University of Kelaniya, Sri Lanka

Malintha Perera
MSc in Mgt (J’Pura), BBMgt(Special)Degree in Accountancy(Kel’ya), ACMA (UK), CGMA
Lecturer

Department of Accountancy

E-Mail – [email protected]
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 Lecture 08
Sustainability and Management
Accounting

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 Learning Outcomes
At the end of the session students should be able to;

1. Explain the concept of sustainability and sustainability for businesses.

2. Describe recent trends in sustainability reporting.
3. Discuss how management accounting can support sustainability goals
and strategies.
4. Describe environmental cost and environmental management
accounting.

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Lesson Plan
MDGs
Sustainability
SDGs
Sustainability Reporting and
Strategy

Sustainability and Global Reporting Initiatives

Management (GRI)
Accounting
International Integrated
Reporting (IIR)

Environmental Management
Accounting

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 Sustainability

• Sustainability requires organizations to consider the interrelated

impacts of their activities on the economy, the environment and
society.

• Sustainability is based on the concept of sustainable development,

which is development that ‘meets the needs of the present
without compromising the ability of future generations to meet
their own needs’ (Brundtland Commission, United Nations, 1987a).

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 Sustainability Development MDGs vs. SDGs

• Millennium Development Goals (2000 - 2015)

In September 2000, leaders of 189 countries gathered at the United

Nations headquarters and signed the historic Millennium Declaration,
in which they committed to achieving a set of eight measurable
goals that range from halving extreme poverty and hunger to
promoting gender equality and reducing child mortality, by the target
date of 2015.
Website

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 Sustainability Development MDGs vs. SDGs
• Millennium Development Goals (2000 - 2015)

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 Sustainability Development MDGs vs. SDGs

• Sustainability Development Goals (2015- 2030)

In July 2014, the UN General Assembly Open Working Group (OWG)

proposed a document containing 17 goals to be put forward for the
General Assembly’s approval in September 2015. This document set
the ground for the new “Sustainable Development Goals (SDGs)”
and the global development agenda spanning from 2015-2030.

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 Sustainability Development MDGs vs. SDGs
• Sustainability Development Goals (2015- 2030)

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 Sustainability Reporting

• Sustainability involves considering broad perspectives than shareholder

and customer value. It requires organizations to consider the interrelated
impact of their activities on the economy, environment and the society.

• Greater awareness of sustainability has led to an increasing number of

organizations to produce sustainability reports or to report their
sustainability performance in their annual reports.

• This has encouraged organizations to develop sustainable strategies,

and to implement processes to measure, track and report sustainability
performance.

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 Core Elements of Sustainability

1. Sustainability is concerned with the future and with the ability to maintain
certain values, assets or capabilities over the long term.

2. Sustainability involves decisions that address the interaction between

environmental, social and economic domains.

3. Sustainability requires choices that take account of equity within

society and across generations. (National Sustainability Council, 2013)

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 Sustainable Actions by Businesses

• Sustainability involves generating profits in ways that may minimize

damage to the economy, environment and community, both now and in
the future.

• It could also include undertaking actions that lead to improvements in

performance across the economy, environment and community.

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 Impact of Sustainability on Business

• It has been argued that adopting sustainability practices may improve

business profitability (KPMG International).

• This can be achieved through the cost reductions that may result from
introducing more efficient workflows and process redesign and,
• Through the increase in revenue that comes from the creation of
markets for new products.

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 Sustainability is a Strategic Priority

• Many organizations view sustainability as a strategic priority and

formulate specific sustainability strategies.

• In a global survey of 378 senior executives (KPMG International), 62 per

cent of companies stated they had a strategy for corporate
sustainability, and about a third of those companies report publicly on
progress made towards meeting the objectives of that strategy.

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 The Drivers for Adopting a Sustainability Approach

The drivers for adopting a sustainability approach included;

• Law and regulatory requirements

• Desire to enhance the brand
• Managing the risks associated with sustainability issues
• Search for cost reductions

“An organization committed to sustainability is concerned with achieving

positive economic outcomes, protecting the environment and developing
communities, now and into the future.”

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 Practical Difficulty of Being Sustainable

• In practice, being a 100% sustainable organization is difficult to achieve.

• Even the most environmentally conscious organizations use electricity,
and as an e.g., in Australia most electricity is produced by burning
irreplaceable fossil fuels and emitting greenhouse gases that contribute
to global warming.
• Both of these outcomes compromise the ability of future generations to
meet their needs.
• When organizations commit to sustainability or corporate social
responsibility, they tend to be committing to becoming more
sustainable or more socially responsible, rather than to achieving a
perfect sustainable state.
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Sustainability Reports

• To produce these external reports, organizations may

set up a reporting cycle, which includes data
collection, communication and responses (Global
Reporting Initiative (GRI), 2013).

• Many organizations have a sustainability strategy

and so they select performance measures, set
performance targets and design systems to monitor
and improve their sustainability performance.

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 Producing the Sustainable Reports

• Sustainability reports are sometimes called triple bottom line reports,

corporate social responsibility (CSR) reports, corporate responsibility
reports, social audits, or social and environmental reports.
• Some organizations report their sustainability performance in their
annual reports, while others produce stand-alone sustainability
reports.
• Some companies produce sustainability reports because of community
concern about their environmental performance (E.g. energy
companies, mining companies).

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Global Reporting Initiative (GRI) Framework
• The most widely recognized framework to monitor and
report sustainability is the Global Reporting Initiative
Framework, which is regarded by many as the global
standard.
• The Global Reporting Initiative is a global organization that
promotes the use of sustainability reporting as a way for
organizations to become more sustainable and
contribute to sustainable development.

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 Global Reporting Initiative (GRI) Framework

• The Global Reporting Initiative (GRI) Framework is a reporting system

that provides performance measures (metrics) and methods for
measuring and reporting sustainability-related impacts and performance,
to enable greater organizational transparency and accountability.
• This leads to a consistent approach to reporting and quality across
reports.
• Many companies also seek external assurance for their sustainability
disclosures, in order to increase the credibility of their reporting and
stakeholder confidence.
(for more information, see www.globalreporting.org/Information/about-gri/Pages/default.aspx).

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International Integrated Reporting (IIR) Framework

• A new framework that addresses sustainability is the

International Integrated Reporting (IIR) Framework.
• Integrated reports have a broader focus than
sustainability reports, but are not intended to replace them
(Adams, 2013).
• The primary purpose of an integrated report is to explain
how an organization creates value over time.

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 International Integrated Reporting (IIR) Framework
Value creation or diminution is defined in terms of six kinds of capital,
as follows:
• Financial capital: the funds available to produce goods or services,
obtained through financing or generated through operations or investments.
• Manufactured capital: physical objects available for use in the production
of goods and services, such as buildings and equipment.
• Intellectual capital: includes intellectual property, such as patents and
licenses, and organizational capital, such as knowledge, systems and
procedures.

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 International Integrated Reporting (IIR) Framework
Value creation or diminution is defined in terms of six kinds of capital,
as follows:
• Human capital: employees' competences and experiences.
• Social and relationship capital: the institutions and the relationships within
and between communities, groups of stakeholders and other networks, and
the ability to share information and enhance individual and collective
wellbeing.
• Natural capital: all renewable and non-renewable environmental resources
and processes that provide goods or services that support the past, current
or future prosperity of an organization. It includes air, water, land, minerals,
forests, biodiversity and eco-system health. (IIRC, 2013, pp. 11-12)

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 Value Creation -International Integrated Reporting (IIR) Framework

Value creation process in international integrated reporting framework

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 Sustainability and Management Accounting

• This external reporting has several implications for the internal reporting
systems and management processes used within organizations, and for
management accounting.
• From a management accounting perspective, the greater focus on
sustainability requires defining, tracking and recording new types of costs,
defining and measuring environmental and social performance measures,
and
• incorporating these costs and performance measures into a range of
decision contexts, including those concerned with supply chain management
and capital investment.

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 Sustainability is Becoming a Standard – IFRS S1 and IFRS S2

• Two newest standards, IFRS S1 and IFRS S2, were published in June 2023.
When should we all apply IFRS S1 and IFRS S2?
• Both standards are mandatorily applicable for annual reporting periods
beginning on or after 1 January 2024.
• It practically means that companies need to have the appropriate processes in
place to monitor and gather all the data needed to provide, so that company
can actually start gathering the data from 1 January 2024.
• Therefore, the first report with incorporating information related to IFRS S1 and
IFRS S2 will be published sometime in 2025, related to the year 2024.

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 Sustainability is Becoming a Standard – IFRS S1 and IFRS S2
What about comparatives?
• Companies do not have to present comparative information in the first annual
financial statements, that would be related to the period before the date of
initial application.
• However, companies are free to report the comparatives voluntarily.
Any relief in reporting?
• Companies need to provide the disclosures on climate-related risks in the
first place, in accordance with IFRS S2.
• If company cannot disclose all the related disclosures in accordance with IFRS
S1, then they do not need to do so only for the first annual report and should
state that company “applied transition relief”.

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 Environmental Management Accounting
• Environmental Management Accounting (EMA) consists of management accounting
systems and practices that provide information about the environmental impact of an
organization's activities (IFAC, 2005).
• Environmental Management Systems (EMSs) are the systems that organizations put
in place to manage their environmental performance. An EMS may include recycling
systems and systems to monitor and control levels of liquid, material and atmospheric
discharge and waste (including reporting based on the international standard for
environmental management systems and their audit ISO 14001).
• The integration of corporate environmental concerns and responsibilities within MCS is
referred to as Environmental Management Control Systems (EMCS) (Henri &
Journeault 2010). Simons’ (1995) defines MCS as information-based systems that
managers use to maintain or alter patterns in organizational activities”.

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Thank you!

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