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Internalising externalities continuum.

Internalising externalities continuum.

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Article
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Externalities comprise economic, social and/or environmental impacts arising from the activities of an entity that are borne by others, at least in the short term. As they do not feedback directly into immediate financial consequences for the entity, they tend to be outside the remit of financial reporting. A dispersed academic accounting literatur...

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Context 1
... contract theory, in conjunction with greater clarity arising from developing scientific and sociological knowledge, suggests a continuum whereby positive and negative externalities can progressively become financially internalised over time, as shown in Figure 1. ...

Citations

... Stakeholders expect organizations to be transparent and accountable about multiple dimensions of their performance, such as the economic, social and environmental dimensions (Aras and Crowther, 2008;Testa et al., 2018). An increasing number of organizations regularly publish reports to communicate their sustainability engagements and achievements to external and internal stakeholders (Unerman et al., 2018;Lai and Stacchezzini, 2021;Onkila et al., 2018). Organizations also interact with their stakeholders by disclosing information in social media (She and Michelon, 2019). ...
... It has been recognized that many organizations struggle to match their sustainability commitment with strong internal actions (Ozanne et al., 2016;Paolone et al., 2021). Organizational functions work in silos, without sustainability being a common and integrative organizational feature (Unerman et al., 2018;Argento et al., 2019). In addition, accounting practices do not fully encourage sustainable behavior due to their inability to fully resonate with societal expectations (Lawrence et al., 2013). ...
... As sustainability becomes increasingly relevant, organizations have implemented alternative paradigms to financial profit maximization and have made efforts to integrate economic, social and environmental performance (Unerman et al., 2018;Carroll, 2010;Gond MEDAR 30,7 et al., 2012). Organizations also disclose information about sustainability-related processes and outcomes, thereby enabling both internal and external stakeholders to understand the organizations' sustainability position (Massa et al., 2015). ...
Article
Purpose This paper aims to examine why the sustainability paradox exists and how it unfolds by focusing on intraorganizational dynamics. It explores how organizational actors perceive and make sense of sustainability and thereby contribute to the sustainability paradox. Design/methodology/approach In a case study on IREN, an Italian listed multi-utility with considerable engagements with sustainability, data collection through interviews, e-mails and document analysis revealed contradictions raised by directors and middle managers. Findings were analyzed by iterating with the literature used to frame this study, which combines organizational sensemaking, paradoxes and management control. Findings The sustainability paradox comprises various facets. Directors and middle managers interpret sustainability differently depending on their role within the organization and their perceptions of the concept itself. Different interpretations thus occur within and across organizational levels and functions, impacting how sustainability is implemented and monitored. The use of parallel management control systems (MCSs) reflects multiple and fragmented sensemaking, which explains the facets of the sustainability paradox. Research limitations/implications Although this work illuminates the role played by individuals at top- and middle-management organizational levels and MCSs in relation to the sustainability paradox, more research is needed on how individuals make sense of sustainability at the lowest organizational levels. Practical implications Organizations claiming commitment to sustainability must establish communication forms on the practicalities of sustainability throughout the organization to stimulate shared sensemaking and the design and use of inclusive MCSs. Originality/value This paper explains why and how organizations unconsciously enact various facets of the sustainability paradox.
... According to Bhagat and Hubbard (2020), companies should engage in corporate social activities if a more favourable trade-off between profit and social good will result. The shareholder approach seems to imply that the more a corporation is oriented towards profit, the less likely it will be environmentally responsible, as any ESG is viewed as an expense (Adegbite et al. 2020;Rashid 2020), although Unerman, Bebbington and O'Dwyer (2018) posit that firms rarely internalise all socioenvironmental costs related to production. ...
Article
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Orientation: In Zimbabwe, mining is a significant economic sector but has adverse environmental impacts. Purpose: This article assesses environmental responsibility practiced by gold mining companies differentiated by ownership structure and assesses the ownership system that leads in environmental, social and governance practices. Motivation for the study: The adverse environmental impacts inherent in gold mining need assessments to gauge the integrity of the environmental stewardship using the structure–conduct–performance paradigm as an assessment framework. Design, methodology, approach: The mode of assessment is to establish, through the structure–conduct–performance paradigm, whether these governance systems affect the companies’ environmental performance, and if so, to what extent. The article uses a multiple case study design with a population of 35 large-scale gold mining companies that are members of both the Chamber of Mines of Zimbabwe and the Mine Industry Pension Fund, and 23 participated. The article uses a mixed methods approach using a questionnaire and structured interviews to collect quantitative and qualitative data, respectively. The study employed Kruskal–Wallis rank test, to rank the differences in governance structures’ performances. Findings: The results show that gold mining companies in Zimbabwe exercise environmental stewardship. Mining companies listed on foreign exchanges and local private limited companies exhibit more responsibility than other ownership types. Practical implications: Government policy to compel soil restoration and overburden management can improve these practices. Contribution/originality/value of the study: This study contributes to the burgeoning literature on corporate environmental responsibility by illuminating the possible role played by ownership structure in environmental responsibility.
... After Roth et al. (2018b) question of negative externalities -economic, social, and/ or environmental costs generated by operators which are borne by others. Assuming that the production of negative externalities is not financially punished by regulators, they rarely manifest as immediate financial consequences and are thus often not considered to be negative costs on companies' balance sheets (Unerman et al. 2018). In the short term, negative externalities may affect an operator's willingness to engage in DSM activities, though they are not considered to affect its ability. ...
Article
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The growing importance of cobalt to the US economy has led to its categorisation as a critical mineral. Cobalt demand is increasing due to its requirement in lithium-ion batteries, which will significantly contribute to the energy transition. Supply is threatened for various reasons, primarily regarding supply chain concentrations, with the majority of the world’s cobalt originating in terrestrial deposits in the Democratic Republic of the Congo, and being refined in China. There remain environmental and ethical concerns over the present supply chain. Previous discussions around reducing cobalt’s criticality have suggested diversifying processing locations to reduce geographical and jurisdictional reliance where possible. This study assesses the viability of extracting cobalt from polymetallic nodules (PMNs) located on the deep-seabed in the Area, as an alternative strategy to reduce cobalt’s criticality. Assessments are made of the viability of PMN extraction considering ongoing barriers to introduction, contrasted with current arguments supporting PMN extraction. PMN mining offers a more stable and decentralised alternative to current cobalt supply. There exist impediments to its introduction, notably potential environmental impacts, which remain poorly understood. Technical and political restrictions must also be overcome. It is argued that the wider environmental benefits of increased cobalt supply from PMN mining may offset its detrimental environmental impacts. It is suggested that PMN mining be used in a wider strategy to improve supply security of cobalt to US markets.
... the power to expand their activities in disproportionate ways, and with a focus on short-term gains, resulting in the biosphere being treated as an externality (29,61). Companies are rarely forced to take into consideration the full social and ecological costs of doing business, given that they are generally not taxed for their environmental impacts (29). ...
Article
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Corporations are perceived as increasingly powerful and critically important to ensuring that irreversible climatological or ecological tipping points on Earth are not crossed. Environmental impacts of corporate activities include pollution of soils, freshwater and the ocean, depletion of ecosystems and species, unsustainable use of resources, changes to air quality, and alteration of the global climate. Negative social impacts include unacceptable working conditions, erosion of traditional practices, and increased inequalities. Multiple formal and informal mechanisms have been developed, and innovative examples of corporate biosphere stewardship have resulted in progress. However, the biosphere crisis underscores that such efforts have been insufficient and that transformative change is urgently needed. We provide suggestions for aligning corporate activities with the biosphere and argue that such corporate biosphere stewardship requires more ambitious approaches taken by corporations, combined with new and formalized public governance approaches by governments. Expected final online publication date for the Annual Review of Environment and Resources, Volume 47 is October 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
... Le linee guida TCFD hanno rappresentato un elemento altamente rilevante nell'ambito del reporting non finanziario, in quanto hanno contribuito a sostenere il dibattito circa la necessità di muovere da un approccio alla rendicontazione fondato sulla mera rappresentazione di indicatori qualiquantitativi ad un approccio maggiormente analitico in grado di favorire la comprensione degli impatti generati dalle imprese all'interno della società (Unerman et al., 2018). Tale intervento di natura formale mirava, quindi, ad avviare un percorso di sensibilizzazione volto a generare anche effetti di natura sostanziale, data la necessità di giungere ad una quantificazione monetaria degli impatti generati dall'impresa. ...
... Una tra le principali critiche mosse dagli accademici circa la possibilità di standardizzare l'informativa di sostenibilità è rappresentata dalle problematiche connesse alla quantificazione economica delle esternalità generate nell'ambito dei processi aziendali (Laine et al., 2021). Il concetto di valore condiviso comporta, infatti, la necessità di pervenire ad una misurazione quali-quantitativa degli impatti generati dall'impresa all'interno dei contesti in cui opera (Unerman et al., 2018). Tale attività si caratterizza per un elevato grado di complessità data la necessità di operare attraverso indicatori e misurazioni in grado di coniugare la dimensione economico-finanziaria a quella di natura tipicamente socio-ambientale. ...
Book
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La transizione dalla Non Financial Reporting Directive (NFRD) alla Corporate Sustainability Reporting Directive (CSRD), unitamente agli effetti connessi alla progressiva adozione di nuovi strumenti di accountability da parte di aziende private e pubbliche, impone la necessità di condurre nuove riflessioni sul tema dell’informativa di sostenibilità. Lo scopo del presente lavoro è quello, pertanto, di analizzare in rassegna le principali evidenze teoriche emerse in questi ultimi anni sull’evoluzione del sustainability reporting per meglio comprendere quale sia, ad oggi, lo stato dell’arte del dibattito nel contesto nazionale ed internazionale in tema di standardizzazione dell’informativa di sostenibilità. A tal proposito, partendo dall’analisi dei principali framework teorici sviluppati nell’ambito del financial accounting, il lavoro ha cercato di costruire un parallelismo tra la regolamentazione dell’informativa finanziaria e l’altrettanto complesso processo di regulation dell’informativa di sostenibilità. La ricerca evidenzia come il grado di efficacia del D.Lgs. 254/2016 sia stato in parte limitato dalla facoltà concessa da parte del Legislatore di ricorrere a forme alternative di rendicontazione. L’analisi evidenzia, inoltre, come l’armonizzazione de jure dell’informativa sia stata in questi anni supportata dall’adozione de facto negli Enti di Interesse Pubblico delle linee guida GRI Standards. In tale prospettiva, i risultati raccolti evidenziano come il passaggio da un approccio di tipo principle based, fondato sul paradigma dell’armonizzazione, ad un modello più restrittivo, ispirato dal principio della standardizzazione, risulti essere un elemento di complessità la cui analisi non può prescindere dalla preliminare comprensione dei principali limiti che hanno caratterizzato la NFRD.
... Унермана, І. Беббінгтона та Б. О'дваєра, необхідно усунути розбіжності між фінансовою та нефінансовою звітністю, зокрема звітністю у сфері сталого розвитку, а також у рамках самої звітності у сфері сталого розвитку та встановити безпосередні зв'язки між фінансовими й нефінансовими впливами. При цьому основу такого підходу має скласти принципово новий формат організації та ведення бухгалтерського обліку екстерналій [35]. ...
Article
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Корпоративна звітність є важливим інструментом коригування діяльності бізнес-структур під тиском зовнішніх інституційних сил, що реалізується шляхом інформування стейкхолдерів про те, наскільки ця діяльність відповідає запитам суспільства та спрямована на підвищення його блага. Активізація запитів і інвесторів, і стейкхолдерів без фінансового інтересу на якісне розкриття релевантної інформації щодо впливу діяльності суб’єктів звітування на суспільство та довкілля стимулює перманентне реформування системи корпоративної звітності в пошуку ефективних форм і способів її реалізації. Метою статті є визначення концептуальних детермінант подальшого розвитку корпоративної звітності на основі аналізу еволюції теоретико-організаційних засад та практичних механізмів її формування в інформаційних економіках і суспільствах та інституціоналізації корпоративної відповідальності на тлі імплементації парадигми сталого розвитку. Установлено, що побудова системи корпоративної звітності відзначається паралельним застосуванням значної кількості неповних (або нечітко сформульованих) теорій, які стосуються розкриття в ній і фінансової, і нефінансової інформації. У результаті її практичні механізми отримують переважно фрагментарні тлумачення, що в умовах нерівномірного зовнішнього тиску спричиняє появу численних неузгодженостей та протиріч. Доведено, що, незважаючи на відносну врегульованість складання фінансової звітності, необхідність формування цілісної та послідовної теорії корпоративної звітності загострилася в процесі розбудови саме нефінансової звітності, яка перманентно еволюціонує під визначальним впливом інституціональної теорії та теорії стейкхолдерів. Визначено, що зростання інтересу стейкхолдерів до екстерналій обумовило залучення потенціалу обліку до формування нефінансової звітності шляхом активізації професійних бухгалтерських організацій в інституційному середовищі корпоративної звітності. Розширення їхньої юрисдикції та спрямування зусиль на впорядкування правил подання корпоративної звітності забезпечить порівнянність її показників, що сприятиме її використанню стейкхолдерами. Проте релевантність нефінансових показників залежатиме від упливу обліково-фінансових служб на незалежність професійного судження фахівців з екологічних, соціальних та управлінських питань під час формування корпоративних звітів. Задоволення інформаційних потреб стейкхолдерів в інформаційних економіках та суспільствах пропонується реалізовувати шляхом формування корпоративної звітності як структурованої сукупності фінансових та нефінансових показників, які характеризуватимуть майновий стан, результати та наслідки господарської діяльності суб’єкта звітування з обов’язковим наданням незалежного підтвердження їхнього змісту.
... The importance of sustainability for the planetary future is now recognised (at least in principle) as a necessary criterion of human decision-making. Industry, the public sector, companies, accounting and financial markets are all substantively implicated in and affected by sustainability (Schmidheiny and BCSD, 1992;ICAEW, 2004;Hopwood et al., 2010;Unerman et al., 2007Unerman et al., , 2018. There is no question that many organisations have responded to and exhibited leadership in various environmental and social issues. ...
Purpose This article explores and contrasts the views of two influential research projects within the social and environmental accounting space. Both projects advocate for sustainability. The first here referred to as the Critical Social and Environmental Accounting Project (CSEAP), was developed and championed by Rob Gray and calls for immediate radical structural change. The second one is called the Pragmatic Sustainability Management Accounting Project (PSMAP), championed by Stefan Schaltegger, and advocates for an entrepreneurial process of creating radical solutions in joint stakeholder collaboration over time. Design/methodology/approach The paper is the culmination of a decade-long debate between Gray and Schaltegger as advocates of CSEAP and PSMAP, respectively. Specifically, the paper explores the differences and agreements between CSEAP and PSMAP on whether and how companies should pursue sustainability and the role of accounting in these efforts. The paper focusses on critical issues that exemplify the tension in their views: general goals, the role of structure and agency and how to creating change and transformation. Findings The article contrasts CSEAP's uncompromising antagonising approach to accountability and fundamental systemic change with PSMAP's pragmatic approach to sustainability accounting with its management and entrepreneurship-orientated approach to change and unwavering support for transformative managers on the front lines. Despite their apparent differences, the paper also outlines areas of agreement between these two positions and how accounting and sustainability can move forward. Research limitations/implications The debate tries to reconcile language and conceptional differences in the social and environmental accounting (SEA) and sustainability management accounting (SMA) communities to reduce confusion in the research space over what sustainability is for organisations and what role accounting plays in this. The authors hope that the tension between the different positions outlined in this paper generates new insights and positions on the topic. Practical implications While the two views explored in this paper are primarily incompatible, each generates implications for practice, research and education. Debates like this are crucial to moving from discursive disagreement to creating a tolerant and robust foundation for moving forward and achieving much-needed sustainable transitions in the economy and society. Originality/value The authors offer shared understandings, points of continuing disagreement and alternative views on the nature of sustainability. The debate forges a bridge of understanding where both sides can learn from each other.
... In an idealised sense, accounting is an activity that seeks to provide information to inform organisational decision making as well as provide information to support discharge of accountability to those who have rights to information about organisational performance. 1 These functions are, most usually, exercised by those who own, manage or otherwise have an interest in organisations and their various impacts (especially in the form of externalitiessee Unerman et al. 2018). In addition, governance systems (including, but not reducible to corporate focused governance) shape the actions of both organisations and their economic stakeholders and introduce social, economic and (critical for this paper) environmental dimensions of responsibility. ...
Article
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Stewardship is a concept that has historically underpinned the practice of accounting, with a focus on the stewardship of financial resources. As times change, so too do the elements of organisational performance that might be subject to stewardship demands. Critically for this paper, a roadmap for organisational stewardship in the Anthropocene is developed. In brief, the Anthropocene is a term used to describe how human actions drive earth systems functioning, generating effects (for example) on the climate system as well as on the diversity of living creatures. Given these effects, an enlarged understanding of stewardship emerges that focuses on corporate purpose that takes account of wider than financial ambitions and effects as well as on governance processes that can support a broader perspective. The paper also highlights that achieving stewardship for ‘wicked problems’ that emerge from complex adaptive systems (with emergent elements and tipping points) might be best addressed by coalitions of organisations collaborating to achieve systems effects. Such an approach also suggests that accounting data gathering and tracing of organisational impact will require greater spatial capabilities than have previously been the case. Accounting for stewardship in the Anthropocene, therefore, represents a significant advance to current accounting practice. © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
... Beyond the basic economies, investors are looking for a transparent and clear view of business operations and their performance. Similarly, along with investors, the stakeholders nowadays are not just concerned about the financial performance; instead, they are more concerned about the business operations and the company's performance in the long-run, depending on various other factors (Unerman, Bebbington, & O'dwyer, 2018). Likewise, people connected with accounting and finance face the challenge of adapting to the changes in the corporate world and managing the cost concerns. ...
Article
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Corporate reporting has been considered a formal and widespread source of information within organizations. According to standards and accounting rules, financial accounting provides a representation of the financial situation of companies. This representation is communicated through financial statements at the end of each accounting period and under the legal requirements and tax regulations. Thus, corporate reporting has been limited to preparing financial statements for legal purposes and producing historical accounting and financial information. This study is a meta-analysis of prior literature to understand the concept of corporate reporting and identify the key domains that are still not explored by the researchers.
... According to the principle of environmental externality in government intervention theory, corporate environmental performance has the characteristics of public goods (Unerman et al., 2018). Therefore, environmental disclosure should be carried out in an orderly manner under the supervision of regulatory authorities so as to avoid inefficient or even ineffective disclosure caused by information asymmetry (Leftwich et al., 1981). ...
Thesis
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The intensification of the environmental crisis has led stakeholders to pay increasing attention to corporate environmental transparency (CET). One obvious manifestation of this interest is that they require companies to present openness and disclose various information related to the environment. As an influential stakeholder group, policy-makers have also attached greater significance to the adoption of environmental policies based on information disclosure. For example, the International Sustainability Standards Board (ISSB), whose objective is to develop global sustainability disclosure standards, was established at the 2021 United Nations Climate Change Conference (COP26). In policy-making practice, transparency is often advocated as a prerequisite for legitimacy, policy efficiency, and good governance. The direction of accounting research is often inextricably linked to changes in the field of practice. In recent years, the concept of transparency has attracted extensive attention among accounting scholars. However, current research tends to use corporate environmental disclosure as a measure of corporate transparency. In the context of the general absence of environmental disclosure regulation, and therefore of standardised (and comparable) disclosures, this trend is highly controversial. Some scholars have critically commented that in addition to corporate environmental disclosure, there are other channels, such as government websites, media news reports, etc., through which to make corporate environmental information transparent to the public. As the country with the world’s highest share of carbon emissions, China is determined to accelerate various reform measures to achieve the carbon neutrality it has committed to reaching by 2060. Since 2017, China has implemented a mandatory environmental disclosure policy to promote the environmental transparency of listed companies and in so doing provides a promising policy environment and comparable standards for conducting CET research. Therefore, as a response to the academic call for more studies on the complex concept of transparency in the environmental accounting field, this thesis focuses particularly on the concept of CET and its related practices in the Chinese context. The objective of this thesis is to develop a measure of CET and to apply that measure to assess both the environmental transparency of listed companies in China and the impact environmental transparency has on corporate financial performance. Furthermore, the thesis also aims to gain an in-depth understanding of the internal and external driving forces behind CET. To achieve this goal, the thesis set five specific research objectives and asked five research questions. Meeting these objectives and answering these questions involved both finding empirical results (such as correlations) and searching for explanations to gain a deeper understanding of causal mechanisms. Driven by its research objectives and questions, this thesis follows a pragmatism philosophical stance. This paradigm can reconcile the contradiction between research objectives which stems from the long-standing subjective and objective debate between positivism and constructivism. In addition, pragmatism is regarded as providing philosophical and theoretical elements of mixed methods research design that lend mixed research argumentative coherence and validity. Therefore, a mixed research design is chosen for this thesis because the application of both quantitative and qualitative research methods contributes to a more comprehensive and in-depth understanding of the subject (i.e., CET) of the thesis. Guided by the mixed methods research design, this thesis consists of quantitative and qualitative investigations. There are two main findings in the quantitative investigation. First, the environmental transparency of Chinese listed companies does not meet the expectations of policy-makers. This finding is based on the assessment of CET in the Chinese context. Specifically, the mandatory environmental disclosure policy is not well followed; listed companies are suspected of concealing information about significant environmental administrative penalties, and there is a strong sense of mistrust among stakeholder groups towards corporate environmental disclosure, etc. Second, a significant negative correlation between CET and corporate financial performance was obtained through regression analysis on the sample companies. That finding shows that in the short term greater environmental transparency means higher environmental resource allocation, which in turn affects resource inputs in the production process and consequently has a negative impact on profits. In addition, the qualitative investigation identifies the internal and external driving factors behind CET in the Chinese context. First, the internal driving forces are accountability and impression management. The interviewees suggest that, while society’s awareness of corporate environmental accountability is the starting point of CET-related practices, an underlying motivation for these practices is impression management. It is worth mentioning that whether or not the board of directors is an internal driving force behind CET is still controversial. Second, the external driving forces are regulation and stakeholder pressure. The interviewees generally agree that it is the government and its regulatory policies that have an overwhelming influence on CET in the Chinese context. In addition, stakeholder groups, such as investors, the public, third parties, and industrial competitors, are thought to exert varying degrees of pressure to have CET in China. The findings of this thesis have rich theoretical and practical implications. In terms of theoretical implications, this thesis not only supports and develops legitimacy and signalling theories in the environmental disclosure field, but also expands the application scope of stakeholder theory. In addition, the thesis indicates that government intervention theory may have strong explanatory power in the Chinese context. In terms of practical implications, several recommendations are made to environmental policy-makers. For example, legal requirements for mandatory environmental disclosure should be considered; environmental disclosure items need to be improved; reward and penalty mechanisms need to be established; environmental assurance standards need to be developed; and, green financial policies need to be optimised. The findings of this thesis also contribute to existing knowledge. First, the thesis contributes new evidence to the argument that corporate environmental disclosure does not fully represent transparency. Second, the thesis establishes a conceptual framework for CET and contributes a measure of CET and so responds to the calls for more work that reviews existing research on transparency and which explores its measure and significance. Third, the thesis extends the existing studies on CET in emerging economies. Finally, the empirical finding in this thesis expands the previous literature on the relationship between CET and corporate financial performance, thus making an important contribution to knowledge. This thesis sheds light on future research potential. In light of the exploratory nature of its qualitative investigation, there are still several unknown issues that require further academic attention, such as how much explanatory power the impression management perspective has on the CET, whether and to what extent the board of directors influences CET, and, how exactly peer pressure affects CET, etc. In addition, another promising direction would be to explore what consequences CET can have for companies over a long period of time, as the green transformation often takes a relatively long time to achieve. Future research on the long-term impact of CET will help to understand the true mechanisms of CET’s effect on companies.