Environmental accounting and its most evolved form sustainability accounting, have received continuing attention in the academic accounting literature beginning with the work of Gray in the early 1990s, through to the release of the Sustainability Accounting Guidelines at the World Summit on Sustainable Development in Johannesburg in August, 2002. This paper reviews and consolidates this research into a sustainability accounting framework that captures the breadth and complexity of this new form of accounting. The framework draws on the traditional financial accounting model for its structure, whilst the content of the sustainability accounting framework is derived from the various approaches taken by accounting researchers to link accounting to sustainability over the past 10 years.

Gray is attributed with much of the conceptual development of sustainability accounting. Gray (1993) identifies three different methods of sustainability accounting

1. Sustainable cost.

2. Natural capital inventory accounting.

3. Input–output analysis.

These three methods together with full-cost accounting and triple bottom line (TBL) accounting are discussed in Sections, leading to the identification of common themes in Section 2.5 and the specification of a comprehensive sustainability accounting framework in Section 4.

Sustainable cost is the (hypothetical) cost of restoring the earth to the state it was in prior to an organisation’s impact; that is

… the amount of money an organisation would have to spend at an end of an accounting period in order to place the biosphere back into the position it was at the start of the accounting period.

Gray draws on the accounting concept of capital maintenance, and applies it to the biosphere, recognising the need to maintain the stock of natural capital for future generations. A sustainable organisation would be one that maintains natural capital intact for future generations. Sustainable cost is deducted from the accounting profit (calculated using generally accepted accounting principles) to arrive at a notional level of sustainable profit or loss. Where the sustainable cost exceeds the accounting profit the degree of unsustainability is measured in monetary terms.

The practical problems of valuing external costs such as pollution have been well documented. Any damage to critical natural capital would, in theory, be valued at infinite cost because it is irreplaceable, leading to the conclusion that the activities of an organisation which damage critical natural capital are unsustainable. Unfortunately the science of ecology does not provide clear and unchallenged solutions to environmental problems; whilst placing costs on a range of possible solutions to environmental problems may prove exhausting.

Sustainable cost provides an example of using an established accounting principle, in this case capital maintenance, and applying it to natural rather than financial capital. Gray (1992) acknowledges the inherent dangers of accounting for natural capital within a price-driven framework, as do critical accounting theorists.

Preliminary research projects exploring the practical issues of applying the sustainable cost framework have begun; provide a fascinating account of the difficulties of applying the sustainable cost framework. Difficulties in determining a meaningful estimate of sustainable cost resulted in the recasting of the sustainable cost framework to provide data concerning a range of more sustainable options. This requires the organization to let go of its attachment to the business-as-usual assumption exploring possibly radical alternatives that require costing within the (revised) sustainable cost framework.

Another important conclusion drawn by Bebbington and Gray (2001) is that the process of working with an organization and attempting to estimate sustainable cost may prove more valuable than the financial data produced. This is not surprising given that ecological destruction and social inequity have much to do with the (un)ethical underpinnings of our consumer and wealth-obsessed culture, rather than a lack of information. If this is true, the process of disclosing specific aspects of unsustainability, with a detailed exposure of its causes and consideration of alternative paths could prove a significant and cathartic experience. Similar conclusions have been drawn regarding the process of preparing life cycle analyses which may indicate we need to spend more energy applying sustainability accounting using field work and case oriented research methods.

Sustainable cost and full-cost accounting are not necessarily equivalent forms of accounting, although both methods attempt to capture environmental costs external to the organization which together with internal costs, provide a more complete picture of total cost. Full cost accounting as with Mathews’ total impact accounting, attempts to capture the total costs resulting from an organisation’s economic activities, including social and environmental costs, attempting to value these impacts in financial terms. This method of accounting is an attempt to counter the misinformation contained within market prices from the omission of social and environmental cost, which leads to a misallocation of resources and widespread social and ecological destruction.

Natural capital inventory accounting involves the recording of stocks of natural capital over time, with changes in stock levels used as an indicator of the (declining) quality of the natural environment. Various types of natural capital stocks are distinguished enabling the recording, monitoring and reporting of depletions or enhancements within distinct categories. Gray suggests four categories of natural capital.

1. Critical, for example, the ozone layer, tropical hardwood, biodiversity.

2. Non-renewable/non-substitutable, for example, oil, petroleum and mineral products.

3. Non-renewable/substitutable, for example, waste disposal, energy usage.

4. Renewable, for example, plantation timber, fisheries.