Debits, Credits and Carbons

The world of financial reporting traditionally is pictured as being all about black and white. But in recent years, that world has taken on a distinct tinge of green, as sustainability has become an increasingly important part of corporate reporting.

"The future of financial reporting is non-financial data," says Notre Dame Accountancy Professor Bill Nichols, quoting the former chair of the International Accounting Standards Board, who advocates an integrated approach to financial reporting. The idea, Nichols says, is to provide perspective on a company's entire operations and how they impact or are impacted by all stakeholders—business partners, investors, consumers and the larger community—not just shareholders. "Non-financial data on environmental issues, labor relations, product responsibility and human rights are what stake-holders are demanding now," he says.

But without regulations or mandatory guidelines, businesses today are unsure of exactly what to report, and how to report it.

That's where a crop of accountancy majors taking Nichols' new course, Sustainability: Accounting and Reporting, may prove valuable to the profession. As part of the Mendoza College's long-held emphasis on socially responsible business, the curriculum includes topics such as how sustainability issues are identified; how their economic, environmental and societal effects are measured; and how their impacts are communicated to stakeholders, Nichols explains. The course—first offered in October 2010—also exposes students to the Global Reporting Initiative (GRI), the de facto framework for sustainability reporting used by 183 U.S. corporations filing such reports in 2010. U.S. firms are behind the rest of the developed world, however, accounting for a small portion of the 1,869 firms that issued GRI-compliant sustainability reports last year, Nichols points out. The Mendoza College is one of few business schools offering a course on sustainability reporting.

Brendan Davern (MSA '11), who joined the Deloitte & Touche office in Charlotte, N.C., found he was the only auditor on his team experienced with the GRI. "More and more organizations are issuing GRIs, so as an auditor, having this knowledge is very useful," Davern says. "It's helped me gain a better understanding of my clients."

Companies that file a GRI-compliant report often seek guidance from firms such as Deloitte to determine what sustainability performance indicators are most important to their stakeholders, and for third-party assurance services to lend validity and integrity to the data they disclose. "There is no one-size-fits-all approach to sustainability reporting," says Kristen Sullivan of Deloitte & Touche's Sustainability and Climate Change department in Wilton, Conn., who guest-lectured for the class. A utility, for example, would be expected to disclose ample environmental data, while a bank's stakeholders may seek different data, she explains.

And while the reports may focus on environmental or social factors, the data do have financial impact. In fact, recent research, such as studies by Notre Dame Accountancy Professor Sandra Vera-Munõz, shows direct positive relationships between sustainability measures and a firm's value.

These kinds of findings make it all the more crucial for companies to accurately measure and report such things as carbon emissions and for students to understand the intersection of sustainability and financial performance.

"As an accountant, you normally focus on debits and credits and profit-and-loss statements, so the holistic approach to financial reporting was eye-opening," says Sheralyn Briggs (MBA '11), now a certified public accountant and senior financial analyst at Home Depot. "Instead of looking strictly at cash-flow perspective or hitting EPS targets, companies now also have to examine their operations from the point of view of all stakeholders."

For Nichols, the shift seems natural. "Accounting is a process of communicating relevant information to decision makers," he says. "Sustainability reports are just a new bucket of relevant information."