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TopBackground
The increased awareness of the need to protect the environment along with human rights issues have been part of society for many decades. These issues were highlighted by the Civil Rights movement in the 1960s and the first Earth Day in 1970. Jeffers and DeGaetano (2012) noted the increased attention on the ethical behavior of corporate officers by consumers occurring in large part to the shift of personal savings from traditional bank accounts to mutual funds and pension accounts. This shift created financial incentives to track the performance of companies and when combined with the expansion of the Internet created a mass communication network which facilitated the easy dissemination of information to average investors and the general public. The craving for information was heightened by a string of environmental catastrophes such as the Three Mile Island accident in 1979, the Bhopal Gas Tragedy in India in 1984, the Chernobyl Accident in 1986, the Exxon Valdez oil spill in 1989 and the British Petroleum oil spill in 2010. These disasters called into question the responsibility of management to their stakeholders as well as to the general public and highlighted many company’s alleged disregard for the environment. The 1989 Exxon oil spill led to the Valdez Principles which later became the 10 CERES Principles for protection of the biosphere.
The demand for reliable financial information and management accountability further intensified and increased in importance as a result of a pattern of financial irregularities committed by management and large scale corporate scandals that cost investors billions of dollars. Companies involved include Global Crossings, Arthur Andersen, Enron, WorldCom, AIG and Lehman Brothers. These scandals occurred in the 2000s and were exacerbated by the subsequent global financial crisis that started in 2008. The huge number of corporate irregularities as well as the volatility of the U.S. stock market further highlighted the need for and importance of high-quality financial reporting and assurance services and the need to restore investor confidence in financial reporting. Following the devastating effects of the corporate irregularities, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) aimed at enhancing the reliability of financial reporting and making corporate executives more accountable.
Key Terms in this Chapter
International Integrated Reporting Council (IIRC): This organization formed in 2010 brings together representatives from a cross section of interest groups. Its aim is to create a globally accepted framework for communication by organizations about the increase in value that they provide.
Sustainability Accounting/Green Accounting: Accounting for and reporting on sustainable issues. It includes the effects of social and environmental costs on the profitability of a business, as well as the standards developed for communication of the sustainability efforts of a corporation.
Sustainability Accounting Standards: The framework and standards for accounting and managing all forms of capital.
Sarbanes-Oxley Act of 2002 (SOX): The most sweeping corporate legislation passed by Congress since the Securities Acts of 1933 and 1934. The Act includes a set of reforms that toughened penalties for corporate fraud, restricted types of services that can be offered by CPAs and created the Public Company Accounting Oversight Board with broad powers to oversee the accounting profession.
Global Reporting Initiative (GRI): A non-profit organization that promotes economic sustainability. It seeks to harmonize reporting standards for all organizations and make sustainability reporting by all organizations routine and comparable to financial reporting.
Sustainability Accounting Standards Board™ (SASB™): A non-profit organization that is engaged in the development of industry-specific sustainability accounting standards.
Sustainability/Sustainable: The development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It includes environmental as well as human rights issues. It is also known as “Green Initiatives” “The Three P’s (People, Plant and Profits)” and the Triple Bottom Line.
Sustainable Alpha: The concept of creating a difference in value at the exit point through focusing on sustainability risk.
Corporate Governance: The structure and the relationships which are central to the board of directors of the company and its other primary participants, such as management, employees, customers, suppliers, creditors and environmental groups. The corporate governance framework also depends to a large extent on the legal, regulatory, institutional and ethical environment of the community in which the company operates.