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What is Sustainability Accounting?

Mike works for Medical Innovations in the research and development area. He recently has had two new medical device inventions that have resulted in $10 million in sales so far. He is a very valued employee. Medical Innovations has several employees like Mike, and management knows the company is very fortunate. What is the value of Mike and his associates to Medical Innovations? What happens if Mike decides to leave the company, or if he gets ill and has to take time off? What happens to future sales? What is the value of human capital? Do the shareholders of Medical Innovations know the value of its employees or the sustainability of future earnings if good employees were hard to find?

Sustainability Accounting may be the next emerging issue for accountants. How do we measure corporate activities that enhance the company or create value over time? Activities, such as the impact on the environment, customer relations, highly trained employees, or product innovation, are not always reflected in the numbers, but are valuable assets for the organization and that information should be provided to the shareholders and decision makers.

The dictionary defines sustainability as “the ability to be supported, upheld or confirmed” and “supporting long-term balance” (dictionary.com). The latter sums it well in that organizations are trying to balance the production of goods and services with human and social capital, impact on the environment, as well as governance.

The Sustainability Accounting Standards Board (SASB) states that “sustainability accounting reflects the management of a corporation’s environmental and social impacts arising from production of goods and services, as well as the management of the environmental and social capitals necessary to create long-term value.” (SASB.org) It is their goal to develop sustainability accounting standards to help guide corporations in disclosing information to their stakeholders. The Sustainability Accounting Standards Board, created in 2011, is an independent 501(c)(3) nonprofit. It is not associated with the Financial Accounting Standards Board or the Government Accounting Standards Board. It was created to increase transparency and encourage companies to do the same (Rogers, 2016). The risks vary by industry, so the SASB organized sustainability topics under five broad scopes: Environment, Social Capital, Human Capital, Business Model and Innovation, and Leadership and Governance. However, for example, hazardous waste management is very different in the manufacturing industry versus the health care field.

Financial accounting is intended to reflect a company’s current position, recording transactions based on book value. A transaction must be probable (likely to happen) and estimable (cost known). Sustainability issues are difficult to price and will often look to the future, where there is uncertainty. The sustainability standards were developed to help identify topics that are likely to have a material impact for the organization’s future operations or finances.

While sustainability issues are vast, the goal of SASB is to hone in on those issues that are likely to affect the financial condition or the operations of the company (Rogers, 2016). Accountants must be prepared to deal with these issues and report them to stakeholders, not only for better decision making, but also for comparability to other companies and for possible new innovation.

Saint Mary’s University of Minnesota’s Master of Science in Accountancy program embraces emerging issues, such as sustainability, in its course, “Contemporary and Emerging Issues”. To learn more about Saint Mary’s M.S. in Accountancy, please contact an enrollment counselor at 877-308-9954 or click here for more information.

About the Author

Melanie Torborg, CMA, is the Program Director of the Accounting Programs at Saint Mary’s University. She has a Bachelor’s Degree in Finance and a Master's Degree in Business. She is also a Certified Management Accountant with more than 20 years of experience in corporate accounting. Her favorite areas of accounting are budgeting, strategic planning, and financial statement analysis.

References:

Rogers, Jean. (2016). The Next Frontier, Strategic Finance, June, 29-37.

Sustainability (Def 1). Dictionary. Com. Retrieved June 28, 2016. from http://www.dictionary.com/browse/sustainability

Sustainability Accounting Standards Board. (2016). SASB Exposure Draft. Retrieved June 27, 2016. from Sustainability Accounting Standards Board. http://www.sasb.org/