THE IDENTIFICATION, MEASUREMENT, AND REPORTING OF CORPORATE SOCIAL IMPACTS: PAST, PRESENT, AND FUTURE

Marc J. Epstein
ABSTRACT
This paper provides a review of the progress made in both academic literature and corporate practice over the last forty years. Although there has been an increase in the number of companies producing social and environmental reports, the quality of the disclosures has not increased. Further, there is little evidence of progress in the integration of social and environmental impacts into management decisions. The paper provides suggestions on research needs to increase the integration of social and environmental impacts into management decisions and improve both the internal reporting and external disclosures and accountability of corporations.

INTRODUCTION
In recent years there has been a proliferation of academic and managerial publications concerned with the subject of social reporting and the integration of social, environmental, and economic impacts into managerial decision-making. This trend parallels a similar surge of interest in social accounting during the
Advances in Environmental Accounting and Management Advances in Environmental Accounting and Management, Volume 2, 129 Copyright 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1479-3598/doi:10.1016/S1479-3598(03)02001-6

MARC J. EPSTEIN

1970s; it reects a renewed academic and corporate concern for principles of corporate social responsibility. To the potential detriment of its longevity, however, this sense of responsibility has not as yet been fully integrated into corporate decision-making. In the 1970s this lack of integration resulted in a failure to bring about enduring and substantive social impacts. Thus, the present context begs the question: Will the current discourse engender lasting changes in corporate action or will these progresses simply dissipate as in the 1970s? This paper reviews and reects on the development, current state of the art, and future prospects for the identication, measurement, and reporting of corporate social impacts. It provides insights into the developments that occurred over the last four decades, describing the path that social accounting1 has taken and examining the reasons for that path. It investigates the organizational barriers that were created and the impacts of the organizational environment on social accounting development. Additionally, a research and management program to improve the implementation of social accounting in corporations is provided. This investigation is based on reviews of both the academic and managerial literature and extensive eld research by the author throughout this period. Other recent reviews of the development of social accounting include Mathews (1997), Woodward (1998), and Gray (2001). This paper is also based on the authors extensive involvement in the development of social accounting in both academia and business over the last thirty years in both the United States and Europe. Though I have engaged in an earnest attempt to be objective, my extensive involvement has certainly impacted my views of these developments. Though beginning my research in the area in the late 1960s and writing in the early 1970s, my role as both an external consultant and as a full time employee as Director of Social Measurement Services at Abt Associates, Inc. during the 1970s has certainly impacted my understanding of the early developments. Abt Associates, as discussed later in this paper, produced social audits for their own annual reports and for both internal and external reports for many clients. I was involved in most of those activities and directed the social audit efforts. I have also been involved in research and consulting in the identication, measurement, and reporting of social, environmental, ethical, and economic impacts in for prot and not-for-prot entities for more than thirty years with both North American and European based companies. My books and articles (some of which are referenced in this paper) reect some of my thoughts and experience along with reporting on extensive eld, survey, and other research. Though much of the popular press has suggested that the increased social disclosures reported by companies is signicant, I see little evidence that in many cases it is much more than public relations or that it has fundamentally changed the organizations culture, concern for social issues, and social performance. Further, though European

The Identication, Measurement, and Reporting of Corporate Social Impacts

based companies have a higher level of social disclosures than North American companies, I have seen little evidence that they integrate social and environmental impacts into either operational management or capital investment decisions to any greater extent. Globalization and the global capital markets have caused the concern for shareholder value to be preeminent. Companies are focused on short term earnings to meet nancial markets expectations and many companies are reluctant to invest in social and environmental improvements that have a speculative long term gain when other investments have a more identiable short term prot. Social and environmental managers have largely been unsuccessful in convincing their leaders that there is a payoff from social investments especially when budgets are tight. Neither academic researchers nor corporate managers have provided

Fig. 1. The Stages of Evolution in Social Accounting.

MARC J. EPSTEIN

enough compelling measurements, analysis, and justications to convince CEOs to allocate the necessary funds to make signicant improvements in corporate social performance. Although many observers have presented optimistic views of current developments in corporate social accounting (ACCA, 2001; Watts & Holme, 1999), others in increasing numbers are concerned whether the changes in corporate culture and disclosure are (a) institutionalized and (b) likely to be maintained. This paper recommends caution for those optimistic views, arguing that despite an increase in the quantity of companies that provide social disclosures, the quality of those disclosures has not improved, nor have companies integrated social and environmental information into managerial decision-making or institutionalized it sufciently to change corporate culture. Ultimately, then, increased social disclosures may have improved corporate accountability but may not have improved social and environmental performance. Using an historical perspective, this paper analyzes both recent and prior developments from 1960 to the present, which can be broken down into ve stages (Fig. 1).

THE DEVELOPMENT, DECLINE, AND REVIVAL OF SOCIAL ACCOUNTING: ACADEMIC AND CORPORATE CONTRIBUTIONS IN THE 1960s, 1970s, 1980s, AND 1990s
Stage 1 19601969 Antecedents of Social Accounting During this stage, the focus in both academic research and managerial practice was primarily on the evaluation of government sponsored social programs and their contributions to social welfare. Social science measurement techniques, including those developed for the evaluation of military efcacy, were rened and applied to social programs. This was accompanied by increased academic and government emphasis on both the efciency and effectiveness of government spending (Dunlap & Catton, 1979). Attempts to broadly dene and measure the growth and improvement in societal wealth and welfare were often included in discussion under the rubric of social accounting (Terleckyj, 1970; U.S. Dept of H.E.W., 1970). This occurred within a context of signicant community pressures and protests of various corporate and government activities. Corporations were challenged on issues such as the manufacture of weapons, environmental emissions, civil and human rights practices, community contributions, and employee diversity (Boyer, 1984; Hammond, 1987). The role of corporations in society became an issue of concern, and corporate leaders began making it an important point of discussion. Incongruously, signicant discussion did not equate to signicant action, despite

The Identication, Measurement, and Reporting of Corporate Social Impacts

the development of many tools for implementation of programs intended to ensure corporate social responsibility (Wilson, 2000).

Stage 2 19701977 Birth and Initial Development of Social Accounting Many of the current developments in social accounting can be largely attributed to the contributions of Ray Bauer, a Harvard management professor, and Dan Fenn, who coauthored The Corporate Social Audit (1972). Their work was based on extensive eld research on the implementation of corporate social responsibility and the development of social audits. Also contributing to the genesis of the eld were John Corson and UCLA professor George Steiner, who wrote Measuring Businesss Social Performance: The Corporate Social Audit (1974), a book based on a survey of corporate activities focused on evaluating social performance. Academic researchers and practicing accountants were also involved in the early developments of the eld. The American Institute of Certied Public Accountants conducted a seminar on social measurement. Following the seminar, the institute formed a committee to investigate the potential role of accountants in the further development and evolution of social accounting. The committees report The Measurement of Corporate Social Performance: Determining the Impact of Business Actions on Areas of Social Concern (1977) presented extensive material on both measurement and reporting of social impacts, including areas such as customers, environment, nonrenewable resources, suppliers, and employees. It examined objectives, measures, and data collection. The American Accounting Association also established and published works related to the topic (AAA, 1975, 1976). The National Association of Accountants supported a eld research study that examined social accounting at General Electric, First National Bank of Minneapolis, and Atlantic Richeld (Epstein et al., 1977b). The research also included a survey of corporate activities in this area and was part of a series of three studies sponsored by the NAA that also included an environmental study (Nikolai, Bazley & Brummet, 1976) and a human resources study (Caplan & Landekich, 1974). Other accounting academics and practitioners were also working on the development of models for the measurement of corporate social impacts. Estes (1973, 1976), Seidler and Seidler (1975), Linowes (1972, 1974), Epstein et al. (1977a, b), Dierkes and Bauer (1973), and Dierkes and Preston (1977) all provided early contributions with eld studies, theoretical classications, measurement frameworks, and reporting formats. Reports of both survey and eld research in the application of social accounting to product and service contributions were reported in Epstein et al. (1977b).

MARC J. EPSTEIN

In addition, numerous corporations advanced the development of social accounting by implementing it within their companies. Most notable among these were Abt Associates, First National Bank of Minneapolis, Eastern Gas & Fuel, Scovill Manufacturing, First Pennsylvania Bank, and Phillips Screw (see Epstein et al., 1976, 1977a, b). During this stage, much of the methodology for the social audit was developed, and over 100 such audits were conducted, many in consultation with Cambridge, Massachusetts based social science research and consulting rm, Abt Associates, Inc. In a few cases, complete social income statements and balance sheets were constructed. More often, data was aggregated to improve managerial decisions in a particular context, rather than attempting to t it into a standard reporting format. Since the reports were customized for clients, some reports were distributed externally but more often they were for internal management evaluations only or for use with particular stakeholder groups. Many were developed for specic purposes, such as communicating more effectively with certain stakeholders and aiding managers with particular decisions. These included evaluations of potential facility locations and the impact of plant closure on community wellbeing, as well as the evaluation of product labeling practices, employee benet programs, and the value of company products and services to the community. The reports also examined issues related to management control systems that could be used to systematize social responsibility in ways that might substantively link strategy to action. Social accounting was the mechanism by which senior executives intended to implement various strategies for social responsibility. During this stage, new techniques for measurement were developed and others from the social sciences were adapted, rened, and applied to the evaluation of corporate social impacts. Many of the techniques, based on economic, sociometric, and psychometric approaches, are still used today to evaluate the impacts of corporate products, services, processes, and activities on a companys various stakeholders. One of the most important developments was the work completed in the early 1970s at Abt Associates. Abt utilized a constituent impact approach to construct social income statements and social balance sheets for inclusion in its own corporate annual report and for many of its clients. Client social audits included evaluations of corporate social programs, broad evaluations of corporate social impacts, and evaluations of the impacts of both prot and not-for-prot organizations on society. Also, these social audits often included evaluations of the impacts of products, services, corporate social programs, and of corporate philanthropy.2 The social audit that was included in Abt Associates, Inc.s corporate annual reports in the early 1970s focused on reporting the impact of the company on its various stakeholders including employees, customers, the community, and

The Identication, Measurement, and Reporting of Corporate Social Impacts

shareholders (Epstein et al., 1976). All items were reported in monetary terms and in a balance sheet and income statement format with extensive footnotes to provide details on the measurements used for each of the line items. The social balance sheet included a subtraction of social liabilities from social assets to calculate societys equity in the social resources of the company. The social income statement reected a netting of the social benets and social costs of the companys activities on society. Abts reports also made progress by calculating the nancial returns on social investments patterned after traditional corporate return on investment calculations. These practices reected the companys belief that the nancial earnings of the company are the result of both its nancial and social assets. The academic literature in management also made progress in the identication and measurement of social and environmental impacts. Post and Epstein (1977) developed a framework for the development of a social accounting information system capable of continuous identication and monitoring of actual social demands and public expectations. One of the more interesting European implementations of social accounting was the 1976 report by Gr ojer and Stark (1977) of the social performance of Swedish based Fortia Group. The authors discussed both the theoretical underpinnings of the model and a description of the implementation. Like the Abt report in the U.S., the Fortia report looked at constituent impacts and examined the return that various stakeholders (including employees, shareholders, and the community) received from the company. In addition to the monetary measurements, the authors included descriptive discussions of those items they believed could not or should not be measured in monetary units. Consequently, unlike Abt, they were unable to calculate a social prot and loss. Nonetheless, the disclosures were substantial and provided more information than is typical of company reports today.

Stage 3 19781986 Decline of Social Accounting During this period, government and businesses became increasingly focused on economic prosperity, relegating social concerns to the periphery. Thus, there was a lull in both academic development and corporate implementation (Purser et al., 1995). Those few still making progress discovered the transience of non-institutionalized changes as CEOs quickly eliminated programs, a purge reecting both a primarily prot-driven corporate temperament and a failure to operationally integrate social accounting within corporate culture. Without institutionalized practices and protocol, social responsibility derives sustenance

MARC J. EPSTEIN

from corporate focus, and when that focus shifted to protability, preservation of these concerns could no longer be ensured. By early in this stage, the regression was so complete as to leave almost no evidence of social accountings progresses. Both academia and business seemed to have lost interest. Not until concern for improved management of corporate environmental costs increased did environmental accounting again become of signicant interest (Bennett & James, 1998a; Epstein, 1996b; Parker, 2000a, b). Also, external support and demand for information on environmental and social impacts declined, and by consequence, companies perceptions of the need for additional accountability to the public also declined. There was no systematic and organized measurement and reporting framework developed that would provide continuous support and acceptance of social accounting and no grassroots support for the external reporting of social impact information by external stakeholders. Thus, with insufcient internal impetus and waning external demand for the continued supply of information, corporate interest in the identication, measurement, and reporting of environmental and social impacts subsided. In academia, social accounting was not accepted as a discipline by the academic establishment, thereby depriving institutional support to those who would contribute research but needed to obtain tenure and promotion at their institutions. Not until the development in 1976 and increasing importance of Accounting, Organizations, and Society was there a respected outlet for research contributions in this area. Also, due to the decline in industrial support, some researchers lost sites for eld visits and data for empirical studies.

Stage 4 19871998 Revival of Interest in Social Accounting Although a marked burgeoning within the environmental movement may be traced to the rst Earth day in 1970 (Dunlap & Catton, 1979; Freudenberg, 1986), it was not until the late 1980s that social and environmental accounting came again to the forefront. Signicant environmental regulations enacted in the 1980s in conjunction with increased enforcement made companies recognize substantial environmental liabilities on their nancial statements and required large expenditures for remediation of prior emissions. Numerous publications in both the academic and managerial press revealed the benets of preventing negative environmental impacts rather than dealing with clean-up costs and nes (Berry & Rondinelli, 1998; Neu et al., 1998). In 1996, a major research study reporting the state of the art and best practices of corporate environmental management and accounting was published. Entitled Measuring Corporate Environmental Performance: Best Practices for Costing and

The Identication, Measurement, and Reporting of Corporate Social Impacts

Managing and Effective Environmental Strategy, the book reported the ndings of the largest eld research study ever conducted in this area (Epstein, 1996b).3 Although the study included a review of external reporting and auditing, it focused on the internal corporate systems and culture conducive to the implementation of effective social and environmental impact management strategy, structures, and systems. This book and numerous other contemporaneous developments directed attention to the eld of social and environmental accounting, effecting its addition within the mainstream discourses of both managers and academics. Discussions about the ways in which social responsibility issues might be integrated within existing accounting and control systems and the appropriate breadth of stakeholder concerns included in the management decision-making process followed. Together, increased environmental regulation, mounting pressure from internal and external stakeholders, and a variety of both cost and revenue imperatives brought corporate environmental responsibility to the attention of managers and researchers alike. Professional accounting associations, academics, and other non-prot organizations and industry associations also made signicant contributions to the literature on both internal and external environmental accounting (Bennett & James, 1998a; CICA, 1993, 1994, 1997; Ditz et al., 1995; Epstein, 1996b; Gray et al., 1987, 1993; Ilinitch et al., 1998; Schaltegger et al., 1996; SMAC, 1995, 1996). These contributions advanced the discussion of the state of the art and best practices, but the discussion was not accompanied by substantial improvements in corporate practice, nor did it lead to the advancement of theories, frameworks, or tools to identify, measure, and report social and environmental impacts. Also, there were few eld based research projects that examined the corporate integration of social or environmental impacts into management decisions and their relation to both management accounting and management control until Epsteins study of corporate environmental performance in 1996. Even Epstein et al.s (1976) AOS article was primarily focused on external reporting. Though this was part of a major research project that did investigate the integration of social and environmental impacts into management decisions generally and product and service contributions specically and was funded by the National Association of Accountants (an association of management accountants), external reporting was the primary focus. That social accounting in the 1970s was directed towards innovative attempts to provide additional external disclosure of the impacts rather than institutionalization of these concerns into day-to-day management decisions is one explanation for this focus. Thus, Stage 4 was characterized by a proliferation of corporate environmental reports, most of which were intended for external rather than internal distribution. Some of the reports included extensive disclosures of environmental liabilities,

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operating expenses, and capital expenditures, and others included detailed synopses of company programs aimed at the reduction of future environmental impacts. Some of the reports were also veried by environmental consulting rms or the companys independent auditors (Epstein, 1996b). Organizational structures evolved, decentralizing the function of environmental management to individual business units, thereby allocating environmental responsibility and performance expectations to all levels of management. This dramatic increase in environmental measurement and reporting and the concurrent evolution of environmental management was not, however, complemented by similarly signicant advances in the measurement, reporting, and management of broader social impacts. More progress on these issues has been made during stage 5.

Stage 5 1999Present Redevelopment of Social Accounting When the 1990s began there were few environmental reports produced, but as the decade progressed, hundreds of companies began producing corporate environmental reports. By the late 1990s an increasing number of companies began producing social or sustainability reports as substitutes for, or in addition to, their environmental reports indicating a shift back to broader social issues as companies have begun to determine that the analysis and integration of broader social impacts provides information necessary for improved decision-making by both internal and external stakeholders. A broad analysis of social impacts allows corporations to more accurately evaluate stakeholder needs and anticipate their responses, which then enables them to more effectively manage their relationships with the community and their customers, thereby driving increases in revenue. Additionally, the consideration of broad social impacts in day-to-day operational capital decisions can improve cost management. Leadership in external social reporting during this period was coming primarily from Europe, followed by North America, Australia, and Asia (Epstein, 1996b; Kolk, 1999; KPMG, 1999; SustainAbility, 2000). An increase in the number of social reports accompanied this shift in concern to broader social issues. The reports were often produced often under the rubric of sustainability, a broader framework than the predominately environmental perspective of the previous period. Public accounting and consulting rms began to offer services in this area with such titles as PriceWaterhouseCoopers reputation assurance (Peters, 1999) and KPMGs sustainability services. These services focused on reducing organizational risk by minimizing negative social impacts and enhancing reputation, and the reports often responded directly to corporate concern with determining the payoffs associated with specic investments in corporate social responsibility. Yet despite the growing number of

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reports, the development of measurement and reporting frameworks still has not surpassed the progress made in the 1970s.

THOUGHTS ON THE DECLINE AND REVIVAL OF SOCIAL ACCOUNTING

Thus, although twenty-ve years have passed since major developments occurred in the eld during the 1970s, little progress has been made in social accounting. In 1976, Epstein, et al identied seven classes of social reports: (1) internal reports; (2) external reports; (3) descriptive reports; (4) quantied reports; (5) monetized reports; (6) partial social accounting reports; and (7) comprehensive social accounting reports. Currently, these seven categories of social reports remain effective and, as was the case twenty-ve years ago, very little activity exists in producing the comprehensive reports, which examine a broad range of social impacts and provide the most useful information for the effective management of the full scope of corporate impacts on both internal and external stakeholders. An examination of the coverage of social accounting in academic journals such as Accounting, Organizations and Society and Accounting, Auditing, and Accountability Journal provides insight into and a reection on the developments in social accounting in both academia and industry. Beginning with Epstein et al.s (1976) article in its rst issue, AOS published numerous articles on social accounting over the next few years. Most of these articles provided an examination of the disclosure of corporate social and environmental impacts, but these articles were focused primarily on the external reporting of these impacts rather than internal reporting and decision-making.4 In many ways, a discussion of the reports analyzed in the current accounting literature is similar to the discussion of the state of the art and social accounting in the 1970s. The reports included discussions of intentions, concerns, policies, and results. Again, however, there is little evidence that this concern for social or sustainability issues has been well integrated into the strategies, structures, systems, and cultures of the companies. The failure of social accounting, then, can be traced to the lack of institutionalization of improvements in measurement and reporting for social and environmental impacts in either the organizations or the public. Without integration of these impacts into routine management decisions, organizational change cannot be effective. In order for current developments in social accounting to be sustainable, it is necessary that the information such analyses provide be reported to both internal managers responsible for day-to-day operational decisions and external stakeholders who provide external accountability.

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Notably, environmental issues appear to be better integrated into operational and capital decisions. Managers are expected to operate in environmentally responsible ways and make decisions that are consistent with this responsibility. Capital investment decisions typically require scrutiny and approval by environmental professionals. This is the result of extensive regulations, a decade of corporate concerns that are becoming more institutionalized, large liabilities that must be disclosed, and substantial cost savings from environmental improvements that are easier to both calculate and justify (Shrivastava, 1995). Still, social and sustainability disclosures are usually not widely distributed and are not typically written in such a way as to be useful to stakeholders. Ultimately, these disclosures appear in too many cases to be prepared for external distribution for public relations purposes rather and are not necessarily evident of integration and institutionalization of social and sustainability issues into corporate culture. Neither does it appear to be evident of concern for a more complete accountability to the diverse set of corporate stakeholders. The survival of interest in social reporting, however, requires that it not be focused primarily on external disclosure but rather that it operate as an integral part of a larger corporate and societal shift toward emphasizing the social roles of corporations. As part of this shift, corporate focus expands to include the recognition of multiple stakeholders in the corporate decision-making process. Social accounting cannot be constructed primarily to provide public relations material intended to placate community concerns but rather should be used to change daily decisions made within organizations (see Doane, 2000; Neu et al., 1998). Also, readers of social reports need to evaluate them to determine underlying changes in the corporations, managerial decision-making and corporate culture before assuming that lasting changes have been achieved. Of course, there are exceptions. Just as in the 1970s there were leaders in social reporting, there are leaders today. Still, there remains a signicant amount of work that needs to be done by both managers and researchers to improve the identication, measurement, reporting, attestation, and management of corporate social impacts. Among the research contributions to the literature are recent collections of articles that provide an overview of some of the issues and developments in social accounting. These contributions include Bennett and James (1986b) collection of articles on management accounting issues related to the environment, their collection of articles on measurements for sustainability (Bennett & James, 1999), and Zadek et al.s (1997) collection related primarily to external disclosure of social impacts. More of these contributions are likely in the near future as this area continues its rapid development.

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USING SOCIAL ACCOUNTABILITY FOR IMPROVED EXTERNAL STAKEHOLDER DECISIONS AND CORPORATE ACCOUNTABILITY
Much of the focus over the last decade, as was the case in the 1970s, has been on the measurement, reporting, and verication of social indicators for disclosure to external stakeholders. In an attempt to provide guidance and comparability to both information preparers and users, numerous organizations have promoted standards of social reporting as an attempt to satisfy various stakeholders needs and improve corporate accountability. Examination of these organizations and standards provides an understanding of both the state of the art and best practices in external social reporting. The ISO 14000 series of standards were published in 1996 to improve both environmental management and environmental performance (SMAC, 1998). They provide guidance for certication and improvement in such areas as performance evaluation, auditing, labeling, and life cycle assessments. The only standard subject to certication, ISO 14001 is a process standard, rather than a performance standard, and thus does not prescribe a minimum level of environmental performance. Rather, it describes a system that will ensure that companies can measure their environmental performance and it is hoped that this will lead to improved performance. This is in contrast with EMAS (Europes Eco-Management and Audit Scheme), which is a performance standard and requires minimum levels of environmental performance. In 1997, the Council of Economic Priorities established SA 8,000 (Social Accountability 8,000) as a standard focused on workplace conditions. An afliated accreditation agency was established to develop and verify the implementation of the standards and to accredit rms to be external auditors. The Institute of Social and Ethical Accountability, founded in 1996 and based in England, has developed AA1,000 (Accountability 1,000) as a set of standards of practice for the external disclosure and verication of social, ethical, and environmental information. Another recent development is the Global Reporting Initiative (GRI). Established in 1997 with the participation of numerous corporations, consulting rms, and non-governmental organizations, the GRIs mission is to design globally applicable guidelines for corporate sustainability reports. In the pilot phase, some companies used the GRI framework in their sustainability reports. The World Business Council for Sustainable Development (WBCSD), an industry coalition of 120 international companies based in Geneva, Switzerland, has made some progress in the development of frameworks to promote, measure, monitor, and manage corporate sustainability.

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The WBCSD has been rooted in the belief that performance in the social area is inevitably more difcult to quantify than commercial or even environmental performance (Watts & Holme, 1999). This is a view commonly held in industry and offers one explanation for the lack of progress in the measurement of social and environmental impacts. Misconceptions about traditional accounting reports endow them with unrealistically high levels of precision and reliability, provoking expectations of similarly unrealistic levels of empiricism in social accounting. These expectations deprive corporate social accounting of numerical legitimacy and, by consequence, hamper the integration of social and environmental responsibility into day-to-day corporate decisions. Yet, social science techniques that provide reasonable estimates for social and environmental performance do exist. These measures, though requiring further development, nonetheless provide substantial and valuable information, which enables managers to more accurately evaluate the tradeoffs made in day-to-day management decisions. Thus, denitions of corporate prot and performance need to be expanded to include the increase or decrease of welfare for all stakeholders due to corporate action, rather than the easily monetized impacts on nancial stakeholders alone (Epstein & Birchard, 1999). A perpetually increasing demand for reporting to both internal and external stakeholders Epstein and Freedman (1994) has generated a market for numerous consulting rms who have developed practices around the measurement, reporting, attestation, and management of corporate social and environmental impacts. One such consulting rm, PriceWaterhouseCoopers has developed a framework, a principles matrix, and a set of effectiveness indicators for stewardship, environment, health and safety, and communication. Notably, the framework and the indicators are focused on the effect of social and environmental issues on corporate reputation (Peters, 1999). Arguing effectively for the relevance of social and environmental concerns to long-term stakeholder and shareholder value, London-based consulting rm SustainAbility has also developed a framework for the integration of these and economic concerns (Elkington, 1998). Recent research has focused on the impact of a reputation for social performance on stock price (Schnietz & Epstein, 2003). Additionally, in an attempt to develop standards of corporate social responsibility, the Social Venture Network published a set of nine principles in 1999, including: (a) global principles of corporate social responsibility; (b) a guidance document to more carefully articulate the components of the principles; and (c) a measures document that began to identify possible measures for each of the principles (SVN, 1999). The SVN project was intended to be the rst phase of a major research project that observed the strengths and weaknesses of the strategies, structures, people, culture, organizational change efforts, and management control systems that are necessary for the successful implementation of corporate social responsibility. Though never completed, the work contributed to efforts to

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change corporate priorities and formalize the identication, measurement, and reporting of corporate social impacts. The New Economics Foundations (NEF), a non-prot U.K. based organization, has focused much of its attention on the development of a framework and tools for social accounting. In Social Auditing for Small Organizations: A Workbook for Trainers and Practitioners (Pearce et al., 1998), NEF provided a guide to the internal integration of social impacts, the disclosure of those impacts to external stakeholders, and the verication of the measures and disclosures by independent auditors. The workbook provides both a framework for beginning to perform a social audit and guidance on the development of indicators and benchmarks for evaluation of performance. Ralph Estes, who contributed much to the early development of social accounting in the 1970s, has proposed The Sunshine Standards and The Corporate Accountability Act, the latter of which mandates the disclosure of more comprehensive information sets to the public (Estes, 1996). Estes emphasizes the way in which traditional assessments of corporate performance have overemphasized the value of shareholders interests to the exclusion of other stakeholders interests, making accounting complicit in the irresponsibility of corporate behavior. Standard setters, in attempting to make these various standards operational, have sought to establish a standard set of disclosures and approach performance metrics that permit comparisons of corporate social and environmental performance across industries. Differences in company size, geographic diversity, complexity, and nature and level of environmental and social impacts of products and activities complicate this task. Nonetheless, a broad set of measures that successfully integrates social, environmental and economic impacts would greatly benet both internal and external stakeholders. In response to the requests for input from the Global Reporting Initiative, a number of organizations including the New Economics Foundation and PriceWaterhouseCoopers have developed social indicators for use in the proposed external sustainability reporting guidelines. Another important recent development is the establishment of the Dow Jones Sustainability Group Indexes in 1999. These include global indexes based on a systematic methodology that tracks sustainability performance and provides investors and companies a way to compare performance. Another company attempting to provide services to the investment community and corporate managers on sustainable performance is Innovest. With their tool, EcoValue21, the company tries to combine nancial and environmental performance and exploit the risk migration and investment out-performance opportunities in the substantial but largely unrecognized differentials in the eco-efciency of major industrial corporations. These all further the developments of probably the best known of these indexes, the Domini Social Index, established in 1990 and

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composite of 400 socially responsible corporations (Epstein & Birchard, 1999). These developments also relate to the increasing concern over the relationship between social and environmental performance and nancial performance. Though numerous studies and analyses of these relationships do exist in the literature (Aspen Institute, 1998; Blumberg et al., 1997; Margolis & Walsh, 2001; Zadek & Chapman, 1998), a clear relationship cannot yet be specied. Pertinent to the further development of social accounting is the development of the internet. Where previously prohibitive costs of collection and distribution stymied general access to environmental and social impact information, no such barriers currently exist. External stakeholders or companies could create uni-dimensional reports by stakeholder, facility or impact, or alternatively, aggregate the information into a total impact report with the provision of links to related and more detailed information. Thus, information can be easily posted and accessed, resulting in a broader forum of stakeholders involved in its analysis and able to ensure accountability. Increasingly, investors are demanding this information and its concomitant social accountability. However, a comparison of corporate annual reports, environmental reports, and sustainability reports from over 200 companies with those reported by Epstein et al. (1976) reveals little substantive progress. Although the quantity of these reports has increased dramatically since 1976, current reports are still inferior to Abts report of thirty years ago, containing fewer useful measures than some other reports from that time period. Furthermore, there is little evidence to show signicant integration of a social and environmental concerns or a broad set of stakeholder interests into management decision-making or corporate culture. Prior research has shown that the levels of environmental disclosure and the level of environmental performance are often not highly correlated (Rockness, 1985; Wiseman, 1982; also see Doane, 2000; Neu et al., 1998). Therefore, it is being suggested here that these are too often an exercise in public relations rather reective of a deep concern for accountability and action. In order to ensure the continuation of the current interest in social accounting and further progress in the eld, however, its developments must be integrated with the management accounting and control systems. Otherwise, the future of the eld is likely to repeat its history, experiencing a surge of interest, as in the 1970s, followed shortly by a decline, as in the 1980s.

USING SOCIAL ACCOUNTING FOR IMPROVED MANAGERIAL DECISIONS

Increasingly companies are examining how to t social and environmental issues into existing management systems. This often includes accounting systems like

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activity based costing and strategic management systems like shareholder value analysis and balanced scorecard, which examine drivers of value in organizations (Epstein & Birchard, 1999; Epstein & Young, 1999). General managers achieve substantially better understanding and recognition of environmental and social impacts when they are measured in monetary terms since this allows them to integrate these concerns into operational and capital investment decisions and recognize where tradeoffs are necessary. Quantication in monetary terms also permits a more comprehensive understanding of impacts on various corporate stakeholders in both the short and long term. Life cycle assessment and life cycle costing are also being used in an effort to provide systematic evaluations of ultimate product responsibility during all phases of its life cycle, from product concept, material acquisition, R & D operations, manufacturing, customer use, to nal disposal (Datar et al., 1997). Some community and environmental activists have been concerned that using economic value added or any other shareholder value metric acknowledges that shareholders are the primary stakeholders and denies the relevance of other potential stakeholders to management decisions. This particularly applies to those stakeholder impacts that are difcult to quantify and external impacts without clear methods of internalization. The most important issue, however, is that the identication and measurement of both the stakeholders and impacts must be broadened to encompass the impacts of capital investment decisions over the entire life of the investments, including product take back. Many companies currently do not consider broad life cycle impacts that will affect long-term corporate protability (Epstein, 1996a; Epstein & Roy, 1997a). Thus, in order for social accounting to be an effective tool in sustainability, it must assess a wide range of stakeholder interests over the entire spectrum of product and service life, relating these issues directly back to prot over both the short and long term. This can be accomplished if the principles of corporate social responsibility and the processes of social accounting are fully integrated into corporate culture and management systems.

DISCUSSION AND ANALYSIS OF CURRENT EFFORTS IN SOCIAL ACCOUNTING FOR MANAGERIAL DECISIONS
The earlier discussion attributed much of the decline of social accounting in stage 3 of the evolution to the lack of institutionalization within organizations. Current organizational efforts to primarily improve managerial decisions related to social impacts and concerned with external disclosure secondarily may have more permanence. Using some of the newest measurement and management

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systems, some companies have found that signicant improvements can be made in the decision making process to improve both nancial and social performance (Epstein & Wisner, 2001a; Wisner et al., 2002). However, many of these corporate systems are not widely promoted and are not tied to external disclosures, thereby inhibiting the realization of their full efcacy. Companies are nonetheless recognizing there are numerous opportunities to reduce negative environmental impacts and are adopting environmental management systems to improve their performances. Many are examining how these same approaches can be applied to broader social issues. In terms of structure, the corporate sustainability department is responsible for dening worldwide requirements and objectives and then measuring and reporting environmental performance. The central ofce has only a coordinating role, and individual business units are responsible for developing their own programs to meet the established objectives. In the early stages of integrating this system, though, strong central management is necessary to both monitor and motivate performance. As companies search for ways to improve their performance, determining the best ways to thoroughly integrate these improvements into all parts of the company still causes difculty. In order to improve this integration of social and environmental impacts into day-to-day management decisions, companies must tie the measurement and reporting of these impacts into the decision-making processes already in place. Further, these impacts must be measured and reported in nancial terms and then integrated into the traditional investment models. To reduce the negative social impacts of corporate activities, the drivers of the costs and benets must be analyzed. Understanding these drivers is necessary in order to better identify, measure, and manage social impacts. Epstein and Roy (2001) have developed a model to better understand the drivers of sustainability, considering both the drivers of sustainable performance and the sustainable drivers of nancial performance, along with the development of appropriate measures (also see Epstein & Wisner, 2001b). The model (see Fig. 2) begins with corporate and business unit strategy and examines the various ways that a companys sustainability performance is determined. Among these are actions a company takes deriving from corporate strategy. There are various structures and systems the can be used proactively on issues of social concern. These could include a combination of the four levers of control described by Simons (1995) as boundary, belief, diagnostic, and interactive system. These systems and structures could also be developed out of strategy to impact sustainability performance or instead in a reactive mode to respond to the performance indicators before the stakeholders are impacted or see the impact. The available systems and structures could also include reactions to stakeholder concerns through feedback loops that are created to improve

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Fig. 2. Drivers of Sustainability.

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management of these issues and that may be directed to altering strategy or specic actions affecting sustainability performance. The model can be used to measure sustainability performance in either monetary terms or other metrics related to nancial performance. Equipped with an enhanced understanding of the drivers of social costs and benets, managers should be able to make better decisions regarding the tradeoffs that consistently must be made where corporate products and activities may have a positive impact on one stakeholder and a negative impact on another. Additionally, the model facilitates the inclusion of both leading and lagging indicators of performance. More information related to the strategies, structures, systems, and culture that are in place might enable better predictions of future sustainability. The information should then be of interest to both internal and external stakeholders. One of the major disappointments of social accounting in the 1970s was the lack of institutionalization within corporate culture. This allowed these concepts to die within corporations as senior leadership changed and the pressures to increase protability and pursue other interests mounted. Thus, institutionalization of the vision and mission within corporate systems and structures is absolutely paramount.

THE CHALLENGE TO RESEARCHERS: THE DEVELOPMENT AND APPLICATION OF FRAMEWORKS AND MEASURE FOR SOCIAL ACCOUNTING
Many have argued that a major impediment to the development of social and environmental accounting is the inability to measure impacts and performance in the same objective manner as nancial accounting. Further, it is often argued that auditing of social and environmental information is hampered because standards of reporting have yet to be established and thus verication of reports cannot be accomplished as it can in the auditing of nancial statements (Pruzan, 1998). Although generally accepted accounting and auditing standards have yet to be developed for the measurement and reporting of corporate social impacts, neither internal nor external reporting need be constrained. Economists for years have employed various techniques for translating human values into monetary terms to enable the evaluation of the performance of public and corporate social programs. Techniques like willingness to pay and contingent valuation methods have been used successfully in economics and can be used effectively in measuring social and environmental impacts of corporate actions. Thus, companies should be developing methods to improve internal reporting and decision making so as to improve their understanding of the issues and improve long term protability.

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Further, government regulators (such as the SEC in the U.S.) establish regulations for minimum disclosures required of all publicly held companies. They do not specify maximum disclosures, so companies should disclose any information that will aid shareholders and other stakeholders in better understanding the condition and performance of the company and permit forecasts of future performance. Numerous measures have been developed for use in social accounting (Epstein, 1996b; Epstein et al., 1997a; Epstein & Birchard, 1999; Peters, 1999; SVN, 1999). These often draw on existing social science measurement techniques based on economics, psychology, and sociology (Freeman, 1993; Mishan, 1971). Accounting researchers must be involved in developing these techniques further and demonstrating how they may be applied to existing corporate evaluations because neither managers nor academic researchers have made much progress in the accounting or management of corporate social impacts over the last 25 years. They have not developed the techniques, reporting frameworks, or the systems and structures necessary to drive this through organizations. And if social accounting is going to provide relevance and reliability of information for management decisions, both internal and external reporting as well as systems for implementation of sustainability strategies must be improved. Managers need to better understand the drivers of success in organizations, but the traditional models of shareholder value do not sufciently examine the interests of non-nancial stakeholders. Broader analyses that cut across internal corporate functions, consider the interests of all stakeholders, and examine the drivers of long-term organizational success, are required (see Epstein & Birchard, 1999; Epstein et al., 2000; Epstein & Roy, 2001). Improved measurement is required. Improved internal and external reporting is necessary. Organizational leadership that recognizes the importance of a broad sensitivity to long term impacts and the systems necessary to implement these concerns in organizations is also required. Better analysis of the value of organizational relationships and the linkages between internal and external drivers of success is also needed. The measurements and the drivers must be brought together as companies evaluate both leading and lagging indicators of success. Thus, in evaluating corporate social performance, both lagging indicators of past performance and leading indicators of future performance related to the systems and structures in place to reduce future negative impacts are needed. This analysis is at the core of the work of Epstein and Roy (2001) described above. Developing a Model for Implementing Social Accounting As a response to the issues discussed in this paper, Epstein and Birchard (1999) have developed a model to integrate the internal and external components required

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Fig. 3. The Accountability Cycle.

for implementation of social accounting for both internal decision making and improved accountability in organizations. In Counting What Counts: Turning Corporate Accountability to Competitive Advantage, Epstein and Birchard (1999) provide a framework for accountability that includes four primary elements (see Fig. 3): (1) Improved corporate governance; (2) Improved measurements that include operational and social measures of performance along with a broadened set of nancial metrics that include both lagging and leading indicators; (3) Improved reporting to a broad set of internal and external stakeholders of information relevant to decisions. This begins with internal reporting to managers and the selection of various voluntary disclosures to supplement the mandatory external disclosures that are currently the primary content of corporate reports; and

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(4) Improved management systems to drive these improvements through corporate culture and change the way managers make decisions to improve both corporate accountability and corporate performance. The book provides a framework for social accounting that integrates both internal and external reporting. It links all of the necessary elements to operationalize social accounting and provides, the mechanism to link social, environmental, and ethical concerns to nancial performance. It provides a model for the integration of social concerns into day-to-day management decisions and does so in a format that examines the relevance of social issues to overall corporate performance. A new measure of corporate performance that supplements the lagging indicators that accountants have traditionally used with leading indicators is needed. This should include a broad recognition of those who have a stake in the equity of enterprises and the long term social impacts of companys products, services, and processes, so as to provide a comprehensive portfolio of a companys social and nancial performance. Recognized stakeholders should include employees, customers, suppliers, and the community, in addition to nancial stakeholders. By including these impacts in the measurement and reporting of an integrated measure of corporate performance and including the information in both internal and external reports and decisions, both corporate accountability and internal decisions related to the improvements of overall stakeholder value can be improved.

The Next Step Current Needs In part, the failure of social accounting is due to the lack of an integrated model for both internal and external reporting and for the identication and measurement of a broader set of impacts and corporate performance. The model proposed by Epstein and Birchard is an attempt to rectify that failure and provide a broader concept and denition of the actions that lead to corporate accountability. They argue that the internal reporting and external disclosures must be part of an integrated system that includes governance, measurement, reporting, and management control systems. Studies summarized in this paper have described the state of the art and best practices in the measurement and reporting of sustainability in both corporate practice and academic research. Both academics and corporations have further developed frameworks and techniques that can be uses to implement sustainability in order to reduce both corporate social impacts and improve accountability. However, there remains much work to be done by managers, who must institutionalize the concern for sustainability and implement the structures and systems necessary to support it. These must include improved measurement and integration into

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day-to-day management decisions, including operating and capital decisions and performance evaluations. There is also substantial room for signicant research contributions to both the theory and practice of corporate social accounting. Some of the current needs are: (1) Develop new techniques (and apply existing ones) for measuring social and environmental impacts; (2) Examine international differences in the state of the art and best practices in management of social and environmental impacts. Determine the causes for those differences and ways to improve corporate social and environmental performance; (3) Examine alternative frameworks for external reporting in corporate annual reports and sustainability and environmental reports. Determine the most useful measurement and reporting format for various external stakeholders; (4) Develop eld research projects that test the success of various systems to identify, measure, monitor, report, and manage social and environmental impacts and determine the variables that drive success. Are these systems more successful in rms that are small/large, centralized/decentralized, global/locally adaptive, have high/low impacts, etc.? (5) Determine whether changing the information provided to managers is sufcient to change their decisions or whether it is necessary to change their decision-making models in order to facilitate the consideration of social and environmental impacts. Must the management of these impacts be a part of the performance evaluation and incentive systems in organizations in order to bring them into managerial decisions? (6) Develop, rene, and apply models and techniques for the implementation of social accounting and sustainability strategies and the management of social and environmental impacts in organizations. Are the accounting and control systems different for managing these impacts? (7) Test the effectiveness of models such as the Epstein-Roy sustainability drivers model to both describe drivers of sustainability and nancial performance to improve managerial decisions; (8) Examine the relationships of stock price and cost of capital to corporate social and environmental liabilities and performance. Through projects like these, accounting researchers can aid in the integration of social and environmental impacts into management decision-making and the implementation of corporate sustainability strategies. This can result in high quality academic research, improved management decisions, improved corporate prots and reduced social and environmental impacts.

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Now, as in the 1970s, many CEOs are describing their profound interest in providing greater benets to the community. As aforementioned, too often this has been either empty promises or an inability to deliver on the commitment. This is due to a lack of institutionalization and integration into day-to-day management decisions. If current activities are intended to be more than external reporting for public relations purposes, then they must be part of a comprehensive sustainability strategy that is driven through the organization. Having committed themselves to sustainability, many large companies and accounting researchers must now gure out how to use management accounting and control systems to implement the necessary changes. The development of social accounting may prove to be an excellent example of the importance of integration of governance, measurement, reporting, and systems and the critical importance of implementation and institutionalization in attempts to change organizational cultures, systems, and decisions. With reliance solely on external disclosures without internal integration, the social accounting of the 1970s was destined to fail. Likewise, without the institutionalization of governance, measurement, and reporting systems, current changes will not last. There is a signicant amount of activity to develop various standards and improve indicators to identify, measure, monitor, and report social and environmental impacts to external stakeholders and to improve corporate accountability. This, however, is similar to the pattern of development in the 1970s, which did not lead to long-term success or the institutionalization of social accounting within industry or academia. As suggested earlier, an integration of the reporting to both internal and external stakeholders is required. Additionally, the linking of this reporting to a broader model of implementation that includes a broadened set of measures, improved corporate governance, and the uses of management systems to drive this through organizations is necessary (Epstein & Birchard, 1999). Academic researchers can provide the frameworks and tools necessary to ensure that the academic and managerial developments of social accounting have more longevity and substance than those in the past.

NOTES
1. Despite more than twenty-ve years of development in the eld, terminology still lacks standardization. Social audit, social accounting and accountability, social responsibility reporting, social and sustainability performance measurement, and sustainability reporting are all terms used to describe the measurement and reporting of an organizations social, environmental, and economic impacts, as well as societys impacts on that organization, including both positive and negative impacts. Corporate citizenship, social responsibility, accountability, stakeholder responsiveness, and sustainable development are all terms

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used to represent the ways in which corporations, internal and external stakeholders, and society interact. 2. In some cases the reports were descriptive and some quantitative. Measurements were sometimes in physical and other quantitative measures and some were monetized. 3. The study reviewed the internal and external documents of over 100 companies and conducted visits and interviews at 35. 4. For examples, see Lessem (1977) and Dierkes and Preston (1977).

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