What is corporate sustainability and how do firms practice it? A management accounting research perspective
T o ensure long term financial success, businesses need to recognize that they are operating within a larger biophysical and social environment, and respect the limits and processes governing the sustainability of the larger ecosystem as the global economy expands rapidly toward the carrying capacity of the planet. Consequently, firms, especially the large multinational corporations, are being challenged to behave in an environmentally sustainable and socially responsive manner while maintaining and improving shareholder value. Stakeholders are soliciting information on the environmental and social impacts of business operations as well as on measures to benchmark corporate social and environmental performance in different industrial contexts, while investors demand disclosure of material environmental risks and related compliance costs and liabilities. Firm managers continually seek information to improve the triple bottom line performance and to make informed trade offs among often conflicting financial, environmental, and social objectives. As a result, the accounting profession is being called upon to expand its traditional role to incorporate environmental and social performance into the financial reporting and management control systems. Given the broad and growing interest in corporate sustainability management, the Journal of Management Accounting Research (JMAR) and the American Accounting Association organized a panel discussion at the 2014 Management Accounting Section Research and Case Conference to review and discuss the developments in corporate sustainability and management accounting practice. The comments delivered at the panel provided the impetus for this special issue of JMAR. An article summarizing the panel comments is included in this issue along with six other articles exploring the practice and related research issues of corporate sustainability and management accounting. Research in the area of corporate sustainability and management accounting practice covers a broad territory. Early research in environmental accounting focused on the disclosure and valuation relevance of corporate environmental performance. A large body of accounting research shows that corporate disclosure of environmental information is likely to be strategic, consistent with either voluntary disclosure theory or the legitimacy theory (Li, Richardson, and Thornton 1997; Barth, McNichols, and Wilson 1997; Wiseman 1982; Patten 1992, 2002; Cho and Patten 2007; Cho, Guidry, Hageman, and Patten 2012; Neu, Pedwell, and Warsame 1998; Clarkson, Li, Richardson, and Vasvari 2008; Clarkson, Fang, Li, and Richardson 2013) In addition, many studies provide empirical evidence that corporate environmental performance information in various industrial settings is valuation relevant (Barth and McNichols 1994; Cormier and Magnan 1997; Hughes 2000; Johnson, Sefcik, and Soderstrom 2008; Li and McConomy 1999; Clarkson, Li, Pinnuck, and Richardson 2015; Clarkson, Li, and Richardson 2004; Matsumura, Prakash, and Vera Munoz 2014; Schneider 2011) Similarly, there is ample empirical evidence that variation in corporate environmental performance affects the behavior of a wide range of capital market participants, including creditors, shareholders, analysts, and managers. However, there is relatively little empirical research on what motivates corporations to pursue different sustainability strategies, and how managers implement effective management control systems to achieve sustainability. This special issue of JMAR attempts to fill this void in the accounting literature and focuses on the managerial aspects of corporate sustainability practice and the research issues that relate to the implementation of sustainability at the firm level. We present some of the key questions in sustainability accounting that need addressing together with a summary description of how the articles in this issue attempt to analyze these research questions in a novel way and contribute to the extant literature.