H6 Stakeholder engagement is critical to the successful establishment of
sustainability reporting in local government authorities.
4.5 Research Question 4: Are Accountants being utilized in Sustainability Reporting in Local Government Authorities in Australia?
Sustainability reporting is considered by some to represent the most important advance in organizational reporting in the last few decades (Ball 2004a). To ensure adequate evaluation of an organization’s sustainability reporting practices a system of accounting is required (Lamberton 1998). As organizations move increasingly to take up sustainability reporting, the role of finance professionals and accountants will become pivotal (Tarrant 2008, Ball 2004a). Who better to provide sustainability information than accountants who have significant knowledge, expertise and experience of accounting tradition and reporting (Lamberton 2005).
93 However, previous research does not indicate this to be the current situation in local government both from an international perspective and an Australian perspective. Such studies include Ball (2005, 2002) who conducted exploratory research into a UK local government organization examining sustainability accounting by the case-study approach. The organization’s accountants were broadly supportive of sustainability reporting but believed that this type of reporting should not involve accountants and should be kept separate from financial accounting (2002). They saw that sustainability accounting had first to fit within the financial accounting framework for them to report on it. Comments included:
‘I haven’t paid a great deal of interest to it (environmental and sustainability accounting) – it’s not particularly mainstream. There’s been no interest – we’ve not taken it forward’ (p. 111).
‘If we have a vision for sustainability, we ought to be reporting annually (Senior manager, Finance Department)’ (p. 111).
In a further case-study examining two contrasting UK local government authorities, Ball and Seal (2005) concluded that accountants involvement in the social accounting agenda is being constrained in terms of the way they think of their functional roles and existing routines. In terms of utilizing accountants to mobilize the social accounting agenda, it was considered ‘we find it difficult to conceive of accountants going much further with social accounting’ (p. 469).
Dickinson et al. (2005), in their mail survey study, established that sustainability reports were most frequently prepared by environmental departments (27%), followed by teams of reporters (22%), strategic planners and corporate planners (both representing 12%). It was considered by some organizations that sustainability reporting frequently commences in the environmental departments until it gathers sufficient momentum to be integrated throughout the organization (p. 31). With public sector sustainability reporting being in its infancy, this may be a recurring theme in local government organizations.
94 Telford (2005), in analyzing the results of a UK national survey that examined environmental management through LA21 processes, found that accountants are often not involved in their organizations’ environmental issues and reporting of issues. Only 32% of responding authorities reported finance department’s involvement in providing information for environmental decision-making purposes whilst only 10% were involved in producing environment-related reporting information. Telford considered that accountants were not yet as involved with environmental issues as they should be but it is important that they become more involved in future if further progress is to be made. Similar results were found in a previous UK study by Bowerman and Hutchinson (1998) who examined the role of accountants in local government in the context of capital expenditure decisions for environmental projects. Through documentary evidence and semi-structured interviews, it was found that accountants are rarely involved in environmental decision-making. They suggested that a more strategic role for local government accountants would be difficult to establish without first changes occurring in the ethos and perceptions of local government accountants.
From an Australian perspective, Farneti and Guthrie (2009) found that not one of the seven public sector organizations they interviewed indicated that finance or accounting was involved in matters associated with sustainability reporting. No explanation was provided by the interviewees as to why this was the case. Rather, the environmental units within the organizations most frequently prepared the sustainability reports. Sciulli (2011) in conducting semi-structured interviews with five local authorities, found that sustainability reporting fits within the domain of sustainability managers and not within the accounting or finance department at the present time.
Herbohn and Griffiths (2008) in their analysis of sustainability reporting of three Queensland public sector organizations concluded that there was a general lack of support provided by the accounting professional bodies in helping local government authorities in adopting sustainability reporting practices. They further found that none of the sustainability teams from the case study organizations had an accounting background. Perhaps, though, as highlighted by Douglass (1996) this lack of involvement by
95 accountants may have to do with the traditional preoccupation of local government accountants with financial matters (p. 46).
In the study by Whittaker (1996), not one of the survey respondents was utilizing the finance or accounting departments in their sustainability initiatives. Rather, the environmental and planning departments were being utilized most frequently. This finding concurred with the study by Tuxworth (1996) who considered that as LA21 activities were seen to be more of an extension of existing environmental work, allocation of responsibility for LA21 processes tended to be given to officers with environmental credentials within each organization.
Tarrant (2008) considers that the role of finance professionals and accountants will become pivotal as organizations move increasingly to take up sustainability reporting. However, prior research has indicated that accountants have a minimal level of involvement in the preparation of sustainability reports with environmental departments being the most common preparers of such reports. This perhaps implies that this is an evolving process with accountants becoming involved in the process once it gathers sufficient momentum within the organization as considered previously by Dickinson et al. (2005). Or, perhaps, as considered by Ball (2002), accountants do not yet appreciate the extent that their skills and expertise will bring to sustainability reporting. Or, perhaps, as Burritt et al. (2009) argue, the lack of training, education, knowledge and experience of accounting personnel is acting as an obstacle to the increased involvement of accountants in the area of sustainability accounting in the public sector.
It is expected that this trend, being lack of involvement by accountants, will continue on analysis of local government sustainability reporting in Australia. Hypothesis 7 is posed.
H7 Accountants are not being utilized in the sustainability reporting process by local
96 4.6 Research Question 5: What Sustainability Frameworks are currently being
adopted by Local Government Authorities in Australia?
Research that has investigated the types of sustainability reporting framework being adopted by local government authorities is separated into two components for discussion –firstly, international research and secondly, research specific to Australia.
4.6.1 Sustainability Reporting Frameworks in Local Government – International
International research on sustainability reporting frameworks includes Dickinson et al. (2005) who found high awareness of the GRI framework, with 70% of mail survey respondents (42) having heard of the guidelines and 50% of respondents (30) having made reference to it with 8% of respondents (five) having made reference to the PASS. Whilst this was quite a low up-take for the PASS, this could easily be explained given that the PASS was released in March 2005 and the questionnaire was conducted from May – June 2005. It was determined that the greatest activity using the frameworks was either through full disclosure (12%) or use as a reference guide (13%). Respondents also reported that they were aware of a range of other reporting systems and frameworks. After GRI, the highest awareness was of the ISO 14000 series (approximately 50% of respondents had heard of these guidelines and 25% had made reference to the guidelines
in their report) and the work of UNEP/SustainAbility7 (approximately 50% of
respondents had heard of these guidelines but no respondents had made reference to them).
With the GRI guidelines being the most utilized guidelines, mail survey respondents were asked why they had used these guidelines. Respondents reasoned that the GRI framework was perceived to represent best practice reporting, it was seen to provide good information and, as such, the reports would be well regarded. Although few respondents had made reference to the PASS, respondents were quite optimistic about the introduction of this guideline with cited benefits including consistency, greater comparability and stream-lined reporting. However, a number of negatives were also identified including
97 the level of prescription within the guidelines and ‘one size does not fit all’ – the possible inability of the guidelines to meet the diversity of the public sector.
In an attempt to determine if there are patterns of usage within the public sector and usage of the GRI framework, Pearson correlation testing was conducted. Results indicated that there was a negative correlation between local agencies and knowledge of the GRI guidelines (correlation = -0.258, p<0.05) and local agencies having referenced to the GRI guidelines (correlation = -0.331, p<0.005). It was suggested that local agencies are less likely than State/regional or national agencies either to have heard of the GRI guidelines or referred to the guidelines. However, with the restricted size of the survey results (60) with only thirty-five responses being from local government and with the GRI considered to be the current leading sustainability reporting framework, it is recommended that further research be conducted to examine and verify these results. Analysis was also conducted into the type of elements included in sustainability reports. There were a wide range of reporting elements identified with no single element included in all respondents’ sustainability reports (the highest was 65%). It was considered, based on these results, that the public sector is a long way from consistency and comparability in sustainability reports.
In an Italian study, Marcuccio and Steccolini (2009) examined the voluntary disclosure practices of local governments. They analyzed the social reports of fifteen local authorities in the 2002 calendar year via content analysis (utilizing their own developed classification scheme based on internal and external perspectives of public sector activities). It was determined that a uniform framework of sustainability reporting was not yet in place in Italy and local governments were tending more to experiment with such documents, giving rise to a variety of reporting approaches (p. 163). They found for disclosures that focused on external impacts, social issues accounted for approximately 61% of external disclosures, with economic issues accounting for 23% and environmental issues being reported the least (16%). However, it was noted that different approaches to balancing the percentage of social, economic and environmental information emerged.
98 Whilst noting this limitation, the higher disclosure of social information would be expected in reports entitled ‘social reports’.
Similar results were found by the GRI (2004) conducted a qualitative overview of sustainability reporting practices in the public sector. It was concluded that public agencies were not applying a common framework for their sustainability reports which has resulted in inconsistent approaches to reporting. In 2010, the GRI conducted a further review (Tort 2010) that focused on ten public agencies who were currently reporting utilizing either the GRI Guidelines and/or the PASS. Specifically, their reports were analyzed to determine the level of reporting on the disclosure elements contained within the PASS. Of the ten public agencies, five were local government authorities (Auckland City Council, City of Melbourne, Gold Coast City Council, Penrith City Council, Waitakere City Council). From the review, it was concluded that sustainability reporting in public agencies is still in its infancy with reporting on the PASS fragmented and disclosures found to be more qualitative and diverse in nature. Dumay et al. (2010), in a review of reporting practices by organizations using services provided by corporateregister.com, whilst also highlighting the lack of take-up of sustainability reporting, concluded that the GRI appears to be dominating the current reporting practices of public and third sector organizations.
In a further Italian study, conducted by Farneti et al. (2010), content analysis was utilized to examine the voluntary social reporting practices of seventeen local government organizations. These organizations were identified as being the ‘better social reporting practice’ organizations within Italian local government. In reviewing the reporting frameworks that were adopted for each of the authorities, it was noted that only three referred to any specific reporting guidelines. The type and extent of disclosure in stand- alone social reports were examined by utilizing a coding instrument which incorporated the GRI and PASS reporting elements split into six categories (as developed by Guthrie and Farneti, 2008). The coding instrument found that local authorities had reported on a total of only 13% of all GRI reporting elements with the highest reporting category being ‘public agencies’ recording a 52.4% disclosure rate. In terms of social and environmental disclosure, the study concluded that social reporting in Italy is an emerging field
99 (confirmed also in Mussari and Monfardini 2010) and the disclosure practices analyzed do not conform to the expected content of a GRI social report.
However, it must be noted that not one of the seventeen local authorities studied had specifically referred to the GRI framework in their social reports and, thus, were not necessarily utilizing the reporting elements of the GRI. Further, there was little analysis of what was actually being reported in the social reports, rather it was framed from the point of view of what was not included in the reports based on the GRI Framework. Perhaps local authorities were utilizing different reporting frameworks other than the GRI –these results could have been further strengthened by the use of a multi-method approach such as interviews.
4.6.2 Sustainability Reporting Frameworks in Local Government – Australia
Herbohn and Griffiths (2008) in examining three local government authorities that had demonstrated a commitment to sustainability reporting in Queensland established that all three authorities utilized different reporting frameworks. The first council utilized the GRI guidelines plus the PASS supplement for the 2007 reporting period. This was their first year at sustainability reporting and they considered that the guidelines plus the supplement were critical in their ability to undertake sustainability reporting. As one manager explained:
‘It gives us on the one hand an international benchmarking kind of capability, a globally used instrument to report against so that (name of city) can compare itself against other cities, but also there is evidence of commitment to sustainability in a language that other people can understand’ (p. 15).
The second council had not found any of the existing frameworks particularly useful. Instead, they had developed their own reporting indicators drawn from the Councils Corporate Plan and Planning Scheme. The third council was currently reviewing three reporting models in an effort to make a decision on which was most appropriate for their organization: reports from other local governments throughout Australia; private sector reporting models; and third, they had engaged with the ICLEI and were examining
100 whether the ICLEI reporting model (Melbourne Reporting Kit) was suitable for their organization.
Marr (2006), in a review of selected local authorities, concluded that there is no standard framework currently being utilized for local government TBL reporting in Australia. Marr reviewed by case-study three authorities that had all undertaken TBL reporting. Each had utilized different frameworks including the ecological footprint, an in-house developed framework and the use of monthly report indicator cards showing specific financial, environmental and social indicators. Potts (2004) in a separate review of three local government organizations concurred with this viewpoint in stating that there is no single agreed framework for TBL reporting in local government today .
Farneti and Guthrie (2009) in interviewing officers from seven public sector organizations that had utilized the GRI framework found that none of the organizations had started from a ‘clean slate’ and adopted the GRI framework (or the PASS supplement) to report on sustainability. Rather, they had started with a TBL approach or the balanced scorecard approach and had only recently moved to the GRI framework because of its international reputation and standing.
Whilst the GRI was considered by interviewees to represent ‘best practice’ reporting, the interviewees indicated a number of drawbacks and difficulties associated with using the GRI framework (and the PASS supplement). In most cases, the organizations used only part of the GRI framework and found the supplement difficult to apply, too general and not very useful. Whilst all interviewees were utilizing the GRI framework, it was ascertained that the term sustainability had multiple meanings with interviewees focusing on different sustainability issues including environmental, social, ethical and political issues (also discussed in Guthrie and Farneti 2008). Similar results were found by Vandenberg (2002) who, in conducting a scoping study on TBL reporting in Victoria (incorporating business, local and State government and non-government organizations), found a lack of consistency and confusion in defining the term TBL. It was considered that the lack of a clear definition is one of the greatest barriers to adoption and/or progress of TBL reporting.
101 In a further study, Guthrie and Farneti (2008) analyzed the voluntary sustainability reporting practices of seven public sector organizations against the GRI and PASS guidelines, specifically examining the number of environmental and social disclosures. For the 2005/2006 financial year, disclosures were examined framed around six categories of sustainable development that were identified in the guidelines– environmental, human rights, labour practices, product responsibility, society and specific public sector disclosures which were further specified into indicators (eighty-one).
Their findings indicated that the indicators being reported on were diverse in nature and that both the number of disclosures and patterns varied widely. For example, of the eighty-one indicators identified within the GRI and PASS guidelines, only 32% (twenty- six indicators) of these were used for reporting by the organizations. It was considered that the application of the GRI was fragmentary and that the organizations were cherry- picking and were choosing to disclose only some of the GRI indicators.
In further analysis of the indicators, they were separated into core reporting (fifty-four) and additional reporting (twenty-seven) indicators. Of the core indicators, only 35% of the elements were reported on by the group. On analysis of the specific indicators developed for public-sector organizations in the PASS, of the eleven indicators, it was found that ten were reported on by at least one of the organizations that were analyzed. It was suggested that both the GRI and public-sector supplement were too generic for all public-sector organizations, with just a few indicators being focused on by each of the reporters.
Sciulli (2009) conducted a review of environmental sustainability reporting practices in six coastal Australian local authorities, being Bass Coast Shire Council, Mornington Peninsula Shire, Surf Coast Shire, Shoalhaven City Council, Wollongong City Council and Maroochy Shire Council. Each authority’s annual report was benchmarked against ten major environmental categories identified in the GRI’s PASS guidelines. The results highlighted a low overall level of sustainability reporting disclosures against the guidelines – ranging from 0% for total environmental expenditures to a high of 33% for significant environmental impacts of transportation.
102 As indicated, though, the findings from the study need to be treated with caution as a low