The approach taken in producing this paper is not an academic one, but more aptly described as an informal approach that is accessible to all. Although the phenomenon of ‘engaging communities’ is not specifically highlighted within this paper, it is present throughout, and is an integral part of the philosophy and process of social accounting. What is social accounting? “Social accounting and auditing is about understanding the impact of organisations on our society…the overarching context is… sustainability: both sustainability of the organisation itself (the interrelation of the social, the environmental, the cultural and the financial) and sustainability of behaviour which contributes to a future for the people and the planet” (Pearce 2001). The essence of social accounting is accounting for what we do and listening to what others have to say so that future performance can be more effectively targeted at achieving the chosen objectives. Social accounting is distinct from evaluation in that it is an internally generated process whereby the organisation itself shapes the social accounting process according to its stated objectives. In particular it aims to involve all stakeholders in the process. It measures social and environmental performance in order to achieve improvement as well as to report accurately on what has been done. Social accounting is a dynamic concept and is best viewed as a tool for continuous improvement. Social accounting and reporting are the management tools that can bring about the cultural change needed to expand the financial bottom line to include the social. Social accounting — the beginnings Social accounting is not a new concept — it has been around for decades (Sustainability 1999). The last major interest in the area occurred in the 1970s. For example, one reference (Lindsey 1979) from 1979, retrieved in a database search contained the following abstract, “Hospitals, as a part of the complex health care delivery system, are the same as any other business when it comes to being socially responsible, and they soon will be singled out for social audits. This change will mean a commitment to a systematic assessment of and reporting on areas in the hospital's activities that have a social impact”. However, after an initial appearance in the 1970s, it gave way to environmental reporting. Only relatively recently has social accounting experienced a resurgence.
Terminology Some approaches to social accounting include accounting for both environmental impacts and performance under the social heading; others treat environmental and social separately. A triple bottom line (TBL) approach has become the most widely accepted, where social accounting and reporting represent one of three (social, environmental and economic) dimensions. Because of the relatively recent reappearance of social accounting, the terms and jargon pertaining to the field are still developing. ‘Social auditing’ is most often used as a generic term for social and environmental accounting, auditing and reporting. The term ‘social’ is itself very broad. What can it cover? The social is likely to be linked to both the tangibles and intangibles. The social is likely to include ethics, and could address human rights, labour standards, diversity/non-discrimination, health and safety, quality of people management and community issues. What the ‘social’ includes is determined by both the organisation and its stakeholders. Importantly, it is not predominantly external to an organisation’s core business, but is ultimately integrated into all aspects of the organisation. Why do social accounting and reporting? Each sector and each particular organisation will have its own reasons for looking to account for their social performance. Some reasons reported by organisations include the following; acting sustainably, ‘walking their talk’, improving social and environmental performance, being more accountable, attracting additional funds, becoming more economically viable, being a leader in the field, attracting a wider market, a public relations tool, meeting objectives, working within a framework and improving reporting ability.1 An additional factor that applies to the ‘for profit’ sector is that of mandatory social reporting. In some countries social reporting is a legal requirement. For instance, in France companies with over 300 employees are required to produce a social report. In the UK a regulation on Pension Funds “requires trustees to state the extent to which they have taken environmental and ethical considerations into account in fund management” (New Economics Foundation 2000). There are initial signs in Australia that mandatory requirements may also drive greater social accounting and reporting here. The Financial Services Reform Act 2001 requires a Product Disclosure Statement (PDS) for financial products that have an investment component. This includes superannuation products, managed investment products and life insurance products. The PDS has to include a statement on “…the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention or realisation of the investment” (Birch 2001). 1 From a recent survey, conducted by the writer, of 20 organisations that are accounting for, or planning to account for their social performance.
Who does social accounting and reporting in Australia? Organisations from various sectors that are committed to the process include: • BP Australia • Newmont Australia • State Forests of New South Wales • The Body Shop Australia and New Zealand • Westpac • Department of Family and Community Services • Maleny Credit Union • Streetwize Communications • Bundaberg Skills Centre • Mission Australia • Gavin Macleod’s Concrete Pumping. A still small but growing number of Australian organisations are adopting social accounting processes and preparing social reports. However, here in Australia, accounting for the social can be aptly described as a newly emerging phenomenon. The current situation The triple bottom line approach to accounting, auditing and reporting is finally moving beyond a talking point in Australia. The advent of the Global Reporting Initiative Sustainability Reporting Guidelines (GRI),2 the Guide to Reporting Against Environmental Indicators, and the (hopefully), soon to be released Guide to Reporting Against Social Indicators (both Australian initiatives) are welcome steps in the right direction. In addition Australian networks are forming and growing steadily. In the United Kingdom, social audit methods have been developing over the past 15-20 years, and learning, experimenting and adapting has occurred along the way. I was fortunate to be able to visit the UK in late 2002 and observe the work of other social auditing enthusiasts, such as John Pearce and Alan Kay. John is author of a comprehensive and user-friendly manual3 and workbook on Social Audit and Accounting, and a Director of Community Business Scotland. Observations and conversations did much to further whet my appetite for social auditing. As a consequence of this visit I became familiar with ‘The Scottish Model’ of Social Accounting and Audit. 2 GRI information to be found at
Room for improvement The following quotes all indicate that, locally and globally, social accounting could indeed be improved. “The real danger we face is that there is a lot of talk about something which nobody is doing,can do or wants to do — sustainability reporting. This term though is used interchangeably with something which everybody could do — triple bottom line reporting — but virtually nobody is doing! And what are organisations doing? Well most of them are doing nothing at all and free riding on the backs of a few leading reporters who have yet to even reach the foothills of triple bottom line reporting.” (Rob Gray, Professor of Accounting, University of Glasgow, Scotland, 2002) “Effective reporting is not always the best means of demonstrating effective performance…as long as we think we can measure the social in the same way as we have measured the financial, as the bulk of existing TBL reports do, then little is likely to change.” (Professor David Birch, Director, Corporate Citizenship Research Unit, Deakin University in Financial Review, 2003) “ACCOUNTING ACADEMIC DISMISSES VERACITY OF SUSTAINABILITY REPORTS… Company reports on environmental and social performance can be so far from reality that they 'are not worth the paper they are written on' says Australian academic, Prof Carol Adams…” (Ethical Investor Newsletter, no. 204, March 2005) Therefore, care needs to be taken regarding the approach to social accounting that develops in Australia. There is one major issue I will draw to your attention; measurement and reporting seem to be taking centre stage as isolated entities rather than within a social accounting framework. This could easily result in superficial adoption of social auditing by organisations. Although uncertain about the reasons for this occurrence I suspect that embracing the Global Reporting Initiative Reporting Guidelines (GRI) without more robust and necessary foundations may be a contributor. Other reasons could include adopting ‘the technical fix’ approach with a focus purely on measurement, and pressure from ‘above’ to focus on outcomes to the exclusion of all else. Meaningful application is much more likely to occur if a holistic approach is adopted with measurement and reporting being viewed as part of a social accounting framework. Other vital parts of that framework include identifying an organisation’s values and objectives, linking these with suitable strategies and indicators and building them into core business, as well as consulting and building relationships with stakeholders.
A framework is vitally important in the creation of strength and cohesion. The process “For every company that has publicly committed to this path (sustainable development), a dozen more are watching and studying. Their success, and every move they make toward sustainability, will greatly influence and determine the future of this planet. These lofty words are contrasted by the yeoman-like quality of the work that needs to be done…Work (that) consists of thousands of distinct tasks, daily changes in requisitions, constant alterations of specifications, the complete redesigning of products, and tens of thousands of hours learning, questioning and collaborating” (Paul Hawken, environmentalist and author. From The Cooperative Bank’s Partnership Report). The Principles Social accounting models need to share fundamental principles (Pearce 2001).i The overarching principle is to achieve continual improvement in performance relative to the organisation’s social impacts, chosen social objectives and stated values. Other principles include: • Multi-perspective — Aim to reflect the views of all those involved with or affected by the organisation • Comprehensive — Aim to (eventually) report on all aspects of the organisation’s issues, impacts and social performance • Regular — Aim to produce social accounts on a regular basis such that the concept and the practice becomes embedded in the culture of the organisation • Comparative — Provide a means whereby the organisation can compare its own performance year on year against appropriate external norms and benchmarks; and provide for comparisons to be made between organisations doing similar work and reporting in a similar fashion • Verified and assured — Ensure that the social accounts are audited by a suitably experienced person or persons with no vested interests in the organisation • Disclosed — Ensure that the audited accounts are disclosed to stakeholders and the wider community in the interests of accountability and transparency.
Models Whilst there is a variety of models, tools and information sources I will focus on one particular model, The Scottish Model, used mainly in the not-for-profit sector. I have followed the steps through a number of accounting cycles and have audited social accounts produced by organisations based on this model. Experience has led me to believe that it offers a meaningful approach to social and environmental accounting. Its benefits include: • A comprehensive framework • Based on key principles • Values-driven • Most organisations that use the model report very favourably on how it has benefited their organisation • It comes with a ‘how to’ manual that is about to be published as a second edition following extensive consultation with users of the first edition. The Scottish Model was tested by John Pearce of Community Enterprise Consultancy and Research in the early 1990s. This model, has up to now, followed a Five Stage approach to Social Accounting. The Five Stages of Accounting are: • Introducing Social Accounting • The Foundations • The Nuts and Bolts — Social Book-keeping • Preparing and Using the Social Accounts • The Social Audit and Reporting. After consultation in 2004 with user groups the stages were reduced to three. A new manual with a three-step approach is due to be published. Recommendations Australian organisations that have utilised this model and that I have worked with in various capacities include Maleny Credit Union, Bundaberg Skills Centre, Streetwize Communications and Mission Australia (Qld). These organisations are pioneers in Australia in accounting for their social and environmental performance in a thorough and comprehensive manner. It has not been an easy journey. The following are general recommendations in relation to the social accounting process. 1. It has been noted that the motives to begin social accounting vary, and there are often multiple reasons. However, whatever the motive, there has to be a strong drive to see the process through from beginning to end of a cycle. A person or persons within the organisation needs to be committed, and preferably passionate, about the undertaking.
Support for this process within the organisation is also advantageous so that he/she can delegate the various tasks without undue resistance to the extra workload. 2. Invest in a comprehensive manual and, at least in the initial years, follow the steps religiously. There can be a tendency to ‘wander’ through the process and this can lead to a less than satisfactory set of accounts on the completion of the cycle. So, go with the tried and tested to begin and, as confidence and understanding build then there is more room for ingenuity and a lateral approach. However, I would still press the importance of incorporating all core steps so as to ensure the production of a good quality set of social accounts. 3. Stay on track by having a detailed time line. 4. Credit the process with a high level of importance, not something just ‘tacked on’. 5. Keep the number of objectives manageable; otherwise actions required can ‘fan out’ and overwhelm all those involved. 6. Maintain a ‘framework’ perspective — keep your attention on linking back to your organisation’s values, given the benefits of a ‘values driven approach’. 7. Stay focussed on the ‘big picture’ as much as possible. The practice is valuable on many levels — global, local and organisational. Keeping this in mind assists with maintaining momentum. 8. Try to obtain resources to outsource some of the tasks. If you don’t have the finances, then utilise students. The latter has been reported as a beneficial strategy. The step-by-step process requires patience and stamina. However, all organisations overwhelmingly report that undertaking social and environmental accounting is of considerable benefit to the organisation and that their efforts were worthwhile. The following case studies report on benefits and challenges and I will leave final assessments of the worth of the process to the reader. Conclusion In closing the body of this paper I’d like to reiapproach to accounting for an organisation’s social and environmental performance here in Australia. In so doing I will use an analogy for a holistic approach to social accounting — that of the tree. The roots are the foundations of the approach, consisting of embedding values and objectives within the organisation; the trunk represents the utilisation of key principles and processes pertaining to the approach; the limbs and branches represent the process of learning, nforce the call for the adoption of a meaningful
experimenting and adapting using a range of methods; and lastly the fruits and nuts represent the outcomes of a healthy organisation.