Social Environmental Accounting - Literature review Example

Social environmental accounting By Student’s Name Code+ course name Instructor’s Name University Name City, State Date Social environmental accounting Introduction The modern approaches to business have seen the corporate world focus on the concept of Corporate Social Responsibility [Bro06]. As businesses thrive, they are required to do so in an environment that is clean and friendly. This friendly environment includes broth the physical and the social environment in which the businesses operate. CSR has been considered as the best way that organization can use to pay back to the society by showing support in some ways. The modern approaches to business and inclusion of the business environment as a key component have also brought an additional option of accounting which is the social and environmental accounting (SEA). Social and environmental accounting is a modern approach to accounting that considers the state of the society as well as the environment in which it operates [Aym13]. It has been identified that CSR and SEA are closely related, but some differences can be identified. CSR is the process of giving back to the society while SEA measures the impacts of a business entity on the environment in which it operates. SEA can provide useful information that an organization can use in developing specific missions for CSR. From an opinion, SEA is relevant since the business entities cannot survive when the business environment is affected by the lack of sustainability as well as the poor social environment. This form of accounting helps to determine the various ways in which businesses can improve their services or products. This paper will look at the concept of SEA, its importance to the business environment as well as society and the approaches used. Many business organizations exist because the environment provides resources and the society provides the market for the products (Gray et al., 2010). However, the rate at which the environment has been exploited has not been unsustainable for many years. To a large extent, not taking into account the relevance of such pillars in organizations may result in negative effects such as failure of some organizations. Lack of sustainability increases the vulnerability of the social and environmental parameters that support the business environment. Accounting for changes in these two areas provides organizations with many benefits that can be generalized as ‘long-term success.’ On the other hand, organizations may fail to consider social and environmental accounting since it may increase the costs incurred. In addition, the results of such accounting may not have an immediate impact or use as compared to results from financial accounts. Organizations may also differ especially when some organization pollutes the environment while others do not pollute. Such situations may cause reluctance or demand additional clauses as far as regulations for social and environmental accounting is concerned. Various reasons have been described as the primary reason for organizations conducting CSR. According to Adams and Frost (2006), SEA is used by organization in an attempt to address the issue of sustainability. The reports derived from the SEA help in the improvement as well as measurement of the social as well as the environmental achievement. The report compiled by Adams and Frost (2006) established seven categories related to SEA, which basically provides reasons for conducting SEA. Organizations conduct SEA as proof of their commitment to performance, which is also a measure of improvement [Lau10]. SEA provides an opportunity for organizations to quantify performance such as in emission of carbon IV oxide or other greenhouse gasses. The measurement helps organizations establish how they have performed compared to their targets. In addition, the SEA also helps the organization in setting new targets that take into account the aspect of sustainability [KUn13]. Organizations are capable of identifying the social and environmental factors that have drastic effects on the organization as well as the entire business environment as well as the decision making processes. Organizations that conduct SEA are out to prove that the concept is a necessity in the management system that the corporate world should adopt. Social indicators are important inputs in the development of strategic plans for any organization [Dew14]. Social indicators help organizations establish conscious plans for the present as well as the future of the organization. As concerns for risk management continue to increase among organizations, risk assessment methods have to consider the social and environmental perspectives. In the UK, the SEA has been identified as a key practice that all organizations are required to disclose in the same way they make financial disclosures [Rob04]. The country encourages organizations to voluntarily conduct Sea as well as environmental reporting. Several codes of practice and guidelines have been provided to help organizations in conducting SEA. Companies are encouraged to commit to CERES principles, EMAS codes as well as the CBI environment business forum, which oblige them to conduct an organized consistent environmental reporting. Business groups have also advocated for this form of accounting as it stands to benefit the general business environment and not only interests of a single business entity. Internationally, environmental reporting guidelines were developed by the United Nations and national governments have been encouraged to incorporate the guidelines in their national regulations. In the guidelines, the organizations are required to disclose five types of information. The first type of information that organizations are expected to disclose pertains the organization and its interaction with the environment. The second type of information pertains environmental policy of the organization and procedures of implementing the policies. Thirdly, the organization is required to disclose information pertaining the environmental targets especially on critical issues such as emission, waste management, and resource use. When disclosing information on environmental targets, organizations have to state the progress in meeting the targets. The fourth type of information concerns the organizational plans for the future. Finally, organizations have to relate environmental and financial perform. Development of the guidelines has seen the inclusion of other important elements such as environmental risk as well as sustainable development [Mar10]. As far as SEA is concerned not only environmental matters are considered but also social data through a process know as social accounting. One approach used in SEA is the business case approach that views the aspects of business and shareholders [Bro06]. The proponents of the business case approach insist that the SEA has to have significant financial paybacks. However, this approach overlooks the possibility of an emergence of conflict between business and the society. The approach focuses more on establishing various forms of CSR as well as SEA that only yield positive results for the business and its stakeholders. Business case approach considers SEA and CSR as an additional component in the management toolkit whose main aim is to increase the wealth of the shareholders. The approach considers inclusion of CSR and SEA as an Addition Avenue through which business opportunities can be realized. Some of the areas of concern in this approach include the creation of financial value, catalyzing innovation, propelling improvement, increasing transparency between the organization and stakeholders, and improvement of the management system. In addition, the approach considers CSR and SEA as an opportunity for increasing awareness and staff involvement in the process [KUn13]. Organizations are required to manage their social environment and include it as one important function within the organization. Social issues have the ability to improve the business environment, which implies that business organization has to provide the required leadership in this area. As the business case approach identifies the avenues of interest in CSR and SEA, sustaining the social aspects as well as the environment is considered paramount. Proponents of this approach also consider the ethical image as important in improving the performance of an organization. However, stakeholders have a greater influence in the decision made by organizations as far as CSR and SEA are concerned. The stakeholder-accountability approach is another recommended option for conducting CSR and SEA. In this approach, organizations are considered as entities whose name is very important in the business environment and worth efforts for promotion. This view also implies that in protecting this quasi-status, organizations have to exercise transparency and encourage inputs from the democratic society. Most stakeholders share a common interest, but at the same time, there are instances that conflict of interest might arise. One of the arguments presented for this approach is that the organization has a stewardship responsibility towards society. For this reason, organizations should not only strive to meet their financial goals but also set social objectives that they should strive to achieve. In this case, evaluation of an organization has to be conducted at two levels where one aims to evaluate profit, and the other seeks to evaluate achievement of the social goals [Chr12]. The importance of stakeholders has been advocated in the UK insisting that they have a right to information. Accountability, in this case, can be interpreted as an undertaking of an organization to account for all the activities. In the same way, an organization accounts for the financial expenditure over a given period; it is important also to provide similar information concerning the social parameters and environmental parameters. Stakeholders have a right to all this information regardless of the situation where the stakeholders are own or lack shares in the organization. Organization must be accountable to recognize that oriented non-profit groups such as the consumers, personnel, and the community. These groups often require an organization to show support, protection, and loyalty. This kind of relationship has been identified as a pluralist form of relationship that organizations should not overlook since the stakeholders would have an opportunity of determining grades such as ‘good performance’ or ‘bad performance.’ According to the proponents of the stakeholder accountability, interaction of people and records is encouraged which results to accountability. It has been established theta most organizations paid more attention to the impacts of the society on an organization and overlooked the impacts of the organization to the society. In addition, organizations also paid attention to the impacts of the environment on the organization and overlooked the impacts of the organization to the environment. According to Mook (2010), the problem with such situations lies in the fact that when on organizations destabilizes the environment as well as the society, business will come to a standstill. In addition, such approaches tend to disagree with interests of several stakeholders such as the society. Consider a situation where organizations concentrate on employing underage children who drop out of school, with time; such organization will lack skilled labor in the job market. A second situation, consider a situation where a paper mill factory continuously harvests trees without taking the initiative to rehabilitate the degenerated environment. After several years, the paper will no longer operate due to lack of raw materials. Therefore, the aspect of sustainability in this model requires organizations to account for the social and environmental components. At some point, the community might be regarded as the most important stakeholder as compared to the shareholders. This importance has been created from the evolution of public interest disclosure that most nations have included in their legislation. The firm is held accountable for serious environmental crimes due to public interest liability [Chr12]. As a result, organizations have to consider the fact the relationship with stakeholder stand to benefit both parties. Companies stand a chance to increase public confidence and at the same time sustain their business interests. The third approach is the critical theory approach that in some way differs with the stakeholder-accountability approach. The proponents of the critical theory approach insist that the stakeholder-accountability is unrealistic unless drastic changes are initiated in the capitalist society. The capitalist society advocates for interests and democracy at the same time but in the long-run, interests tend to supersede democracy. The capitalist society increases the imbalance of power as well as resources which ultimately creates imbalances in the interests. According to the argument put forward by Brown and Fraser (2006), capitalist society is characterized by the democracy of elites which often lock out the interests of the general society. Therefore, this approach insists that that organization engaging in CSR and SEA are doing so to establish a hidden avenue to accomplish other interests. Organizations use SEA and CSR as weapons that can be used to elevate the status quo of organizations within the society. According to, to the proponents of the critical theory, organization fears taking conducting SEA as this may negate their status quo. It has been established that organizations are thriving well when the society and the environment are in support . In case these two pillars are weakened, the organizations might, lack fail even if the weakening may give rise to new business opportunities. For this reason, organizations are required to conduct not only financial accounting but also social and environmental accounting. By doing so, the interests of the public are protected, and in return, the public will indirectly help the organization achieve its business interests. CSR and SEA are two important tools that have been recommended for inclusion in the accounting toolkits of organizations. As organizations account for finances, they are required to account for the impacts on the society as well as the environment. Three approaches have been suggested for conducting CSR and SEA, but the critical theory approach has provided another perspective on the situation. The capitalist society brings another dimension of understanding but still holds the fact that organization is required to play a part in CSR as well as SEA. Bibliography Adams, C. A., & Frost, G., 2006. Accounting for Ethical, Social, Environmental and Economic Issues: Towards an Integrated Approach. Retrieved October 14, 2016, from Research Executive Summaries Series, Vol. 2, No. 12: http://www.cimaglobal.com/Documents/ImportedDocuments/tech_ressum_accounting_for_ethical_social_environmental_and_economic_issues_2006.pdf Brown, J., & Fraser, M., 2006. Approaches and Perspectives in Social and Environmental Accounting: An Overview of the Conceptual Landscape. Business Strategy and the Environment Bus. Strat. Env. 15, pp. 103–117. Freedman, M., & Jaggi, B., 2010. Sustainability, Environmental Performance and Disclosures, Volume 4 of Advances in environmental accounting & management. Somerville: Emerald Group Publishing. Gray, R., 2004. Social and Environmental Accounting and Reporting: From Ridicule to Revolution? From Hope to Hubris? - A Personal Review of the Field[. Retrieved October 14, 2016, from The Centre for Social and Environmental Accounting Research: https://www.st-andrews.ac.uk/media/csear/discussion-papers/CSEAR_dps-socenv-hopehubris.pdf Gray, R., Bebbington, J., & Gray, S., 2010. Social and Environmental Accounting. London: SAGE Publications. K. Uno, P. B., 2013. Environmental Accounting in Theory and Practice. New York: Springer Science & Business Media. Mook, L. I., 2010. Social and Environmental Accounting: The Expanded Value Added Statement. Toronto: University of Toronto. Susilowati, D., 2014. Social And Environmental Accounting: A Response To The Company's Operational Externalities. Retrieved October 14, 2016, from International Journal oof Scientific & Technology Research Volume 3, Issue,3: http://www.ijstr.org/final-print/mar2014/Social-And-Environmental-Accounting-A-Response-To-The-Companys-Operational-Externalities.pdf Wheeler, C., 2012. How do Public Interest Considerations Impact on the Role of Public Sectoral Lawyers. Retrieved October 14, 2016, from Public Sector In-House Counsel Conference: http://www.ombo.nsw.gov.au/__data/assets/pdf_file/0019/8065/Public-interest-Presentation-How-do-public-interest-considerations-impact-Public-Sector-In-House-Counsel-Conference-Canberra-30-July-2012.pdf Zerban, A., 2013. The Need for Social and Environmental Accounting Standards: Can Islamic Countries have the Lead. Retrieved October 14, 2016, from Eurasian Journal of Business and Management, 1(2), 33-43: https://eurasianpublications.com/pdf/ejbm/4)%20The%20Need%20for%20Social%20and%20Environmental%20Accounting%20Standard%20Can%20Islamic%20Countries%20have%20the%20Lead%20(33-43).pdf Read More