Even as leaders are called upon to think strategically to adjust their operations and recover from the COVID-19 pandemic, they’re now broadly expected to be aware how their company interacts with and impacts the environment. Many investors remain committed to the environment and to investing in socially responsible companies regardless of the eco­nomic climate. The definition of “socially responsible companies” can be quite broad, but it most certainly encompasses those companies with current, dynamic, and appropriate climate positions and policies.


The Sustainability Accounting Standards Board (SASB) was created to encourage companies to report sustainability disclosures and to disclose issues that are reasonably likely to impact the financial condition or operating performance of the company. And now the U.S. Securities & Exchange Commission (SEC) is in the process of requiring disclosures on climate, human capital, and political spending. The SEC has come to the position that matters such as climate change do bear on the valuation of assets, inventory, supply chain, and future cash flows.


The Value Reporting Foundation (VRF), of which the SASB was a part, was fully consolidated under the International Financial Reporting Standards (IFRS) Foun­dation in August 2022. The SASB standards now fall under the umbrella of this new group, the International Sustainability Standards Board (ISSB), which is consolidating and building on exist­ing SASB standards and other frameworks and guidance. Thus, the SASB’s industry-specific requirements are being used as a starting point for future ISSB general, thematic, and industry-specific requirements. Until this development comes to fruition, companies are asked to continue using the SASB standards.


Management accountants often have the necessary information to facilitate these disclosures, enhancing their company’s reporting to its investors and creditors. As these reports currently aren’t part of the financial statements but likely will be in the future, management accountants who prepare for this developing requirement can add significant value to the process.




Standardized sustainability reporting has recently been accelerated as an effort to minimize the exposure of failing to fully incorporate environmental and social impacts in accounting reports. In “Environmental Disclosure Quality: Evidence on Environmental Performance, Corporate Governance and Value Relevance,” George Emmanuel Iatridis argues that accounting departments discounting this reality have been criticized for facilitating increased environmental and social crises in recent decades (Emerging Markets Review, March 2013).


In order to compete in this reality, companies are expected to consider the environment in their daily global business operations. And these measures must be adequately communicated to investors and creditors to provide for full disclosure of the environmental impact of the company. Notwithstanding the COVID-19 pandemic, recent pollution of various types (air, water, sound, and soil erosion) causing degradation to the environment and human health has drawn increased attention. The World Economic Forum’s Global Risks Report 2017 showed an advancement of environmental and societal risk, including extreme weather events, failure of climate change mitigation, and an increased occurrence of large-scale involuntary migration.


A 2017 report by the U.S. Environmental Protection Agency (EPA) estimated that continuing business-as-usual will cost the United States hundreds of billions of dollars by 2050, with costs expecting to increase over time (see Multi-Model Framework for Quantitative Sectoral Impacts Analysis. Businesses are facing additional environmental regulations and social impacts, and developing countries face a dual responsibility for promoting business success and prosperity and the need to protect the environment.


Organizational environmental management activities are performed internally but are also made public through sustainability reports. This disclosure should highlight the company’s progress toward protecting the environment and society, sustainability procedure and process innovations, business partner engagement, and long-term strategic planning. These activities must include management accountants as active participants since they have the necessary information and skills to add to these disclosures and decisions.


Management accountants also add value in helping to ensure that upcoming reporting requirements are satisfactorily met. For instance, proposed SEC rules include a requirement for companies to provide data on their own greenhouse gas (GHG) emissions and their energy consumption, known as Scope 1 and Scope 2 emissions. These requirements are to be phased in dependent on the registrant’s filer status. Scope 3 emissions (generated by a company’s suppliers and customers) may be required in 2024 or thereafter, with smaller companies being exempt.




Sustainability and the increased awareness of climate change have become embedded as a critical factor in corporate business models. Addressing this challenge also applies to product development and adds value in the eyes of consumers. Green products are more attractive to many consumers, and any additional costs can frequently be passed on to those consumers to maintain the profitability of these products. But consumers are typically unaware of environmental requirements and may not want to pay for their share of those costs.


But for actual environmental problems, the willingness to pay a price premium generally prevails (see Ken Peattie, “Golden Goose or Wild Goose? The Hunt for the Green Consumer,” Business Strategy and the Environment, July/August 2001). In fact, the 2019 Aflac corporate social responsibility (CSR) survey found that 77% of consumers are motivated to support companies with a commitment to making the world a better place. A greater percentage believe it’s important for a company to make the world a better place (49%) than for a company to make money for shareholders (37%). Additionally, 61% of investors spend time researching a company’s commitment to society, and the environment contributes to a positive return on their investments. That said, company reporting is important, because only half of consumers trust companies that proclaimed to want to make the world a better place.


Societal demands aside, other stakeholders, governments, and international and other related associations are increasingly requiring the involvement of companies in preserving the environment through rules and regulations. Reports find that one of the benefits received by socially responsible companies is a lower cost of capital and that CSR increases the investor base and reduces perceived risk (see Sadok El Ghoul, Omrane Guedhami, Chuck C.Y. Kwok, and Dev R. Mishrac, “Does Corporate Social Responsibility Affect the Cost of Capital?” Journal of Banking & Finance, September 2011). Potential investors have been found to give positive responses on companies that voluntarily disclose their green investment initiatives (see Patrick R. Martin and Donald V. Moser, “Managers’ Green Investment Disclosures and Investors’ Reaction,” Journal of Accounting and Economics, February 2016). And as Iatridis noted in Emerging Markets Review, environmental disclosures contain value-relevant information and good environmental performance causes companies to prepare more extensive environmental disclosures, eventually leading to a higher company value.


Companies with excellent environmental performance are more motivated to keep their investors and other stakeholders informed through expanded voluntary disclosures, compared to those with poor environmental performance (see Peter M. Clarkson, Yue Li, Gordon D. Richardson, and Florin P. Vasvari, “Revisiting the Relation Between Environmental Performance and Environmental Disclosure: An Empirical Analysis,” Accounting, Organizations and Society, May-July 2008). Other studies also determine a positive relationship between environmental disclosures and performance. For instance, in “Environmental and Social Disclosures: Link with Corporate Financial Performance,” Yan Qiu, Amama Shaukat, and Rajesh Tharyan find that companies get an economic benefit from preparing expanded social and environmental disclosures in the form of higher stock prices and that companies providing environmental disclosures tend to have a good reputation and are able to build a positive perception of their financial performance (The British Accounting Review, March 2016). These studies should encourage management accountants to display and report on their company’s environmental measures and performance, and that disclosure should improve the company’s profitability picture.




According to the SASB, sustainability accounting begins with the identification of key costs and operational, organizational categories; the identification of areas of improvement; and implementing those improvement measures with the goal of maintaining investor, creditor, and other user satisfaction. The management accountant, being a critical part of the management team, is in an ideal position to add significant value to this reporting.

  Click to enlarge.  

These environmental and sustainability concerns, in part, were the impetus for the creation of the SASB. This board was operated as an independent standard-setting group that established sustainable industry disclosure standards integrated with the concept of materiality to investors. In six years of operation, the SASB released 77 industry reporting standards (see “Value of SASB Standards”). The purpose of these standards is to improve communications and the reporting of sustainability issues, primarily to investors and creditors. Specifically, the SASB attempted to identify financially material issues that are reasonably likely to impact the financial condition or operating performance of a company and that are of significance to investors and creditors.


These issues are important because studies have revealed that companies rated highly on CSR and environmental, social, and governance (ESG) performance benefit from a lower cost of capital and had superior financial performance by accounting and market factors (Mark Fulton, Bruce M. Kahn, and Camilla Sharples, “Sustainability Investing: Establishing Long-Term Value and Performance.” According to the World Business Council for Sustainable Development, 89% of sustainability practitioners believe that failure to manage sustainability risk could significantly impact a company’s financial performance (Sustainability and enterprise risk management: The first step towards integration. For example, a survey of the largest 215 global companies reporting financial and environmental disclosures to the nonprofit CDP estimates that their business losses due to climate-related risks sum to $970 billion within the next five years (see Global Climate Change Analysis 2018.


The SASB’s industry reporting standards are presently used by 175 companies, and those companies can use the SASB logo. This logo designation simply indicates the company used the SASB standards as a basis for some or all of its disclosures but doesn’t indicate an approval of those disclosures by the SASB. These standards align with SEC filings and comply with U.S. securities laws. These standards, in turn, allow companies to identify the most critical issues for their industry and provide a meaningful way to report on them.


Sustainability accounting disclosures have both monetary and physical units. That is, the financial performance of companies and their environmental expenditures are expressed in monetary values, but environmental performance is typically in physical units. To minimize exposure to future financial risks arising from environment incidents, companies should institute appropriate systems for the environment. These systems should promote both competitiveness and compliance and create an effective cost-benefit trade-off between expenditures and performance.


Researchers have identified some green accounting measures for companies to highlight their environmental commitments. These measures include costs of preventing air and water pollution, energy saving and global warming reduction measures, waste reduction and disposal costs, energy restoration expenditures, and research and development activities for environmental solutions.


Sustainability reporting can take various forms, including the annual report package, a stand-alone environmental performance report, a site-centered environmental statement, or some other form of disclosure. Regardless, these disclosures reflect the company’s attitude toward the environment, provide information for investors and creditors, reveal that products are appropriately priced and investment decisions based on accurate information, and exploit a competitive advantage by stressing that the company’s goods and services are environmentally preferable.


Environmentally friendly technologies should be introduced to minimize costs, especially considering cradle-to-grave cost exposures. Prevention approaches, like waste prevention, are therefore preferred to end-of-pipe technologies such as waste disposal, incinerators, and remediation. Environmental capital investments must ensure that all of these cradle-to-grave implications for pollution-prevention investments are placed on a level playing field with other investment choices.


In 2016 alone, U.S. EPA enforcement actions led to companies allocating $14 billion to address pollution concerns, another $6 billion toward penalties, and more than $1 billion to clean up superfund sites. These EPA enforcement actions clearly indicate that the costs of environmental requirements must be integrated into a comprehensive cost management system and those activities are worthy of disclosure.




Hundreds of companies around the world and across every sector voluntarily publish sustainability reports addressing the SASB standards. Those companies are signaling to investors and creditors that they’re mindful of sustainability and environmental issues. Many of the reports contain similar information, so as an example of this information, we’ll look at Whirlpool Corporation’s 2019 sustainability report and the 2020 sustainability report of LG Electronics (LGE).

  Click to enlarge.  

Whirlpool covers a number of factors in its report (see “Whirlpool on Sustainability”). Of importance is its environmental approach section. In that section, Whirlpool indicates its yearly targets in the areas of plant efficiency, carbon footprint, designing for the environment, implementing circular economy across the value chain at a global level, and sustainable home innovations to enable net-zero living. Each of these programs is led by subject matter experts and has annual, three-year, and long-term goals. Regarding waste, Whirlpool states that 96% of its waste goes to recycling, 3.5% goes to landfills, and the remaining 0.5% goes to incineration. For eight of its plants, no waste went to landfills.


Whirlpool’s product design incorporates resource efficiency attributes in planning and product design. It also maintains a restricted materials list to track the use of banned, restricted, and monitored substances of concern. This list is managed and updated annually to reflect new legislation and consumer requirements. Since packaging becomes waste almost immediately upon delivery, minimal and environmentally friendly packaging is designed into the product distribution. Whirlpool has a goal of employing more than 44,500 tons of recycled plastics into its products by 2025 and is phasing out halogenated flame retardants and polyvinyl chloride (PVC) in all plastic parts and control boards by 2030.


In life-cycle design, post-consumer-recycled content packaging and material alternatives are encouraged to further reduce the company’s environmental impact. These efforts have gained the company recognition as 17 Whirlpool-branded kitchen and laundry products received prestigious iF Product Design Awards in 2019 due to their best-in-class production efficiency, carbon footprint, social responsibility, and universal design.


In delivering products to customers, Whirlpool uses SmartWay carriers for 97% of its products. These SmartWay drivers are committed to energy efficiency and fuel economy. In disposals, Whirlpool supports a labeling system designed to provide easy-to-understand recycling instructions for consumers in North America. These efforts allow products to have a low life-cycle impact by including environmental impacts in design, production, use in home, and collection and recycling. These efforts will enable Whirlpool, according to its goals, to realize zero factory injuries, zero defects and breakdowns, and zero factory waste.


LGE, likewise, is making efforts to contribute to a sustainable society as a corporate citizen. In so doing, it plans to reduce its carbon emissions in the production stage by 50% in 2030, compared to 2017 levels. As of December 2019, seven of its production plant sites achieved ISO 50001 certification. Through its activities to save energy, LGE won the Korean Energy Award presented by the Ministry of Trade, Industry and Energy. It’s following a mid- to long-term perspective in a green product strategy that considers three elements of eco-friendliness: resources, energy, and humans. The aim is to reduce the environmental impact of the entire product life cycle. PVC/brominated flame retardants were removed completely in 2010 from its products. The use of recycled materials has increased, and for air conditioners, the weight has been reduced and the number of fasteners reduced by 5% to make it easier to disassemble and improve recyclability.


Since 2012, LGE has followed its “eco-friendly packaging design guidelines” that include lighter packaging, reduced volume, and increased reuse and recycling of products. For waste reduction, LGE aims to achieve 95% waste recycling at its worldwide production sites by 2030. Recognizing the importance of mutual growth with societies and sustainability in its supply chain, LGE inspects and evaluates suppliers, smelters, and refiners to mitigate the risk of social issues that may arise during the production and procurement of key raw materials and minerals. Operationalizing these goals, LGE categorizes its suppliers into three categories (low, moderate, and high risk) based on their labor, human rights, safety, health, and environmental practices. LGE’s goal is to reduce the ratio of high-risk suppliers to 2% or less through continuous improvements and inspections.


By publicly stating these goals, measures, and policies, Whirlpool, LGE, and other companies reporting under SASB standards are expressing their shared goal of reducing their environmental impact and holding themselves accountable to investors, creditors, and the public. Environmentally conscious individuals can use this comprehensive information in their socially responsible investing and consuming. By presenting this data and providing these goals, Whirlpool, LGE, and others are positioning themselves as viable investments in an increasingly environmentally sensitive world. Companies presently electing not to participate in SASB reporting but that recognize the value-add of minimizing their environmental impacts should consider reporting under SASB standards. Investors, creditors, and other users will find these reports helpful in identifying and selecting among environmentally conscious companies. The willingness of these companies to publicly state their environmental and sustainability measures and goals reflects their operations and concern for the future.




The SASB’s merger with the International Integrated Reporting Council into the VRF resulted in a credible, international organization that advocates integrated thinking and setting sustainability disclosure standards. This merger simplified the corporate reporting landscape by providing an attractive option for companies to display their environmental objectives and goals to users and also made it increasingly beneficial for a company to voluntarily report under these standards. But as previously mentioned, the IFRS Foundation now has the ISSB developing comprehensive global sustainability disclosures for capital markets. This development began with existing SASB standards and guidance, and companies were instructed to continue the use of SASB standards.


The SEC is also poised to require information on climate, human capital, and political spending matters. These actions mandate companies and management accountants to accumulate the necessary information deemed of value to investors, creditors, and other users related to climate matters. Since required disclosures are on a short-term horizon, beginning and/or advancing the planning and information- and environmental-gathering phases seems a prudent approach.


About the Authors