examined in numerous empirical studies with the results being fairly consistent in confirming the theory. For example the Deegan and Gordon (1996) study indicated among other findings, that there was a positive correlation between the environmental sensitivity of the industry to which the corporation belonged and the level of corporate environment disclosure. In addition, another study by Deegan, Rankin and Vought (2000) found that companies did appear to change their disclosure policies around the time of major company and industry related incidents. That is, social disclosure policies in the annual reports of companies tended to change when major social incidents or disasters occurred in the industry.

However, legitimacy is not only achieved by the actual conduct of the organization. Legitimacy is gained as long as the society perceives that the firm is acting responsibly. But sometimes, the society’s perceptions are quite misplaced as information disclosures, which are vital to establishing legitimacy do not give an accurate account of the firm’s activities. “An organization may diverge dramatically from societal norms yet retain legitimacy because the divergence goes unnoticed.�(Suchman, 1995, p. 574) So if society does not know that a firm is not acting ethically, then legitimacy cannot be threatened.

Lindblom describes 4 strategies of legitimization that an organization can adopt. The firm may seek to:

  • educate and inform its ‘relevant publics’ about actual changes in the organisation’s performance and activities.
  • change the perceptions of the relevant public without having to change the organisation’s actual behaviour
  • manipulate perception by deflecting attention from the issue of concern to other related issues through an appeal to, for example, emotive symbols
  • change external expectations of its performance

Hence, we can conclude from the perspective of this theory that, social and environmental reporting may be just a tool that entities use to legitimize or justify their operations. Particularly in the case of entities in industries which have extensive environmental and social impacts. For example, petroleum, oil or gas companies, tobacco producers, pharmaceutical companies, and manufacturing companies.


Stakeholder theory is concerned with how management addresses the various issues associated with relationships with stakeholders. In other words, it is how an organization manages its stakeholders. According to Freeman (1984), traditionally, the firms used the inputs of investors, suppliers and employees to convert inputs into usable outputs which customers use and return to the firm some capital benefit. By this, firms only address the needs and desires of those four parties which are investors, suppliers, employees and customers.

Stakeholder theory acknowledges that there are other parties involved, including governmental bodies, political groups, trade associations, trade unions, communities, and associated corporations. This view of the firm is applied to identify the specific stakeholders of a corporation, that is, the normative theory of stakeholder identifies as well as examines the conditions under which these parties should be treated as stakeholders, the descriptive theory of stakeholder. The two make up the modern treatment of Stakeholder Theory. It attempts to describe, prescribe, and derive alternatives for corporate governance that include and balance a multitude of interests.

In the ruling paradigm of corporate governance, those who invest their capital into any type of business, and those who risk losing their investment in parts or in total, have a right and a responsibility to govern the business they have invested into. Capital investors or principals either govern the business themselves, or they do so with support of agents or managers who they may appoint.

One way to sum up the use of the stakeholder concept in the management literature and stakeholder theories is by reference to the framework suggested by Donaldson and Preston (22). It can be used in a number of ways, they identify a descriptive, and an instrumental and a normative aspect of stakeholder theory that can help understand and classify the different facets of stakeholder theory. They argue that:

  1. Stakeholder theory is descriptive as “it describes the corporation as a constellation of cooperative and competitive interests possessing intrinsic value� (p.66). This is also known as the positive approach.
  2. Stakeholder theory is instrumental since “it establishes a framework for examining the connections, if any, between the practice of stakeholder management and the achievement of a variety of corporate performance goals�
  3. Lastly, “the fundamental basis� of stakeholder theory is normative and involves acceptance of the following ideas: “stakeholders are persons or groups with legitimate interests in procedural and /or substantive aspects of corporate activity� and “the interests of all stakeholders are of intrinsic value�

The difference between the three uses of stakeholder theory is explained by the fact that they imply different types of claims and include different forms of reasoning for their justification. Positive (or descriptive) uses of stakeholder theory make claims to truth and are justified through constative discourses, strategic (or instrumental) uses make claims of effectiveness and employ pragmatic discourses, and normative uses of stakeholder theory can entail different types of claims (rightness, goodness) and be justified through different types of discourses (moral, ethical). However, this research report is limited to explain that the stakeholder theory comprises of an ethical/moral or normative branch also known as the prescriptive branch and a positive or managerial branch. The ethical or normative branch of the stakeholder theory basically deals with fairness, that is, to treat all stakeholders the same. While the positive or managerial approach focus more on the ability of the stakeholders to influence or be influenced by a company. It is primarily a theory of the private-sector firm although the insights can be applied in parts to public sector settings. This is due to the circumstance that public management responsibilities are similar to private sector management tasks not only formally but also concerning the rising network nature of organizations in both spheres.

It gives a more refined solution by referring to particular groups within society, that is, stakeholder groups while the Legitimacy theory discusses the expectations of society in general. Stakeholder theory recognises that as different stakeholder groups will have different opinions about how an organization should carry out its operations, there will be a variety of social contracts ‘negotiated’ with different stakeholder groups, instead of one contract with society in general.

Stakeholder Theory (Normative/Ethical Perspective):

The ethical or normative branch of Stakeholder theory argues that all stakeholders have the right to be treated fairly by an organization, regardless of the resources that they individually control or how economically powerful they are. Therefore organizations should consider the rights of all parties affected by the operation of the entity. The definition of stakeholders in this case would include “any group or individual who can affect or is affected by the achievement of the firm’s objectives� (Freeman 1984).

Stakeholder Theory (Positive/Managerial Perspective):

The managerial or positive branch of stakeholder theory predicts that management is more likely to focus on meeting the expectations of powerful stakeholders. These are those that have the greatest potential to influence the firm’s ability to generate profits, that is have the most economic power and influence over the firm. Under this perspective, management would be expected to undertake those economic, social and environmental activities expected by the powerful stakeholders, and also provide an account of these activities to these stakeholders. (Deegan 2006 p.298)

Defining Stakeholders

A stakeholder in an organization is by definition any identifiable group or individual who can affect or is affected by the achievement of the organization's objective (Freeman, 1984: 25).

As a broad definition this includes many individuals or organizations for instance, governments, shareholders, creditors, employees and their families, local charities, local communities, media and so forth. It also allows the inclusion of groups such as terrorists and competitors (Phillips, 1997). For clarity this dilemma can partly be resolved by narrowing the definition in a meaningful way, that is, to divide the stakeholders into primary and secondary stakeholders. By following Clarkson's argument (Clarkson, 1994), Mitchell et al. claimed that the use of risk as a second defining property for the stake in an organization helps to "narrow down the stakeholder field to those with legitimate claims, despite the legitimacy of their relationship to the firm or their power to influence the firm". (Mitchell et al., 1997, 857).

Therefore, a primary stakeholder was identified as ‘one whose continuing participation to the corporation is vital as a going concern’. While secondary stakeholders were identified to be ‘those who affect or influence, or are affected or influenced by the corporation but they are not engaged in transactions with the corporation and are not crucial for its survival’. According to Clarkson, primary stakeholders must primarily be considered by management, as they are essential for the survival of a company. Also, in order for the company to succeed in the long run, it must primarily be administered for the benefit of all stakeholders. This definition may be related to the managerial branch of the stakeholder theory that will be discussed later. However, with the focus on primary stakeholders; it is challenged by the ethical branch of the stakeholder theory that all stakeholders have a right to be considered by management.

Critiques of Stakeholder Theory

There have been a variety of critiques of stakeholder theory from many viewpoints. Weiss (1995) discards the descriptive and instrumental usage of stakeholder theory and comes to a conclusion that the normative use “probably might be too limited and has a too weak foundation to be considered as either useful or valid.� Further critiques suggest that business interests are vital in both the identification of stakeholders and prioritizing their demands (Thomas, 1999; Banerjee, 2000). The stakeholders’ needs and demands may be limited particularly where stakeholders groups have very different social, cultural and political agenda. A great deal of critique has been towards the level of engagement with stakeholders that is, little consultation instead of genuine dialogue and the exchange of ideas. That is, the stakeholder’s needs are not taken seriously.


Institutional Theory is a relatively new perspective that assumes that managers of an organization will develop or adopt new practices (such as social and environmental reporting) as a result of a variety of institutional pressures. For example, managers may be concerned that if they do not keep up with other entities in developing new practices, they will risk disapproval from some of their economically powerful stakeholders.


According to Godfrey, Hodgson and Holmes (2003), social contract has been described as “the interaction between individuals or organizations within society through implicit or explicit boundaries of behavior�, where implicit boundaries are moral obligations and explicit boundaries are regulatory requirements. Therefore, the social contract explains the boundaries of acceptable interaction between participants in a society.

The social contract is sometimes used to explain the behaviour of firms where productive organizations are “...subject to moral evaluations which transcend the boundaries of the political systems that contain them. The underlying function of all such organizations from the standpoint of society is to enhance social welfare through satisfying consumer and worker interests, while at the same time remaining within the bounds of justice. When they fail to live up to these expectations they are deserving of moral criticisms...�

Thus, because of a business’ social contract with stakeholders within a community, it is expected to perform only those actions which are desirable and beneficial to the whole society, rather than having to the investors only. This will give the firm acceptance from the society.

Hence, management responds positively to environmental and social issues, because it has it has moral obligations to the society and failure to exercise care while carrying out their activities i.e. doing misdeeds towards the community will result in introduction of regulatory requirements to control management performance on environment and employee, for example.


Positive Accounting Theory predicts that all people are driven by self-interest. As such, particular social and environmental reporting activities, and their related disclosure, would only take place if they had positive wealth implications for the management involved.

Therefore motives for social and environmental reporting can be a result of a reporting entity’s desire to maximize financial returns for shareholders and (or) managers by using social and environmental reporting as a tool to maintain and enhance the support of economically powerful stakeholders. On the other hand, it may also be a result of an entity’s desire to discharge duties of accountability for the social and environmental impact the organization (potentially) has on a wide range of stakeholders.


Historical Development:

Non-financial disclosure existed in a variety of forms in corporate reports in periods long before the 1990’s.Studies have found that such voluntary disclosure have existed for a number of decades. For example, Unerman (2000a,b) found evidence of social disclosures in annual reports of the Anglo-Dutch oil company Shell since 1897,with these disclosures becoming more prevalent from the 1950s.Adams &te (1998) analysed UK banks and retailers from 1935,Tinker & mark (1987,1988) and Neimark (1992) analysed social-type disclosures in the annual reports of the US company General Motors from 1916.Studies by Campbell (2000) and others have examined social and environmental disclosures in companies from the 1960s and 1970s. Thus, the development of social and environmental reporting in the 1990s was a development of non-financial reporting practice rather than a completely new phenomenon. (Deegan 2006 p.331).

A review on “ Social responsibility and impact on society� by Mohamed Zairi (2000) discusses the emerging commitment to address both environment and societal concerns, an area which is growing in terms of significance and proven to impact on business performances, reputation and corporate image. The observation made was that the world wide organizations have staged conferences to debate the relevance of social and environmental reporting on corporations and stakeholders. Also companies have started to make real headway in this area of reporting by proposing a framework that deals with social and environmental reporting and disclosing issues that concerns social and environmental reporting.

According to Trevor Wilmshurst and Geoffrey Frost (2000) , they tried to analyze the link between the importances of, as stated by reporters of specific factors in the decision to disclose environmental information and actual reporting practices. They used Legitimacy theory as an explanatory theory of environmental disclosure. The legitimacy theory implies the measures and awareness taken by firms are acceptable by the community. They used statistical sample selection to draw up conclusion for their studies taken.

The review made by Thompson I and J Bebbington (2005), they argue that the provision of accounts of and by organizations can be viewed as being a process of education and is thus amenable to a pedagogic assessment... In providing accounts about their activities, organizations are educating those internal and external to their organizations about events which have previously been unknown or incompletely known to account audiences.

Sustainability is defined as relating to development which meets the needs of the present without compromising the ability of future generations to their own needs (R. Gray, 2002, p.372). It involves, firstly the needs of both the present and future generations and secondly, consideration of both environmental and social justice. The most important aspect according to Gray, is to know whether corporations are acting or can act in a manner commensurate with sustainability. A small, but increasing number of companies have stated that they believe that neither they nor, any other company is capable of acting in a sustainable manner in the current systems of neither accounting nor financial arrangements (Gray & Bebbington, 2000). Even environmentally leading companies have little understanding of sustainability. The principle challenge to social, environmental accountability is that it is ‘not relevant’, or ‘not accounting and finance’ and to overcome this alleged weakness, more response is needed from the theorists which is in favor of sustainability (R. Gray, 2002, p.376)

Larger firms disclose more detailed pollution information. Multinational firms that operates in countries that require high disclosure of pollution, but have their home offices in countries that did not are associated with lower disclosures (Freedman & Jaggi, 2005, p.215)

R. Gray, T. Owen and K, Maunder 1998 suggests that corporate social reporting is recommended on the basis that it enhances the organizations image or because the organization is best placed to judge what information should be reported would seem to be very difficult to justify. Justification is based on the assumption that society and organization are in complete harmony, that is, they share a mutuality of interests.

Environmental information could be used for determining a number of issues such as whether to invest or lend funds to an organization, whether to consume an organization’s products and whether to supply labor or other resources to an entity or not (Deegan & Rankin 1999) The notion ‘expectations gap’ is commonly used to describe the situation where a difference in expectations exists between a group with certain expertise, and a group which relies upon that expertise research provided by Deegan and Rankin provides that an expectation gap does exist between the report users and report preparers to the relative importance of various items of environmental disclosure. The users of annual reports are more likely:

  • To consider environmental information is important to their decisions than is perceived to be the case by annual report preparers;
  • To rank various items of social information as important, relative to annual report preparers;
  • To disagree with the view that environmental disclosures should be voluntary, relative to annual report preparers
  • To consider that the accounting profession and government should provide environmental reporting guidelines, relative to annual report preparers.

The fact that expectations gap exists may explain, at least in part, why the demand for environmental performance information is not currently being satisfied, in that it indicates that the preparers may be unaware of the desire of annual report users of such information. Or, alternative, users may be unaware of costs involved in producing such information; with their demands for information perhaps beyond what can reasonably expected (Deegan & Rankin 1999) an expectations gap may indicate that organizations are not adequately addressing society’s expectations in terms of social performance and disclosure of information concerning their performance.

It can be identified from the research of S.K.Lodhia 2003 that Fiji has an unsatisfactory practice of environmental accounting. This is because of their inability to provide the guidance to accountants. The findings suggest that social awareness amongst accountants has improved since Nandans study 1992.The current study suggest that the accountants are reluctant to incorporate environmental issues because they don’t have much idea about these issues, and this is also due to lack of resources, expertise, and a heavy reliance on other countries. Further more the study suggested that there was an urgent need for improved environment legislation and regulatory intervention in the developing nations such as Fiji. In addition, they suggested there is also a need for an improvement in the qualifications of accountants. Thus the developments in Environmental Accounting will give Fiji’s accountancy profession an imperative to consider environment accounting as part of the accounting process.

According to Moerman & Van Der Loan (2005) , social and political pressure in the tobacco industry has increased due to the health and public awareness, regulation and ethical behavior. (Social Investment Forum, 1998).The pressure creates a legitimacy gap and the relevant publics that create the pressure are the investors, the lobby groups and regulation agencies (Tilt, 1994; Deegan & Rankin, 1997; Buhr, 1998). A research was done by (Moerman & Laan, 2005) on British American Tobacco or BAT social reports. And in the research they came up with their findings that: BAT does publicly support the regulations to reduce health impacts, it does this through public information, marketing to prevent youth smoking and sales. But on the other hand BAT argues that passive smoking is an irritant and there is no proof that passive smoking of tobacco is harmful (BAT, 2002a). Its first report in 2002 was an attempt to provide broader accountability to stakeholders and to present a clear evidence of a socially responsible tobacco company (BAT, 2002a.p1).

According to “Fijian Studies: Special Issue on Sustainable Development�, social accounting was criticized because of the lack of mandatory standards (Owen etal, 1997, Mathews, 1997; 1998, Gray 2001). Accounting has a broader role in society rather than just being the “crunching and reporting tool�. The roles of accountants in environmental reporting are to use such approaches that reduce the environmental impact. Here it was mentioned that it is desirable to have an improvement in the mandatory and voluntary environment reporting. Furthermore there should be an educational process of accountants, to equip them with skills and expertise in environmental reporting.

Deegan (2006) attempts to explain how the incorporation of social and environmental factors within external reporting, extends the systems of accounting. The issue of sustainability is an underlying concept in social and environmental reporting. Sustainable development as defined in The Brutland Report is “.....development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.�(Deegan 2006 p332). Thus extending the evaluation of reporting entities performance from mainly financial issues- to include social and environmental factors.

The stages of the discussion were firstly, why would an entity decide to disclose publicly information about its social and environmental performance? This was explained predominantly using the Legitimacy theory and the Stakeholder theory-with its two branches-normative or ethical perspectives and the positive or managerial perspective. In addition, the issue of who are the stakeholders to which the social and environmental disclosures would be directed? This was stated to be directly related to an organization’s motive for adopting corporate social responsibility policies and practice. Shareholders of course are the dominant group, followed by employees, customers, suppliers, environmental and social lobby groups, and the wider community.

Finally, there was a review of the limitations of financial accounting of accounting and reporting social and environmental impacts. This led to a need for alternative mechanisms. Approaches such as the triple bottom-line approach, preparing reports according to the Global Reporting Initiatives (GRI’S) or other guidelines which organizations have released-were suggested such. As well as, an interesting approach where an entity attempts to cost environmental externalities, using estimates and ‘guesstimates’. In other words, accounting for externalities.


Social and environmental reporting typically involves the provision, to a range of stakeholders, of information about the performance of an entity with regards to:

  • Its interaction with its physical and social environment, including;
  • Information about an entity’s support of employees
  • Local and oversees communities
  • Safety record
  • Use of natural resources

Social and environmental reporting is predominantly a voluntary process, given the lack of regulation in the area. All reputable companies today embrace corporate social reporting strategies as part of their business. For example, in Australia 80 out of the top 100 companies, publicly report on their corporate social reporting activities, many through their annual reports and 30 through standalone sustainability reports.( as cited in Deegan 2006 ) It is a phenomenon that continues to gather strength. The public disclosure of information about the social and environmental impact of operations, have become more common since the late 1990s, and have become standard practice among many large multinationals in several industrialized sectors and countries.

This area of social and environmental reporting or corporate and social responsibility reporting is relatively new and continually evolving (and generally unregulated). Hence, it is quite an exciting area for accountants to be involved in.

About 25 years ago this issue was not paid much attention, since corporate social and environmental responsibility (CSER) was considered a non-profit maximizing behaviour. However, CSER concepts have been applied for some years now and proven their practicality and profitability. These reporting emphasize sustainable performance through valuing people society and environment.

Corporate social and environmental reporting involves the publication of reports relating to the environment and society. Gray, Owen and Adam1 described it as a combination of:

  • accounting for different things i.e. other than accounting strictly for economic events
  • accounting in different media i.e. other than accounting in strictly financial terms
  • accounting to different individuals or groups i.e. not necessarily accounting to only the providers of finance
  • accounting for different purposes i.e. not necessarily accounting which enables decision making with success judged only in financial or cash flow terms

It is thus reporting on issues which are not normally covered by the traditional accounting function and into a form that can be used for decision making by those individuals which are sometimes not directly concerned with the financial success of an entity but rather the effects which it ripples out in the environment they work in i.e. it is about more than just “balancing the books�.

Social and environmental reporting should not only cover the financial consequences of the entity's activities as they relate to the environment and society but should also consider the non-financial impacts as it is essential to build shareholder value as well as worker value in order to deliver sustainable growth.

Hence, firms should recognize its interaction with the community and its stakeholders and they must operate within the boundaries of the society being considerate of everyone's needs

Social Reporting

This is the reporting on social-related issues, which are incurred by a firm. Owen and Scherer (1993) explain that there is a significant concept underlying corporate social responsibility (CSR). They said that “almost everybody believes that corporations should be concerned about something more than making money, that they have responsibilities not only to stockholders but to their employees, to their customers, to the communities in which they work and to society at large�.

Moreover, Leonard and McAdam (2003) suggest that the issues that may fall within social reporting includes consideration of:

  • human rights issues
  • work place, occupational health and safety
  • training & employee issues
  • unfair business practices
  • minority and equity issues
  • marketplace and consumer issues
  • community involvement
  • indigenous peoples
  • social development
  • charitable, political donations & sports sponsorship

Environmental Reporting

Godfrey, Hodgson and Holmes (2003) have defined environmental reporting as “the disclosure of information on environment related issues and performance by an entity�[2]. It usually includes details of environmental performance in areas such as:

  • environment
  • energy use
  • products
  • greenhouse gas emissions
  • wastes and water use

This information is published in either the annual report of the company and/or as self-standing reports. An environmental report is the product of a stage of processes of environmental management within a business and not a one-off activity. Environmental reporting is normally voluntary. Some of the industries might be required to do some mandatory reporting by some organizations but it is largely not mandatory. Many firms do report voluntarily in their annual reports on environmental information because it has a lot of perceived benefits. However, the costs of actually producing the report are also quite high.

Environmental reporting is adopted for various reasons and all businesses that have an impact on the environment through its operations can undertake environmental reporting. The impact usually increases as the size of the firm increases.


Sustainability refers to nation, region, or economy whose development meets the present world without compromising the ability of future generation to meet their needs. Hence, sustainability is sub-divided into Eco-efficiency and Eco-justice.

Eco-efficiency is all about environmental protection, which aims to improve and reduce environmental externalities faced by the society. For example, consider Greenpeace, it is the most outstanding organization who has dared to stand up against the most critical issues facing the world. With its campaign strategies such as political lobbying they are trying to join force with businesses and industries to use their lobby power collectively to pressure the government to ratify a particular issue, such as implementing Kyoto protocol, it is basically a rule, legislation or standard to look after environmental and welfare of people. Therefore, such legislations could be used to reduce emissions of global green house gases that threaten the environment. On the other hand, Eco-justice is about bringing justice between people and generation, which further incorporates intragenerational equity and intergenerational equity.

Thus intragenerational equity is based on the recognition that we share the earth and its resources. It is particularly concerned with the issues of the global wealth distribution. For example different countries have different target to reduce the global emission of greenhouse gases. For instance, Canada’s Kyoto protocol has agreed to chop its green house gases by 6 percent. Similarly intergenerational equity states that future generations deserve the right to use earths resources, hence, there is a need to preserve natural resources. Specifically we should be in a position to say that the planet that we leave our children is in as good shape as we inherited. For example, if we start to consume the worlds environmental resources at high levels, a time will come where the biosphere will be degraded to the extent that it can no longer support human life in anywhere near the numbers currently living. Thus, there would be unsustainable position for nature, society and business profitability.

In a nutshell, sustainability is about meeting current environmental, social and economic development needs without compromising the needs of the future generation. Economic development is fundamental to a company’s ability to contribute to environmental protection, natural resource conservation and social well-being. To make such contribution, companies must be sustainable. Their goal should be increased profits and shareholder value through responsible environmental and social behavior.


Global Reporting Initiatives – GRI

Another alternative approach is to incorporate the GRI reporting framework. This framework is the result of an attempt by several bodies, to codify best reporting practices in developing social and environmental reporting guidelines. It was originally assembled by a US-based organization Coalition for Environmentally Responsible Economies, in partnership with the United Nations Environmental Program. It also included subsequent inputs from other global organisations, such as then World Business Council for Sustainable Development and the World Resource Institute. Draft guidelines were released in 1999,with the first version of the GRI Guidelines released in 2000.A second version came out in 2002,while a third generation of the GRI’s was released in 2006. (Deegan 2006 pg. 370)

This outline is intended to serve as a generally accepted framework for reporting on an organization’s economic, environmental, and social performance. It is designed for use by organizations of any size, sector, or location. It takes into account the practical considerations faced by a diverse range of organizations – from small enterprises to those with extensive and geographically isolated reported information. In addition, the guidelines consist of principles for defining report content and ensuring the quality of reported information. It includes standard disclosures, comprising performance indicators and other disclosure items, as well as guidance on specific technical issues in reporting. Hence the GRI’s have been referred to by some, as a conceptual framework for social and environmental reporting.

AccountAbility: AA 1000

AccountAbility provides effective assurance and accountability management tools and standards through its AA 1000 series; it offers professional development and certification. To have a more effective sustainability reporting, it is important to have increased credibility. AccountAbility provides numerous approaches to Assurance by offering different ways of evaluating the published reports, which includes specific aspects, such as carbon emissions and factory level assurance of labor standards in the global supply chains.

AA 1000 offers a non-proprietary, open source assurance covering the full range of an organizations disclosure and performance, that is, sustainability reporting and performance (social, environment and economic).

AA 1000 is applicable for assessing, attesting to, and strengthening the credibility and quality of an organizations’ sustainability reporting. It provides guidance for directors and boards in overseeing non-financial disclosures. AA 1000 is designed to complement and enhance the use of specialist assurance standards and guidelines for the purpose of sustainability reporting. An organization which adopts any part of AA 1000 series, are committed to identify and understand its social, environment and economic performance and impact, and associated views of its stakeholders.

Some of the principles of AA 1000 are:


This principle requires to state whether an organization has included in its report the information about its sustainability performance required by its stakeholders for them to be able to make informed judgments, decisions and actions.

Information is material if its omission or misrepresentation in the report could influence decisions and actions of the reporting organizations stakeholders.

One of the parameter that may be taken into accouny is the compliance performance, whereby, the materiality test must consider those aspects of non-financial performance where a significant legal, regulatory or direct financial impact exists.


Requires evaluating the extent to which the reporting organization can identify and understand material aspects of its sustainability performance.

The principle requires organizations to have an ability to influence such performance, for example, effect of product use.


Requires evaluating whether the organization has responded to stakeholders concern.

Triple bottom- line reporting

This approach is in line with the concept of sustainable development. The underlying issue here is that “for an organization (or a community to be sustainable (a long run perspective) it must be financially secure (be profitable); it must minimize its environmental impacts; and it must act in accordance with society’s expectations�. (Deegan 2006 p.364)

To begin with, the bottom line is often referred to as the business’s financial performance or profit. This single bottom line figure of financial profitability focuses solely on economic performance. The triple bottom line therefore broadens this performance evaluation of an organization, and extends the focus to an evaluation of three ‘bottom lines’- of economic, social, and environmental performance. This approach argues that the business and all social systems operate within the natural environment and therefore reporting entities ought to provide information concerning the impact of their operations on society and the environment.

Brown, Dillard and Marshall (2005) express that although there has been much discussion concerning triple bottom line reporting, there really has only been a few substantive proposals to actually realize this approach. Companies that claim to use this approach, use a combination of narrative descriptions and a number of different measurements or metrics. Hence if neither social nor environmental factors can be reduced to a single currency then it is not possible to equate trade –offs between these factors. Such a trade-off between ‘maximizing’ economic, social and environmental performances appear to be a key element of the triple bottom line.

Therefore attempting to report upon, or manage, all three bottom lines in a common manner are not appropriate. Brown, Dillard and Marshall (2005) believe that due to these problems in the triple bottom line concepts, management and reporting on the triple bottom line is likely to result in a focus on the economic bottom line, to the disadvantage of social and environmental sustainability. It therefore appears that the process of triple bottom line reporting is, at present, not very helpful in providing guidance to organizations regarding the details of how to produce a sustainability report which will address the specific information needs of the stakeholders. Although it has been advocated by various peoples as a sound means of providing information about an organisation’s economic, social and environmental performance.

Accounting for externalities

This final alternative approach to corporate social disclosure, considers issues of trying to ‘cost’ the externalities caused by businesses. It includes attempts to put a cost on the environmental externalities and benefits caused by the operations of an entity. These costs and benefits are then usually taken from traditionally calculated profits to come up with some measure of real profits. Although a limited number of organizations have used this approach, most companies do not readily embrace it, as it involves various estimations and ‘guesstimates’. Thus, it makes this an interesting approach, as it represents a departure from generally accepted accounting principles, and is based on much estimation. Actual environment accounts are drawn up and reported, containing environmental costs and benefits to the reporting entity.

A number of companies have begun experimenting with different methods designed to determine the notional costs of the externalities being generated by their activities. Baxter International (US), IBM (UK), and Land care Ltd (NZ) are some of the companies that have adopted some form of ‘full-cost’ accounting.

After considering the brief descriptions of the above alternative approaches to social and environmental reporting, we can conclude that there is great diversity in how organizations account for their social and environmental impacts. Such diversity of approach is expected given the lack of regulation in this relatively new area of reporting.


Voluntary disclosure is simply the provision of information that is normally non financial in nature and which is not subjected to mandatory accounting standards or other legislative requirements. As there is no specific standard set by regulatory bodies, with the exception of a few countries at present who have taken the initiative to produce mandatory environmental standards, to mandate companies to disclose information relating to its social and environmental performance, one would argue that there is hardly pressure for companies to report on the non financial aspects of its own operations. However, this argument is far from reality and has been the object of an increasing amount of attention in recent years, owing much to the increasing awareness of the general public with regards to the environmental problems facing modern society. Consequently, there have been calls for companies to be more transparent and accountable for its own operations that are deemed to have an impact on the social and natural environment. This has seen a growing demand for social and environmental disclosures, which has been predominantly a voluntary exercise. As stated earlier, voluntary disclosure occurs because of market pressure and the threat of regulatory intervention. Undoubtedly, the content of annual reports has changed significantly over the years as companies undertake voluntary disclosures. The issues that may well be recognized as falling within the criteria of social and environmental voluntary reporting include actions affecting:

  • Employees
  • Occupational health and safety
  • Minority and equity issues
  • Community
  • Indigenous people
  • Environment
  • Energy use
  • Products

Gray and Bebbington (2001:p.242) provides a number of reasons for voluntary disclosure or non-disclosure.


  • Pre-empt potential regulatory intervention
  • To provide impetus for internal development and promote a higher level of good corporate governance.
  • To legitimize current activities and develop corporate image.
  • To distract attention from other areas.
  • To build up expertise in advance of potential regulation.
  • Positive impact on share price and other related economic benefits
  • Reduction in perceived (company and information) risk.
  • Perceived political benefits.
  • Competitive advantage.
  • Shareholders and other stakeholders right to know.
  • To explain expenditure patterns
  • The desire to tell people what the country has achieved.


  • No sense of motivation.
  • Wait and see approach to implementation.
  • Cost factor.
  • Data availability
  • Secrecy.
  • Lack of demand for information.
  • Absence of a legal framework.
  • Never thought about.

Disclosing information voluntarily enables a company to improve and expand upon its communication channels, ensuring a representative group of stakeholders with heterogeneity of interests are consulted. This would also facilitate investors in better understanding a company’s critical success factors, competitive environment, strategies, goals and the way decisions are made internally. To the reporting entity, there are numerous benefits and costs associated with voluntary disclosure. If entities did not perceive significant benefits flowing from social and environmental reporting, there would not be a practical justification to engage in this form of reporting voluntarily. Enhanced disclosure of social and environmental information leads to a greater capital base and a lower average cost of capital through enhanced market liquidity and reduced uncertainty respectively. Furthermore, investors tend to gain from greater transparency in making effective decisions, which, in turn, secures a proper relationship between the main source of fund for many corporations. The costs of voluntary disclosure, however, include the potential threat to its competitive advantage arising from the disclosure of information its competitors can access, the bargaining disadvantage due to disclosures made to suppliers, customers, and employees.

Why Firms May Opt To Voluntarily Disclose Over and Above The Legislation?

Voluntary disclosure and ownership structure:

Voluntary disclosure decisions are greatly influenced by the form of the ownership and management structure. The voluntary disclosure of information is viewed as a means to efficiently protect shareholders’ interest against manager’s latitude. For a firm whose capital base is widely held, the potential for a conflict of interest arising between the principle and the agent is greater than in family-controlled companies. To reduce these conflicts, Jenson and Meckling (1976) in agency t

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Request Removal

If you are the original writer of this dissertation and no longer wish to have the dissertation published on the UK Essays website then please click on the link below to request removal:

More from UK Essays

Get help with your dissertation
Find out more