The flourishing of corporate reporting saw the emergence of a range of activities seeking to standardize performance measurement and reporting.33,34 This stress on standardization seems paradoxical given the multiple objectives of performance measurement and reporting, and the evidence of divergent practices in reporting. It is clear that sectors and firms are not alike in their approach to the collection, use and reporting of environmental and social information. Three main sources of pressure for standardization can be identified: the formalization of environmental management; accountancy practice and interests; and 'right to know' advocacy.
There are several explanations for the stress on harmonization and convergence. The first is the link with environmental management systems. This was prefigured in the EU the voluntary European Eco-Management and Audit Scheme (EMAS) which prescribed an information and reporting system for registered sites. The formalization of environmental management has produced new monitoring and assessment requirements for firms that can be serviced only through structured environmental performance information. A common environmental management system suggests a common environmental information system.
3 3 CICA, Reporting on Environmental Performance, Canadian Institute of Chartered Accountants, Toronto, 1994.
34 ACCA, Guide to Environment and Energy Reporting and Accounting 1997, The Association of Chartered Certified Accountants, London, 1997.
The logic of an environmental information systems has, in turn, provided another driver towards standardization from the perspective of accounting. Accounting has played a significant role in the development of environmental measures and reports.35,36 These accounting approaches propose an equivalence between the procedures for developing financial and environmental information for firms. Know-how and conventions in accounting could be transserred to the environmental field, as could the rigour and credibility of financial accounting. Moreover, accountancy could come to occupy new and potentially lucrative territory. Accountantshave also identified a need for financial and environmental information to be integrated in the definition of 'eco-efficiency' (i.e. environmental-financial ratios) indicators.37 It is argued that this form of information would improve management decision-making by linking efficiency and impact indicators to cost. Investors and shareholders would then have information directly linked to firms' general report and accounts. As environmental information becomes richer, more reliable, more timely and more accessible, the expectation is that the investment community will increasingly take account of this information in their decisions. This argument rests on the proposition that firms with higher environmental performance may also demonstrate higher financial performance. Advocatesof eco-efficiency argue for this link primarily on the grounds of financial savings due to lower resource costs and lower financial risks due to decreased environmental liabilities.
'Right to Know'
Advocates of information as an instrument in environmental improvement have argued strongly for standardization. Here the argument is made that in developed countries traditional standards-based regulations are being complemented by investor and public pressure as a driver of environmental progress in industry. These new 'market-based' pressures demand a much richer set of information flows between the firm and the decision-maker. Similarly, in developing countries elaborate regulatory systems that are enforceable cannot be erected. Here too, progress will be achieved primarily through social and competitive pressures. Disclosure of information to investors and the general public is a key feature of this newly emerging form of governance. Standardized, validated and comparable environmental information about firms is an essential prerequisite for environmental information to become a complement to regulation.38
Given the environmental management, accountancy and 'right to know' contexts within which the case for standardization has been made it is not surprising that in this area, as with other aspects of the environmental
35 R. Gray, D. Owen, et al., Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting, Prentice-Hall, Hemel Hempstead, 1996.
36 S. Schaltegger, Corporate Environmental Accounting, John Wiley, Chichester, 1996.
3 7 K. Muller and A. Sturm, Standardised Eco-efficiency Indicators, Ellipson AG, Basel, 2000. 38 T. Tietenberg, 1997, Information Strategies for Pollution Control, Eighth Annual Conference EARE, Tilburg, NL, 1997.
Table 2 Environmental performance and reporting standardization initiatives
Global Reporting Initiative (GRI)
National Round Table on Economy and Ecology (NRTEE) International Organization for Standardization (ISO) UN-International Standards of Accounting and Reporting (UN-ISAR) World Business Council for Sustainable Development (WBCSD) National Academy of Engineering (NAE)
Global, mainly large companies
Canada, large companies
Global, all companies Global, all companies
Global, large companies
UNEP, accountancy organizations, NGOs, academics, business Business, government
Business, regulatory, academic National experts
Business, academic measurement and reporting scene, there are multiple activities. They have included initiatives promoted by government, industry, NGOs in cooperation with industry, standard-setting bodies, and academic institutions. Table 2 presents a summary of the most significant initiatives.
These many standardization initiatives suggest that the demand for common frameworksis widely felt. But the degree of cooperation between firms, regulators and others is noteworthy. It suggests either that performance measurement and reporting is still in a pre-competitive phase, or that clear benefits flow to firms from cooperation. A number of different benefits have been proposed:
A 'learning effect'. The production of management information and its reporting may be more efficient using standard guidelines. There are costs associated with developing the capabilities to measure and report on environmental and social performance. These costs are likely to be reduced if standard approaches are available.
An 'accounting effect'. The credibility and accessibility of information, both internally and externally, may be enhanced by cooperation over standards. An accepted, verifiable and auditable set of performance measures, imitating conventionsin accountancy, is likely to generate greater legitimacy and trust in the positive 'green claims' that firms may want to make on the basis of environmental reporting.
A 'benchmarking effect'. The value of information may be enhanced through comparability between firms. Firms may gain greater credit from shareholders, regulators and customers by presenting environmental performance information in comparable form. Benchmarking may also provide greater internal benefits by bringing clarity to the setting of environmental objectives. A 'coalition effect'. Self-regulation may pre-empt government regulation. Many governments in Europe have encouraged firms to be more active in their environmental and social reporting, with the implicit threat of regulation if voluntary initiatives are perceived to be insufficient. Establishing voluntary standards is a way of avoiding or co-opting this pressure.
But despite the strong pressures for standardization, there are also clear tensions. While environmental management-based initiatives have tended to stress the need for a '. . . general, voluntary framework that is flexible enough to be widely used . . .,'39 accountancy-based initiatives have stressed the need for common frameworks that will be universally applied. These reflect important differences in emphasis, and an implicit conflict over the future environmental management and reporting agenda. Management perspectives place greater weight on management processes,40 the complex reality of the economic, technological and sectoral contexts of firms, and therefore also voluntarism and appropriateness. Accountancy-based perspectives place more emphasis on the clarity and consistency with which environmental performance information is transmitted by the firm, seeing the firm from the perspective of the balance sheet. Environmental management-based standards (ISO, GRI, WBCSD) have tended to propose broad guidelines that can be linked to evolving internal management systems, whereas accountancy-based standards have been more prescriptive, proposing specific, rather well-defined procedures that can be adopted by all firms.
This divergence in perspective should not mask substantial convergence over end results. Differing perspectives have come to complementary conclusions. This is true for emerging standards over the content of corporate environmental reports, as well as for the sets of performance indicators that have been proposed. In particular, there is now wide agreement over the need for physical performance indicators. Another similarity is that all these schemes avoid single aggregated indicators, preferring instead disaggregated indicator sets. Some alternative indicator sets are summarized in Table 3.
Common indicatorsinclude energy and water inputsto production, and global warming, ozone-depleting and solid waste emissions from production. Both GRI and WBCSD also make a distinction between 'core' or 'generally applicable' indicators, and 'supplemental' or 'organization-specific' indicators. This notion of generic and specific indicators is not used in the more externally-oriented WRI, NRTEE and Ellipson schemas. In general, all of these lists are considerably shorter than those proposed when standardization in performance measurement was first discussed, with a range of four to seven generic indicators being proposed.
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