Sustainability narratives in accounting: How to move beyond window-dressing

In a world where businesses are increasingly held accountable for their environmental and social impacts, traditional measures of financial value alone no longer suffice. Businesses have started to report all sorts of data on their sustainability performances and increasingly develop narratives about sustainability to accompany these data. Most of the time these narratives are discarded as window dressing – and often for good reasons.

In our recently published paper (1), my co-authors and I seek to provide a fresh perspective on how businesses can address and report value, and we focus on the underestimated potential of accounting narratives in this context. Our redefined concept of value can serve as the foundation for more sustainable business practices in the future and particularly to develop accounting narratives that can genuinely play a role in making sense of the performances delivered by businesses.

Understanding Value in the Context of Sustainability and Reporting

The evolving role of businesses in society means that we must rethink how value is defined, measured, and communicated. Financial success is no longer the full picture of a company’s worth or its contribution to a more sustainable future and companies search for ways to create narratives that reflect this – particularly in their annual and sustainability reports.

At the heart of our research (1) is the idea that the concept of “value” must be redefined. Historically, value in business was tied almost exclusively to financial outcomes—things like cash flow, profit margins, and inventory turnover. And the associated performances have usually been understood to be about increasing or even maximizing these kinds of value.

Recently we have started to redefine value and broaden the focus to include non-financial values that are crucial for sustainable growth, such as the health of ecosystems, social equity, and corporate responsibility. And with a broader understanding of value should come, so we argue, the realization that increasing and maximizing is maybe much too limited to grasp the performances that are required of corporations. Maybe most financial values require to be increased or maximized, but other kinds of value may require different responses such as respecting, maintaining, using, or even minimizing.

This pluralistic view of value offers a richer, more flexible framework for evaluating success and planning for the future. The metaethical perspective we bring to this discussion is crucial: it encourages businesses to see value not as something that should always be increased or maximized.

Beyond window dressing: Narratives as basis for sustainability accounting

Our second key contribution lies in the role of accounting as a tool for embedding sustainability into reporting. Current accounting practices often fail to capture the full range of value that businesses create. We argue that if accounting systems must evolve to include these dimensions, i.e giving a more complete picture of a company's performance, then narratives become an indispensable tool for identifying the kinds of value in the situation of a company, and for determining which performances these kinds of value require.

This role of narratives appears to be even more important if we realize that determining which performances are required is a holistic process that involves all the relevant kinds of value a company engages with. Each company operates in its own unique setting and needs to tell its own and unique story about which values are at stake there and how to engage with them.

We therefore introduce the idea that multiple-value accounting narratives should logically precede the reporting of performances. They should not only reflect the various kinds of value in play but also outline the kinds of performances required by these values. For example, a company might need to demonstrate how it should simultaneously respect biodiversity or and promote social well-being. Which indicators and targets are fitting in order to report on these performances depends on how they come together in the situation.

Our analysis of Unilever’s annual report provides a practical illustration of how these metaethical criteria can guide companies in developing narratives that reflect a more comprehensive understanding of value. By ensuring that narratives identify the performances required, companies can present a more accurate and responsible account of their contributions to sustainability.

The Implications for Businesses and Policymakers

For businesses, our research offers a roadmap for adopting a broader, more inclusive view of value and for accounting for that view through narratives and numbers. This approach can help align business strategies with long-term sustainability goals, enabling companies to navigate the complex challenges of a changing world. It encourages businesses to reflect and report on if and how they can contribute to societal well-being, while still maintaining financial viability. It also offers some concrete narrative tools to make double materiality analyses such as required by the new CSRD reporting legislation.

For policymakers and accounting & auditing firms, our work highlights the urgent need for frameworks that can support and encourage a credible and systematic materiality analyses that will unavoidably be narrative and calculative in nature. The global economy faces growing challenges related to sustainability, and it is essential that accounting standards evolve to reflect these new realities. Policymakers should incentivize businesses to adopt comprehensive, transparent approaches to sustainability reporting. In this respect CSRD is a step forward.

More work is needed on systematic approaches to narratives in sustainability accounting so that users of sustainability reports can start to believe they represent more than mere window-dressing.

References

(1) Van der Linden, B., Wicks, A.C. & Freeman, R.E. How to Assess Multiple-Value Accounting Narratives from a Value Pluralist Perspective? Some Metaethical Criteria. J Bus Ethics 192, 243–259 (2024). https://doi.org/10.1007/s10551-023-05385-1

Photo by Kelly Sikkema via Unsplash