Transparency, in regards to accounting, is defined as the “extent to which financial reports reveal an entity's underlying economics in a way that is readily understandable by those using the financial reports” (Barth & Schipper 2008). Disclosures and reports are published in an attempt to minimize risk to an organization's capital providers, and inform individuals and interest groups that are affected by the various activities and operations of the organization. Reports can also be published to give the organization more insight into how their organization is performing. Integrated reporting is a reporting method that includes all relevant statements and information that an outsider can analyze and have a comprehensive snapshot of all aspects of a certain organization. Organizations are motivated to report at certain levels of transparency by different factors. The motivational factors that encourage organizations to be transparent with their reportings range from voluntary disclosures to pressure from external sources and includes legal requirements.
Corporate social responsibility (CSR) is type of non financial reporting measurement that has been steadily gaining use from multinational entities. A company's CSR report includes measurement of effects on the environment, such as pollution and clean energy, and social relationships, including employee relationships, diversity, and community. The Global Reporting Initiative (GRI) has “placed pressure on corporate executives to provide the public with information that goes beyond a company’s standard financial reports” (Cho, Lee, & Park, 2012) Companies that are focused and committed to sustainability are eager to report their CSR, while other companies follow only the minimum requirements set by governing bodies. For example, some companies only take CSR into account because, “America’s Securities and Exchange Commission (SEC) says all firms that file standardised annual reports must include details of climate-change risks that are “material” to earnings” (Schumpeter 2014)
Puma, a sportswear manufacturer, was one of the first companies to move toward CSR reporting and publish an environmental profit and loss report (EP&L) voluntarily. The company put a value and quantified the amount of water used and carbon emitted from their own company operations as well as organizations further down their supply chain. They saw the value in analyzing and tracking these aspects because it would allow the supply chain to be further understood and protected. Raw materials are a large component of Puma’s supply chain, so preserving natural resources is something that should be taken into consideration. (McGill 2011) Supply chain analysts will be able to accurately assess and manage supply chain disruptions related to natural resources if the value and use of these resources is accounted for. This instance of environmental reporting was completely voluntary, and had a purpose of gaining knowledge on the value and effects of the supply chain. Jochen Zeitz, chairman and CEO of Puma, states, “Gaining a better understanding of the source of the natural goods and services Puma relies on and the declining availability of the basic resources required for our business growth, will help Puma build a more resilient and sustainable business model and ultimately better manage its impacts on the environment” (McGill 2011).
External forces that can have an impact on the level of transparency a company reports at include prospective investors and non government organizations (NGOs). According to a Ceres Report, “institutional investors are increasingly seeking information from companies on how they are addressing and managing material water risks and opportunities” (Barton 2010). NGOs and human rights activists have begun prying into the environmental effects and usage of organizations. Accounting for water has become critical to many entities because it is one of the most, if not the most, important natural resource available for use. Water shortages are becoming more common and the need for water conservation is growing. The concept of water can be interpreted as a human right, and as such, every human is entitled to a certain share (Hazelton 2013). “Corporate water accounting […] allows consumers, civil society groups, and the investment community to compare different companies’ social and environmental impacts in order to inform their actions and decision making [ in regards to level and locations of water usage]” (Morrison & Schulte 2010). Since this is such an important factor to consider, the Global Reporting Initiative have published a set of guidelines that are to be followed when reporting for sustainability. Some specific water-related issues that are to be recorded are “total water withdrawal by source, water sources significantly affected by withdrawal of water, percentage and total volume of water recycled and reused, and total water discharge by quality and destination.” (Morrison & Schulte 2010)
Biological diversity is very closely related to sustainability, both ecological and economical. “As the increasing recognition of biodiversity loss, reaching scientific and public attention through the decline of particular species and habitats, has led to political initiatives for biodiversity conservation, it has also resulted in closer examination of why biodiversity is important . . . (Garnåsjordet 2012)” Currently, there is little requirements for measuring and reporting on biodiversity which means that there is little information on the availability or scarcity of certain resources. The world bank, TEEB, and many other organizations are in the process of creating a valuation system in monetary terms for various environmental aspects. The main motivation for implementing accounting for biodiversity is keeping up with the mega trend of sustainability. With the trend of consumers moving toward sustainable companies, “organisations are likely to make these disclosures out of self-interest as part of an impression management scheme” (Jones 2003) Sustainability activists are putting increasing pressure on companies to take responsibility for their effects and as a result, “those in the extractive industries are likely to increasingly focus on biodiversity-related reporting” (Samkin 2014). Adding a value to each resource, plant, animal or organism will allow for better understanding that these resources are not unlimited and will need to be allocated responsibly.
Various entities are motivated by different factors for the level of transparency they report at. Some companies report simply because they feel a need to contribute to sustainability efforts, while others report in order to entice potential investors or better understand their value chain. Some examples of motivators for transparent reporting are pressure from external sources, supply chain risk management, and the overall trend of sustainability. External and internal stakeholders continue to press organizations for complete transparency and the use of integrated reporting.