Environmental and Social Accounting

THE PRACTICES AND RELATIONSHIP WITH

STAKEHOLDERS

I. INTRODUCTION

Social environmental accounting has been defined as the "preparation and publication of
an account about an organization's social, environmental, employee, community, customer and
other stakeholder interactions and activities and, where, possible, the consequences of those
interactions and activities" (Gray, 2000). Social and environmental accounting is also often used
to describe the impact of business activities on the society, employees and consumers which
offer the mechanism for reporting information that enables management to monitor key social
and environmental opportunities and threats facing organization. And social and environmental
accounting defined by Gray and al. (1987, p.9) as

"...the process of communicating the social and environmental effects of organizations'

economic actions to particular interest groups within society and to society at large. As such
it involves extending the accountability of organizations (particularly companies), beyond the
traditional role of providing a financial account to the owners of capital. In particular,
shareholders. Such an extension is predicated upon the assumption that companies do have
wider responsibilities than simply to take money for their shareholders."

….

II. DISCUSSION

Sustainability report are previously mentioned as social and environmental reporting,

these are reports of a company regarding to the environmental friendly of the company. (GRI,
2011) define the sustainability report as the process of measuring and communication
sustainability performance and of being accountable to internal and external stakeholder of an
organization’s social, environmental and economic performance. The (All Answer Ltd., 2017)
explained more deeply about the term of sustainability in corporation or company, it defines as
encompassing strategies and practices that aim to meet the needs of the stakeholders today, while
seeking to protect, support, and enhance the human and natural resources that will be needed in
the future. From both explanations it can be inferred that the role of stakeholders are involved in
sustainability reporting. As it mentioned by (ACCA Global) that the background why
sustainability report is needed, it is because many people no longer believe that businesses are
able to take from society without also accounting back to society (and not just to shareholders),
on how it has behaved with regard to its environmental impacts. It can be inferred as how
companies account for their environmental impacts using environmental reporting.

As the framework of sustainability reporting, GRI define, stakeholders as entities or

individuals that can practically be predictable to be significantly affected by the organization’s
events, products, and/or services; and whose actions can reasonably be expected to move the
capability of the organization to effectively implement its strategies and accomplish its
objectives. Stakeholders can include those who are invested in the organization such as
employees, supplies and shareholders. Stakeholder engagement processes can help as tools for
considerate the realistic expectations and benefits of stakeholders. In the General Reporting
Initiative (GRI) G4 about Sustainability Reporting Guidelines. It states from G4-24 to G4-27
which give the information about the overview of the organization’s stakeholder engagement
during the reporting period, the approach of the organization, key topic and concerns that have
been elevated through stakeholder engagement and how the organization has given the response.

According to (AccountAbility,2011, p. 6) stakeholders of an organization define as any

individuals or groups that are either affected by or can affect the operations of that organization.
There are two classification of stakeholder according to (Freeman, 1984) as it mentioned in
(Bradford, Earp, Showalter, & Williams, 2017) customers, investors, and employees as the
primary stakeholders, meanwhile the other groups such as competitors are the secondary
stakeholders. Stakeholders are involved such identifying important issues in the report,
measuring the company performance on specific issue and communicating the performance. Not
only that, (Bradford et al., 2017) explained stakeholders can play a significant role in a
business’s sustainability efforts and, if managed properly, which can provide valuable assistance
and resources beyond simply exerting pressure such as influencing how companies develop their
sustainability initiatives, including changing their products and processes. In sustainability
reporting the system will require external and internal stakeholder input in the process of
planning, accounting and reporting stages, setting sustainability, developing measurement tools,
monitoring and measuring the indicators, structuring sustainability reports. Those requirements
must be fulfilled in order to reflect stakeholder expectations and refining the reports on a
continuous basis (Schaltegger 2012).

As it mentioned before that other that stakeholder, stakeholder engagement also plays
important role in the sustainability report. Stake holder and stake holder engagement are two
different things but correlating to one another. Stakeholder engagement defines as the process
used by an organization for a clear purpose to achieve accepted outcomes. In the other hand,
stakeholder engagement can also define as the practices where organization takes a structured
approach to consulting with potential stakeholder. (Ferrero, I. F., Izquierdo, M. A.F., 2010)
explain one of the role of stakeholder engagement is that, stakeholder engagement contributes to
the identification of material aspects, making it possible to find out the reasonable expectations
and interests of stakeholders (Global Reporting Initiative, 2013). Materiality in stakeholder
engagement may improve the stakeholder–organization relationship by addressing those issues
that are relevant to the organization and its stakeholders consistently with the stakeholder theory.
Stakeholder engagement become fundamental in the sustainability reporting since it legitimized
the report and demonstrate the institution accounts for stakeholder concern. (Kaur & Lodhia,
2018) mentioned that there is some quality of stakeholder engagement in the sustainability
reporting and accounting process increases responsiveness, transparency and accountability
(Brown & Hicks 2013) and addresses the problem of determining the extent of accountability of
local councils by placing boundaries on the reporting (Herbohn & Griffiths 2008).

III. CASE STUDY (Practices of stakeholder in sustainability reporting)

Journal tittle: Environmental Reporting Practices In Malaysia And Australia

(Yusoff, Othman, & Yatim, 2013)

The study of environmental reporting practices in Malaysia and Australia intends to

explore and investigate companies’ practices in reporting environmental information, and a
focus on two-country practices is deemed to offer better understanding about the reporting
practice. Based on the previous study made by Yusoff and Lehman (2008), they explored
environmental reporting practices among publicly listed companies in Malaysia and Australia
and investigated the potential influencing factors of environmental disclosures made in
corporate annual reports. An investigation facilitates understandings about a company’s
strategy and initiative in reporting environmental information towards fulfilling the needs and
demands for environmental information by various stakeholders’ groups as well as gaining
their support for the company’s activities.
Based on the stakeholder theory, a company acknowledges the multiple settings of
stakeholder groups. The theory discovers a significant correlation between
 stakeholder power,
 strategic posture,
 economic performance and t
 the levels of social and environmental disclosures,
In terms to indicate that the more critical the stakeholders’ control is, the more likely
companies will satisfy the demands of stakeholders (Ullman,1985). In comparison,
environmental information, other than financially related information, is found to be useful to
stakeholder groups including government authorities, employees, NGOs, and the general
public (e.g. Deegan & Rankin 1996; Brown & Deegan 1998; Bewley & Li 2000).
The corporate environmental reporting in both Malaysia and Australia studied in this
paper has shown the reporting practice is predominantly general and qualitative in nature.
Comparatively, results pertaining to similar quality of environmental disclosures in corporate
annual reports and ‘other’ reports in both countries, as well as the type of influencing factors of
environmental disclosures, imply that companies in these countries are yet to achieve good
corporate reporting accountability. One reason may be these companies seldom integrated
environmental issues and management into their corporate goals or business strategies.
Nevertheless, a growing effort in simplicity is not a way to move forward for environmental
reporting.

Journal title: Environmental Reporting Practices in Malaysia - Is It A Mechanism for

Corporate Accountability and Stakeholder Engagement (Yusoff, H., & Darus, F., 2012)
 Environmental reporting implicitly recognizes that stakeholder engagement is in place;
which is crucial for maintaining a sustainable business. The aim of this study is to explore
environmental reporting practices in Malaysia and emphasize that the reporting practices help as
a means of communication corporate accountability to several stakeholder groups with the
ultimate aim of enlightening business-stakeholders relationship (Yusoff & Darus, 2012).
However, this study will attempt to tell how companies manage on communicating
environmental information and performance publicly to their stakeholders.

A number of studies have concluded that environmental and social disclosure in Malaysia
are minimal, and low in both quantity and quality. Meanwhile, several studies have been
explained and focused on five themes associated with CSR which comprised of human resource,
environment, community involvement, product and consumers. The narrative form of
environmental message is used by companies as their core strategy to meet stakeholders’
demands, and to legitimize their business position. Moreover, the findings also prepared the
useful to the several groups of stakeholders (Yusuf et al, 2006)

This research conducted a questionnaire survey which was undertaken among Malaysian
public listed companies to obtain information regarding their environmental reporting practices
and their recognition of the stakeholder groups. Only 22% from 31 companies which carried out
some form of environmental reporting. The result of this amount means that corporate managers
have taken constructive steps in implementing environmental reporting practices. It includes
having several reporting, categorizing stakeholder groups and attractive with them. In addition,
the result also shows that companies involve in environmental reporting tend to improve their
corporate image and to release their company accountability in meeting stakeholders’
information difficulties.

IV. CONCLUSION

Through the explanation above, it can be inferred some definitions of stakeholder and
stakeholder engagement as well as the practice of stakeholder in sustainability reporting. The
first idea defines Stakeholders of an organization as any individuals or groups that are either
affected by or can affect the operations of that organization, and stakeholder engagement as the
process used by an organization for a clear purpose to achieve accepted outcomes. In the other
hand, stakeholder engagement can also define as the practices where organization takes a
structured approach to consulting with potential stakeholder.

Based on those two cases study above, the importance of environmental disclosures in
corporate annual reports and ‘other’ reports in both countries Malaysia and Australia, as well as
the type of influencing factors of environmental disclosures, imply that companies in these
countries are yet to achieve good corporate reporting accountability. In addition, the result also
shows that companies involve in environmental reporting tend to give their good corporate
image and to release their company accountability in meeting stakeholders’ information
difficulties. That is why, stakeholder engagement plays important role to achieve the company’s
goal.
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