A LEGITIMATE CONCERN FOR ENVIRONMENTAL

ACCOUNTING.

Glen Lehman

Not for quotation or publication without permission of the author.

This essay adapts John Rawls A Theory of Justice to justify environmental accounting. The essay
encourages accountants to report on the sustainable use of resources for present and future human
generations and other life-forms. In this way corporations would satisfy accountability
relationships as a part of an administrative solution to the environmental crisis. The essay supports
the middle-of-the-road position of Gray et al., (1988, 1991) adding a notion of justice to societys
background institutions. The approach to the environmental crisis is a theoretical one and
responds to the charges of pluralism, relativism and quietism raised by Tinker et al., (1991). By
adding fairness to the lexicon of accountability it justifies the publication of environmental
information in accounting reports.

Special thanks go to the following for providing constructive and critical comment: Liz Aston,
Murray Bramwell, Peter Brownell, Bill Brugger, David Cooper, Rob Gray, Richard Laughlin,
Cheryl Lehman, David Owen, Alan Pearce, Norman Porter, Tony Tinker and Paul Williams. All
deserve particular acknowledgment for their patience and encouragement as do the external
reviewers who provided excellent suggestions for re-structuring and revising the essay.
 1

INTRODUCTION
Accounting is part of the public information given by a firm to others to justify its

behaviour. John Rawls A Theory of Justice (1971) and Political Liberalism (1993) are adapted

in this essay to support the argument that a moral obligation to provide additional environmental

information in published reports exists.

The argument is based around a discussion of the need for accounting to provide

information to satisfy accountability relationships. The first substantive section of the essay

provides an overview of Rawls theory in order to (1) establish that accounting is a moral

discourse; (2) to argue that the environment is a primary good; and (3) that accounting can

contribute towards developing a closer and what Gray (1992) has referred to as a more
transparent society. The second section applies Rawls theory to argue for environmental

accounting as a part of an administrative solution to the environmental crisis.

Accounting has the capacity to report on corporate use of the environment and can

transmit that data cost-effectively. As Arrington and Puxty (1991) and Power (1992) argue,

accounting can become a component of an efficient social approach (praxis) steering corporations

towards awareness of social issues. Accomplishing this means investigating accounting critically,

within its present procedures (Power, 1992).

Objections and Contrary Opinions1.

A useful way to begin the argument for environmental accounting is to suggest a

contrary opinion. Gray (1992) has made the point that the environment is in crisis and urgent

solutions are needed. But some environmental information must already be available, otherwise

how could the awareness that humankind faces a serious environmental crisis exist? And if this

awareness is accompanied by the conviction that we will perish unless changes are made in how

we live, then whether the solution is Rawlsian or not seems irrelevant; imminent extinction may

necessitate drastic responses. This essay asserts that society is at a point of bifurcation. One

route points towards proceeding with present market-based solutions to economic and

accounting problems using techniques such as "decision-usefulness". However, an alternative

1
. Thanks go to Paul Williams for pointing out these contrary opinions.

1
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approach is possible which posits an administrative solution developed via accountability based

on social and moral obligations that then can go some way to rectifying justly the damage already

exacted on the environment.

Accountability and Decision-Usefulness.

According to the latter view expressed above, accounting must transform itself from its

traditional role of providing only useful information for a narrowly constructed notion of business

decision-making to providing information that satisfies a broader set of "users" (see, for example,

Gray et al., 1987, 1988, 1991; Laughlin, 1990; Williams, 1987; Roberts, 1991). "Decision-

usefulness" indeed appears now to have completely subsumed "accountability" (FASB, 1978;

SAC 2, 1992). Consider the following statement from SAC 2 (the Australian adaptation of
FASB (1978)):

...the objective of general purpose financial reporting is to provide information to users that
is useful for making and evaluating decisions about the allocation of scarce resources. When
general purpose financial reports meet this objective they will also be the means by which
managements and governing bodies discharge their accountability to the users of the reports
(SAC 2, Para. 26 and 27).

In so subsuming accountability within the definition of decision-usefulness, accounting

has abrogated its moral obligations by deferring to an outside mechanism (the market).

"Decision-useful" information is inadequate as a principle for organising accounting practice and

research. It fails to recognise that accounting reports do more than just transmit a set of

numbers; they transmit information which establishes accountability relationships in which

legitimate expectations exist that the one giving the account is attempting to satisfy the rights of

various groups. When accounting is defined in terms of decision-usefulness the technical role of

providing a set of numbers is given prominence at the expense of accountability.

There are particularly fundamental problems in using "decision-useful" market based

approaches in addressing current environmental problems. Daly warns that it is dangerous to rely

solely on the market to solve problems such as the environment because prices do not balance

marginal ecosystem services sacrificed against marginal social benefit of a larger population or

greater per capita resource use. (Daly, 1992, p.190). To achieve the required balance
 3

(equilibrium) economists can only use shadow prices that value the in nature use of all resources

in terms commensurate with the customary pecuniary exchange valuation of commodities (Daly,

1992, p.190). To perform these calculations, however, requires heroic assumptions about our

knowledge of the external costs resulting from ecosystem disruptions, and how these costs are

imputed to the micro decisions that gave them rise (Daly, 1992, p.190). 2

On this view, Daly (1992) and other ecological economists (cf. Pearce, 1990, 1991;

Ames and Nowell, 1992; Soderbaum, 1992) argue that there is no reason to assume that firms are

confronted with a well-behaved marginal cost function: it can be affected by discontinuities,

thresholds and interdependencies with the ecological system. Daly (1992, p.10) succinctly

summarises the problems with neo-classical based General Equilibrium Economic Analysis
(GEEA):

The notion that systemic vital costs of collective behaviour (greenhouse effect, ozone
depletion) are best dealt with by pretending that every individual could and should, on the
basis of assumed perfect knowledge, decide his or her own willingness to pay to avoid the
loss of such services, is not an idea that comes easily to the unprejudiced mind. It requires
years of indoctrination in "methodological individualism".

The importance of these issues becomes clear if we rephrase Sens (1992, p.145) famous

discussion concerning market-based Pareto-improving contracts (an individual can be made better

off while leaving no other worse off). Pareto-optimality does not automatically lead to a just or

environmentally sustainable outcome. Consider two hypothetical characters - Greed and Green in

terms of achieving a Pareto-optimal outcome:

An economy would be Pareto-optimal when Greed is allowed to pursue business ventures that
destroy the environment as long as Green cannot be made better-off without cutting into the
pleasures of the rich (Greed). If preventing the destruction of Greeds business venture that
impacted adversely on the environment made Greed feel worse-off, then letting Greed destroy
the environment would be Pareto-optimal. In short a society or economy can be Pareto-
optimal and still be perfectly disgusting. 3

2
. It is for these reasons that Gray (1992) says that when thinking about the environment we must
think in terms of interdependencies and its systemic properties.
3
. A variation from a quote from Sen, 1970, p.22. The initial reference can be found in Williams,
1987, p.182.

3
 4

In an accounting context, Cooper and Sherer (1984, p.213) have made the argument

that market failures such as information asymmetry and non-excludability may be recognised but

by assuming the perfect adaptability and omniscience of market participants, other institutional

possibilities are dismissed. Recognising accountants abilities to construct facts or reality

(Hines, 1988; Roberts, 1991), accountability researchers (Gray, 1983; Laughlin, 1990; Williams,

1987) have emphasised that fairness needs to be given an explicit recognition in the language of

accounting since notions of justice form an important component of peoples everyday reality.

Within this analysis, accountability becomes an autonomous concept and is no longer subsumed

within decision-usefulness (cf. Laughlin, 1990, Roberts, 1991; Nelson, 1993; Wilson, 1993).

The definition of accountability that shapes my argument is from Williams4 (1987, p.170)
and specifies accountability as:

an obligatory relationship created via transactions in which one party is expected to give an
account of its actions to other parties.

Accountability is construed as a relationship between a stakeholder and a firm that

specifies moral obligations and duties between them. Accountability contrasts with the

facilitating features associated with decision-useful financial information (cf. Gray, 1983; Roberts

and Scapens, 1985; Gray et al., 1987, 1988, 1991; Williams, 1987; Laughlin, 1990; Roberts,

1991). In the spirit of decision-usefulness, accountants argue that the numbers reported (cf.

FASB, 1978) passively and objectively record and represent the results of organisational reality

(Roberts, 1991, p.355). Yet, decision-usefulness neglects to account for the fact that accounting

is highly situated in the context of human interests (Arrington and Puxty, 1991, p.31) and that

accountability relationships exist as independent criteria.

Environmental reporting (1) is essential to satisfying these accountability relationships;

and (2) alters corporate consciousness. Environmental accounting ultimately calls for

corporations to give and provide reasons for their use of the environment (cf. Roberts and

Scapens, 1985, p.447). Accounting is both the means for defending actions and the means for

identifying which actions one must defend.

4
. Rawls work has been introduced to accounting in Gaa (1986, 1988), Williams (1987) and
Pallot (1991).
 5

ENVIRONMENTAL ACCOUNTABILITY

Through the accountability nexus accounting would take on the role of constraining

organisational activities, particularly those activities that may be considered environmentally

degrading. Currently, the awareness that accounting fails to recognise such other interests as

the environment may be limited, but the more this becomes known by people outside accounting,

the less accounting can confer legitimacy (Nelson, 1993, p.224).

In defining itself in terms of accountability, accounting would no longer perform a

narrow stewardship role. The essence of the notion of accounting implied in accountability is

based on not simply what Gray et al., (1987, 1988) call the middle-ground:

in which the status quo is accepted...[where] the ambition is neither to destroy capitalism nor
to refine, deregulate and/or liberate it....(from Tinker et al., 1991, p.29 quoting Gray et al.,
1987; 1988).

But this essay differs from the work of Gray et al., (1987, 1988), in that the aim is to

argue for basic institutional alterations explicitly using the work of Rawls (1971, 1993). A justice

perspective adds theoretical rigour to the middle-road, which was not the original intention of

Gray et al., (1988, 1991). Their failure to explore their assumptions has resulted in a major

challenge to that position by Tinker et al., (1991) who argue that the middle-ground is relativist,

pluralist, and is merely an exercise in imminent legitimation.

The case for environmental reporting, moreover, is based on a pluralist model. Rawls

analysis is concerned with pluralism in its new form, or more correctly in its new meanings.

Society is no longer seen as consisting of groups of sovereign individuals nor as interest-

maximising groups (as in earlier pluralism) but of groups held together by inter-subjectively

shared language.5 As Rawls (1989) argues:

Under the political and social conditions that the basic rights and liberties of free institutions
secure, a diversity of conflicting and irreconcilable comprehensive doctrines will emerge, if
such diversity does not already exist. Moreover, it will persist and may increase. The fact
about free institutions is the fact of pluralism. (p.235)

5
. This is indeed probably the pluralism that Gray et al., have in mind but they fail to articulate
fully what they understand by the concept.

5
 6

Rawls adaptation does not deny the fact that powerful groups may use the basic

institutions (of which accounting is an example) as an instrument of domination. However, in his

theory a political conception of justice is not necessarily tailored by the dominant group to justify

favoured results. Rather, the purpose of a theory of justice, defined on pluralist terms, is to

discover and formulate the deeper bases of agreement that he hopes are to be found within the

present social structures and intuitively in terms of citizens considered convictions (Rawls, 1980,

p.518).

Justice and Accountability

Rawls (1981, 1993) has indicated that his theory is inspired by the philosophy of
Immanuel Kant, whose essential theme is that each individual is sacrosanct and inviolable. He

formulated the idea of a categorical imperative, where no person is to be treated as a means to

an end:

Act in such a way that you always treat humanity, whether in your own person or in the
person of another, never simply as a means, but always at the same time as an end (Kant,
Groundwork, 1949, 96).

In applying a Rawlsian inspired version of Kant, accounting must take seriously the diversity of

individual interests by adding accountability as a moral term.

Rawls adapts Kant because he believes that justice must be grounded in the public

sphere (cf. Rawls, 1993). Kants categorical imperative has been criticised by Hegel as being

based on a narrow and atomistic understanding of community. Rawls avoids the Hegelian

critique by grounding Kants categorical imperative within the public culture as an ideal

conception of citizenship for a constitutional democratic regime, because it presents how things

might be, taking people as a just and well-ordered society would encourage them to be (Rawls,

1993, p.213).

The concept of developing a good society is implicit in the work of Gray et al., (1987,

1991) in that their understanding of accountability is based on a vision of society as it is and, to

varying degrees, as it can and should be (Gray, 1989, p.53). Rawls is particularly useful in the
 7

context of developing a middle-of-the road justification for environmental reporting because his

theory can be used to formulate a vision of the good society that would be concerned about the

relationships between people and nature. Accounting, in such a world, would be concerned with

providing information in attaining that vision. The value of a Rawlsian approach is that it adds

rigour to accountability (Laughlin, 1990, pp.96-98) in that fairness is included within

accountability and constructors of just social institutions account for primary goods (defined

next). Justice as fairness is designed to clarify the theoretical bases of the middle-ground as part

of changing consciousness within capitalist society. The change in consciousness proposed by

Rawls is achieved in the public realm where citizens are able to express their desires about the

type of society that they would want to inhabit. This means that in the public realm full reign is
given to discursive procedures whereby citizens use their faculty of language to advance their

considered convictions in achieving an accountable society.

This is probably what Gray et al., (1988) mean when they argue that there are emerging

trends in social accounting - one is the fact that the accounting profession is beginning to

recognise the need for expanded corporate social and environmental reporting. It does not mean

that corporations act out of altruism, but they are recognising that they do indeed have duties to

the societies they inhabit.

Rawls Model of Justice and Primary Goods

In developing his principles of justice, Rawls argues that capitalist institutions must

consider what are to be primary goods. Primary goods are higher-order interests or needs

defined as those desires that govern deliberation and conduct (Rawls, 1980, p.525). Primary

goods are things which it is supposed a rational man wants whatever else he wants (Rawls,

1971, p.92) and these goods may not have a market value. It is argued that with more of these

goods, citizens are assured of greater success in carrying out their intentions and advancing their

ends, whatever they may be (Rawls, 1971, p.92). The environment is a higher-order good, the

value of which managers of corporations need to preserve in order to satisfy the needs of

concerned user groups. A society that is concerned primarily with "decision-useful" information

can neglect to account for those factors, for example, that are conducive to the healthfulness and

7
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pleasure of our lives. Accounting and the basic institutions of liberal-democracies must take

seriously citizens demands for primary goods in achieving justice.

Rawls argues that justice is an integral component of political liberalism which espouses

an overlapping consensus; it is based on the hope of political community (Rawls, 1993, pp.146-

148).

In achieving this community based result Rawls employs a thought experiment called

the original position (Rawls, 1971, p.18, 520, 585) The original position is based on twelve

crucial elements6, the most important of which is the veil of ignorance (Rawls, 1971, p.146). This

is a theoretical device which produces a purely hypothetical result (Gaa, 1986, p.438). Behind

this veil, representative individuals who are motivated by the economic assumptions of rationality
and self-interest choose two principles of justice.7 These are:

(1) Each person is to have an equal liberty to the most extensive total
system of equal basic liberties compatible with a similar system of
liberty for all.

(2) Social and economic inequalities are to be arranged so that they are
both:

(a) to the greatest benefit of the least advantaged, consistent with the just
saving principle, and,

(b) attached to offices and positions open to all under conditions of fair
equality of opportunity.

Using the rational choice assumptions of GEEA, Rawls derives a result that is concerned

with the plight of the least advantaged - the difference principle. Rational, representative

individuals will choose the above two principles of justice using a process of maximin, where

individuals are to choose an alternative that minimises the maximum loss. The principles of

6
. Rawls (1971) lists the twelve elements on pp.146-147. They are (1) The nature of the parties,
(2) Subject of Justice, (3) Presentation of Alternatives, (4) Time of Entry, (5) Circumstances of Justice,
(6) Formal Conditions on Principles, (7) Knowledge and Beliefs, (8) Motivation of Parties, (9)
Rationality, (10) Agreement Condition, (11) Compliance Condition and (12) No Agreement Point.
7

. Manning argues that rational actors operating behind a veil of ignorance would choose principles which
take account of the environment, not instrumental human principles which maximise the greatest
happiness of the greatest number. This is because under the `free enterprise system it is possible for
some individuals to lose basic liberties or equal opportunity; such a system would never be chosen by
those who would lose out. `It seems that, behind a veil of ignorance, everyone would opt for a system of
equal liberty and opportunity for every member of society, as this would guarantee a decent life for
everyone; under our constructed system no minority would be left destitute. (Manning, 1981, p.157).
 9

justice are ordered according to leximin by which representative individuals choose a social

structure so as to minimise the maximum loss to the worst off individual or class of individuals

(Gaa, 1986, p.439). The representative individuals choose the difference principle because they

do not know whether they will belong to the least well-off socio-economic group (Gaa, 1986,

p.439). In an accounting context this would translate into providing information to those groups

with that are unable to command an account of corporate obligations. This is what Gaa refers to

as the principle of user primacy (Gaa, 1986).

An additional obligation for accountants that flows from the original position concerns

the just savings principle (principle 2a). The just saving rate is defined as that rate that would

maintain or improve the lot of each succeeding generation without causing hardship to earlier
generations (Turner, 1991, p.217). A problem attends this formulation in that the first generation

must make a specific contribution (sacrifice) without any reward. Rawls (1993) revision

succinctly addresses this issue8 :

Consider the case of just savings: since society is a system of cooperation between
generations over time, a principle for savings is required. Rather than imagine a
(hypothetical and nonhistorical) direct agreement between generations, the parties can be
required to agree to a savings principle subject to the further condition that they must want
all previous generations to have followed it. Thus the correct principle is that which the
members of any generation (and so all generations) would adopt as the one their generation
is to follow and as the principle they would want preceding generations to have followed (and
later generations to follow) no matter how far back or forward in time (Rawls, 1993, p.274).

The problem for accounting then becomes one of providing information concerning the just

saving rate, one that may imply foregoing some consumption in consideration of future

generations (further discussion of this issue is in the second substantive section of this essay).

These issues are central to the problem of attaining an overlapping consensus in a pluralist

society.
8
. Rawls (1971) argues that the participants in the original position have filial ties with their
descendants and would want to make this sacrifice (Rawls, 1971, p.292). Barry (1990) responds to the
just saving argument by saying that once the parties in the original position move back to the real
world they will adopt these principles because of sentimental ties. It is Turners (1991) view that it
makes more sense and is less sentimental than Rawls to argue that the participants in the original
position do not know to which generation they belong. In such a situation they will choose principles
that do not permit the current generation to use up all the land, air and soil (Turner, 1991, pp.214-217).
Rawls (1993) response is similiar to Turner (1991) in that he argues for background conditions of
justice require we develop alternatives available to us as contemporaries.

9
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Consensus and Self-Respect

In developing a theory to help resolve social conflicts Rawls states the conditions for an

overlapping consensus:

The social role of a conception of justice is to enable all members of society to make mutually
acceptable to one another their shared institutions and basic arrangements, by citing what are
publicly recognised as sufficient reasons, as identified by that conception. (Rawls, 1980, p.517)

In Rawls conception of a pluralist society the problem becomes one of resolving

incommensurate moral conflicts. In the quest for cooperation between citizens we need a basic
structure that sets aside deep-seated moral differences. This is because the basic structure that

determines justice is a democratic society and it does not support any comprehensive doctrine. It

is for this reason that the constructors of justice are denied historical and contingent knowledge.

The basic structure provides the framework for a self-sufficient scheme of cooperation for all the

essential purposes of human life, which purposes are served by the variety of associations and

groups within this framework (Rawls, 1993, p.301).

In a pluralist society the task for constructors of justice relates to the attainment of

accountability. Rawls says:

The real task is to discover and formulate the deeper bases of agreement which one hopes are
embedded in common sense, or even to originate and fashion starting points for common
understanding by expressing in a new form the convictions found in the historical tradition
by connecting them with a wide range of peoples considered convictions: those which stand
up to critical reflections (Rawls, 1980, p.518).

It is important to note that Rawls is not proposing that language (which can include

accounting discourse) bears the full burden of achieving a consensus. Rather, it is through

language that citizens transmit their preferences concerning what they consider to be primary

goods. Rawls uses the original position as a model where it is likely that free discourse will lead

to the arbitrators achieving a sense of justice. He has clarified this by specifying that the

argument for the priority of liberty, like all arguments from the original position, is always relative
 11

to a given enumeration of the alternatives from which the parties are to select (Rawls, 1993,

p.294).

Accounting can assist in achieving consensus by transmitting information that is useful

to all interested stake-holders. "Decision-usefulness" is not wholly adequate to the attainment of

this task because it inhibits free discussion due to the narrow focus of its procedures. The

traditional conception of accounting via "decision-usefulness" has given a false sense of

"factuality" thereby abrogating its role in attaining a just consensus.

The conditions for achieving an overlapping consensus are based on Rawls politically

grounded moral mechanism, self-respect, which he defines as follows:

First of all,..., it includes a persons sense of his `own value, his secure conviction that his
conception of his good, his plan of life, is worth carrying out. And second, self-respect implies a
confidence in ones own ability, so far as it is within ones power, to fulfil ones intentions.
(Rawls, 1971, p.440)

Self-respect must be used to avoid the charge of relativism that has been leveled at the

middle-road approach.9 This is because it orders and adjudicates rival and incommensurate

interests via lexically ordering primary goods. Moral progress is achieved in a well-ordered

society that locates respect within our confidence as a fully co-operating member of society

capable of pursuing a worthwhile conception of the good over a complete life (Rawls, 1993,

p.318).

Self-respect presupposes that individual citizens can exercise moral powers and,

therefore have a fully developed sense of justice (Williams, 1987) in the secure conviction that

they can carry out their life-plans. Rawls model is based on the supposition of reciprocity that is

achieved by elevating the criterion of self-respect. Rawls means by this that the foundation and

development of a just society needs individuals who cultivate generosity and equality of respect.

In a just society social relations are based on equality, fairness and justice in relationships, not

merely self-interested agents prepared to work to remedy injustices that affect themselves. The

9
. Gaa (1987, 1998) has adapted Rawls framework for accounting standard-setting. Gaa does
this by developing a principle of user primacy that can be used by the standard-setters to provide
information to some sub-set of the population adversely affected by financial and reporting standards.

11
 12

acquisition and development of self-respect and a sense of reciprocity in relations is as important

in transforming our societies as it is to maintaining a well-ordered society. I believe that

reciprocity in social relations must be achieved via self-respect, thereby developing the most

important primary goods.

Fundamentally, Rawls is arguing for the use of the concept of self-respect as a

mechanism to order rival claims concerning the distribution of the good. 10 In an environmental

accounting context self-respect is adapted to respond to Tinker et als (1991) charge that middle-

of-the-road theorising is necessarily relativist, being simply:

concerned about what is politically pragmatic and acceptable; not what is socially just,
scientifically rational, or likely to rectify social ills arising from waste, exploitation,
extravagance, disadvantage, or coercion (Tinker et al., 1991, p.29).

Self-respect is used to order primary goods in the secure conviction that policy-makers

must respond to social and environmental issues. The basic institutions, therefore, must respond

to such injustices by rectifying social ills in order of the most important primary goods. I argue

that this is a constructivist (diachronic) response to the adverse effects of capitalist enterprises

such as waste, exploitation, extravagance, disadvantage and coercion. Indeed, adapting Rawls

model, principles of justice are designed to respond to the alienation that is embodied in the

capitalist mode of production.

Self-respect, therefore, is a guiding principle built on the belief in moral progress as part

of the construction of a society that orders and evaluates the good society. It does not, however,

necessarily do this by seeking out opinions, feelings, perceptions and preferences (Tinker et al.,

1991, p.29). It performs this task by ranking the most important primary goods in terms of

whether each individuals life-plan is being achieved. As a consequence, the environment must be

accorded the status of a primary good.

In summary, the criterion of self-respect must be used as a foil to the sovereignty of self-

interest. Indeed, from the preceding discussion there are two important issues concerning self-

10
. Relativism is a serious accusation as it implies that a theory cannot rank rival philosophical
and moral theories. For liberals this would mean we can only analyse a culture or social system on its
own terms - we cannot construct bridge-heads between cultures and traditions.
 13

respect. First, the basic institutions must respond to issues of fairness (Williams, 1987), and

second, recognise that the environment must be treated as a primary good. In recognising the

importance of the environment, accounting must provide the data so that the basic institutions

can structure policy for the achievement of an individuals life-plan. Environmental accounting,

as a "primary good", is but a first step in recognising the importance of the environment and the

rights that citizens have to this information.11 The aim of my project is to achieve closeness,

openness and transparency in responding to social and environmental problems.

Closeness

Wenz (1988) summarises the Rawlsian relationships further by stating that a pluralistic

conception of justice requires an adjudicating mechanism (self-respect) which advances the

concept of closeness. Closeness is the relationship between entities (human and non-human)

reflecting the inter-dependencies between humans and the environment. In this essay closeness

and self-respect perform similar functions.

As Wenz (1988, p.316) states the closer our relationship is to someone or to something,

the greater the number of our obligations in that relationship, and/or the stronger our obligations

in that relationship. Applied to accounting, closeness becomes a social consideration, an ethical

extension of the traditional accounting framework which incorporates `fairness. This means that

accounting policy-makers can design standards that legitimate communal resource utilisation.

Ethical considerations have led Katz to state:

"Closeness" is not a biological concept - it is determined by the strength and number of actual
and potential interactions: thus Wenz eliminates the biases of racism, speciesism, and
anthropocentricism. Closeness is then used to implement, balance, and adjudicate conflicting or
incompatible moral duties. (Katz, 1989, p.271)

Social obligations exist to satisfy preferences and positive rights for a viable and stable

environment (primary goods). These will be satisfied if the theoretical concept of closeness can

be advanced. On this view accountants must take seriously the arguments concerning the

11
. Self-respect orders primary goods that must alert accountants to environmental issues thereby
extending the accountants moral lexicon. Critics point out that environmental reporting is a chimera
and marketing ploy for capitalist organisations. I realise these problems but because of the political
nature of justice self-respect is but a useful first step. See, for example, Wolff (1977) and, perhaps, the
most powerful Hegelian critique has recently been summarised in Benson (1994).

13
 14

environment. This new perspective based on accountability encompasses closeness which

utilises the concept of justice and fairness in order to consider whether rival views can lead an

overlapping consensus.

Accountability, as a formal concept, takes on the role of satisfying relationships between

one or more parties thereby contributing to the attainment of an accountable society. In this view

accounting would add environmental accounting to its lexicon thereby achieving the realisation of

free public discussion.

Transparency

Closeness can be advanced through transparency which is defined as the expansion of

corporate reporting to inform the community about the use of its resources and the burdens/
(benefits) it has been obliged to bear (Gray, 1992, p.415). New institutions (Gray et al., 1987)

may well be created as a consequence of the administrative response by accountants informing

the community about corporate resource utilisation.

Self-respect and closeness are developed abstractly in order to advocate community

principles. Thus a closer and perhaps less divided society can emerge. This leads to the

conclusion that accounting has a moral duty to provide corporate information that is transparent

in order to advance closeness in society; it is a goal of financial reporting to achieve transparency.

Closeness combined with transparency has the propensity to explain, and for society to evaluate,

the activities of corporations. As Gray (1992) argues, the deep green view believes society has a

right to this information together with transparent financial data:

Further, given the prominence of "community" in the vision, the level at which information is
reported - the level at which transparency must be sought - must be that of the community. (Gray
1992, p. 415)12

12

. Gray, as an aside, mentions that in New Zealand transparency has taken a new twist. As most
communities can identify organisations which operate in ways counter to community values...and could
also identify employees up to and including senior management there was not only no anonymity
behind which the miscreants could hide but the community values became the values of the employees
and thus of the organisation. Transparency appeared to operate making some aspects of formal
accountability unnecessarily cumbersome (Gray, 1990c, p.17). The same is happening in Australia,
transparently dishonest actions are resulting in community disenchantment that the guardians of
societal institutions (State Banks, Government agencies etc.,) have acted in their own self-interest and
have failed to provide reasons for their conduct.
 15

The essay does not underestimate the difficulties for institutions such as accounting in achieving

the radical changes I propose. Given present social structures it may well be that justice is not an

immediate likelihood but this should not diminish our quest for justice here and now (cf. Nagel,

1991).

THE JUSTICE MODEL FOR ENVIRONMENTAL ACCOUNTING (QUIETISM).

This essay has argued that Rawls moral system is based on pluralism using self-respect

and is hence able to avoid the charge of relativism (cf. Tinker et al., 1991). The Rawlsian

mechanism of self-respect provides the opportunity to develop new accounting concepts such as

transparency and closeness that can lead to the establishment of a more open and accountable

democracy (Gray, 1989). Given that there exists an environmental crisis, accountants have a duty
to make an account of corporate activity in order to alter awareness of corporate obligations.

Rawls accepts the possibility that his principles may necessarily have to be open to

adaptation. The essay adopts such a course in arguing that liberties can be expanded to include

the right to be free from environmental degradation and harm. This provides a theoretical

underpinning to Gray et als., (1987, 1991) concern about other interests that encompass

environmental issues. This does not mean corporations have no right to earn a profit but that

profit is not the sole concern for organisations. Corporations responsible for environmental

degradation, either directly through the consumption of natural resources in the name of

development, or indirectly by doing nothing, in the name of allowing the market to work, (Gray,

1990a; Gray, 1990b) must alter their behaviour.

Closeness and transparency respond to the political-economists concern that GEEA

fails to provide a social welfare optimum (Cooper and Sherer, 1984; Gaa, 1986; Williams, 1987).

In this view environmental accountants can provide information about whether we need to

maximise certain goods or account for their preservation (sustainability). 13 Sustainability is the

criterion outlined by Gray (1992) and is consistent with the principles of justice that have been

13
. The Brundtland Report defines "Sustainable" development as development that meets the
needs of future generations without compromising the ability of future generations to meet their own
needs. (World Commission On Environment and Development, 1987, p.47).

15
 16

outlined in the first substantive section of the essay. Sustainability implies an obligation for

accountants to provide information concerning a corporations utilisation of natural resources.

A concern for a sustainable future leads to the following three incommensurate issues,

which arise from our earlier discussion of primary goods:

(a) greed versus altruism;

(b) present versus future generations;

(c) human species versus the rest of life.

Greed and Altruism.

Sustainable development is a part of the moral lexicon requiring integration and

evaluation. An example of this disputed moral terrain can be seen in our discussion about a
corporations right to make a profit and developing societal concerns for sustainable

development. Waldons (1989) solution is to develop basic institutions that can lexically order

rights and assist in developing a concern for environmentally sensitive corporate activities which

promote sustainable development. An overlapping consensus has the potential to provide a

forum to assist in resolving differences such as those between green awareness and economic

development. This may require the discontinuation of some corporate activity, or it may temper

corporate excesses towards considerations of sustainability.

Given our present (unjust) institutional arrangements, some citizens are excluded from
participating in the democratic process. A part of the reason is that present institutions rely on
the market to achieve fairness in terms of efficiency. A market-based solution will not achieve the
required change in societal consciousness to adequately respond to the environmental crisis. This
is because self-interest does not promote the communal relationships that must be developed to
achieve an environmentally aware society. Nevertheless, change through the middle-road does
have the potential to transform and create green social structures. The essay has argued that
society must explore ameliorative strategies before calling forthe destruction of basic institutions
(Rawls, 1971, p. 243; cf. Rorty, 1991, p. 186).
In the foregoing analysis, justice that is guided by self-respect rather than market
mechanisms must inform our basic institutions. Self-respect forms the basis of new green
reporting practices which in turn represents a fundamental transformation in accounting. Self-
respect prompts us to ask whether organisations have complied with the minimum standards of
law and on what basis do we want to revise the law? (Gray, 1991, p.25). One possibility, for
 17

example, would be to refine the crude compliance with statute approach to corporate social
reporting championed by Gray et al., (1987, 1991). This would encompass, for example,
developing a vision of the democratic society that recognises the systemic interdependencies
between humans and the world they share.
Present and Future Generations and Other Sentient Life-Forms
Rawls device of the original position (Rawls, 1971, p.137) discussed earlier articulated
an obligation for citizens concerning other generations (Rawls, 1971, p.292). In A Theory of
Justice Rawls does not provide a detailed treatment concerning issues of intergenerational equity.
It is, however, necessary to address explicitly the respective interests of future and present
generations in order to specify information needs that will allow us to make viable decisions
concerning the environment. In addressing issues concerning future generations, Norton (1989)
argues the problem is not one of arriving at a suitable inter-temporal discount rate but is about
arriving at an ontological resolution about the type of society that we want to inhabit.

How should we talk about time preference? If, for example, we talk about time preference by
discussing what the proper discount rate should be, we have already chosen a vocabulary -
the vocabulary of individual preferences. When we do this, we run the risk of begging
important questions, of not seeing that we are embodying controversial assumptions about
value in our language. We do not yet understand time preference well enough to allow
assumptions of this sort. We risk mixing two issues that should be addressed separately:
what should be the magnitude of the discount rate, and whether discounting is an adequate
method at all. By moving to the metalevel, by asking first what sort of vocabulary we should
use to discuss these two issues, we may be able to separate them and gain a measure of clarity
(Norton, 1989, pp.138-139).

This is not to say, however, that economic and financial data have no role to play. Gray

(1992) is correct to argue at the practical level that the use of the natural environment can be

measured by the use of economic shadow pricing to measure the opportunity cost of the

utilisation of the planets resources. Accountants, then, are confronted with the challenge of

providing data about the just saving rate. However, this essay argues that the real issue is about

exploring the ontological level thereby constructing a society that explicitly recognises the

relationships between people and the environment.

Furthermore, human utilisation of the environment has often neglected to account for

other life-forms. Rawls (1971, 1993) offers only a few vague references concerning other

sentient life forms. Of our duties to non-human life he says:

17
 18

It is wrong to be cruel to animals and the destruction of a whole species can be a great evil. The
capacity for feelings of pleasure and pain and for the forms of life of which animals are capable
clearly impose duties of compassion and humanity in their case (Rawls, 1971, p.212) 14

Part of the administrative approach for an environmental ethic is to order primary goods lexically.

A constructivist approach acts as a corrective to the instrumental approach that dominates our

way of thinking about other life-forms.

Equally, this essay takes issue with deep green approaches that tend to treat the

environment as a cathedral. Such a deep green view can be criticised because all sentient life-

forms have a right to survive and use the planet - this includes humans (cf. Thompson, 1990,

p.150).15 It is the slippery slope properties of the deep green argument that have led to the

proposal for a shallow green Rawlsian viewpoint. Shallow greens, moreover, recognise human
interests that trace the value of nature to its value to human beings and the place it occupies in

their lives (Goodin, 1992, p.42). The shallow green view then connects with the concept of

sustainability recognising the place and interdependencies between all life-forms in the ecosystem.

If duties to other life-forms were to be acknowledged it would be likely that, far more of what

human beings have done, are doing, and are likely to do would be marked as unjust, than is

customarily the case (Singer, 1988, p.231). Various environmental issues would be put on the

agenda - for instance the treatment of animals in some experiments would be deemed unjust- and

the use of lower primary goods would be questioned in order to treat other life-forms fairly and

preserve a viable environment for future generations. In this view corporations have a duty to

present and future generations and to other life-forms not to damage the environment. The

responsibility towards other life-forms is in no way generally accepted within the corporate

reporting medium.16

14
. Partridge (1984), and some environmentalists (Hoff, 1983, VanDeVeer 1979) argue that
animals and other sentient beings should be given a place in the original position. Others, for example,
Singer (1988), argue that non-rational motives should be incorporated into the original position as
irrationality is a human character trait. Singer argues that it would be very difficult for non-sentient
life-forms to be able to maintain a contractual arrangement. It is impossible to include animals in
deliberations about justice.
15
. While it is outside the scope of this essay to review the shallow and deep green perspectives
(cf. Goodin, 1992) accounting researchers involved in the debate must exhibit caution when operating
within a deep green ethical framework because in such a world there may exist no role for accounting.
16
. There are, however, notable exceptions such as The Body Shop who go to great lengths to
point out their cruelty free production methods.
 19

Arbitrating through Accounting

Grays (1990b) The Greening of Accountancy: The Profession After Pearce analyses the

potential of accounting in the environmental debate. Gray (1990b, 1992) shows that

considerations of ethical issues lead to new reporting requirements.

Relationships based on fairness require that this environmental data be made available to

satisfy accountability obligations to stakeholders and correct unjust treatments to other life-forms

and to the world we inhabit. Accounting numbers and other relevant information can be used so

that members in society can evaluate the direction of their life-plan and seek to achieve their

goals. In providing environmental data based on political liberalism we are not going along with

the crowd (Tinker et al., 1991) but are responding to critical questions confronting humankind.
Moreover, Gray (1990b) argues that in making accounting green we can: (a) keep organisational

decision-makers informed about their use of economic resources; and also (b) inform the public

about the way organisations are using resources (accountability). Ethical frameworks can work

to constrain unjust practices at the community level. Accounting can perform this function by

moving beyond decision-usefulness frameworks - and aiming to expose, enhance and develop

social relationships (Gray, 1992, p.413) about the use of the environment by corporations.

Accounting and Accountability

Accountability relationships are critical now that corporate environmental and social

excesses have become more transparent. Accounting is decision-useful but the theoretical

construct of transparency requires that accountants should evaluate the data and its content. It

can then become:

an emancipatory concept helping to expose, enhance and develop social relationships through a
re-examination and expansion of established rights to information. (Gray, 1992, p.413)

Transparency, in an environmental context, would promote accounting reports to satisfy

the accountability relationships (outlined earlier). Transparency may seem utopian but with

elaboration it reveals the formal concept of accountability. It entails providing information to

fulfil the social role between the accountor and the accountee and confirms that individuals

require a sustainable environment for the fulfilment of their life-plans (primary goods).

19
 20

Transparency requires that the ethical dimensions in society take on a `community

perspective. A `fair and ethical framework emphasises the maximisation of the `good of the

entire community; what Partridge (1984, p.122) calls the perspective of the "moral spectator", or

more directly, "the moral point of view". This essay has suggested, and speculated, that this can

be achieved by the elevation of self-respect to adjudicate between rival proposals of the good

(Rawls, 1971, p.440). Accountants have a part to play in providing relevant data so that society,

as a whole, can evaluate environmental utilisation.

The first step in achieving this is to give prominence to justice and self-respect. The

second step entails developing Grays concept of accountability at a theoretical level, `the right to

receive information and duty to supply it (Gray, 1990b, p.23). It is suggested that in the second
step accounting theory should recognise the fact that there is more than one underlying set of

values in society and that they need to be considered in a non-relativist manner, utilising the

Rawlsian concept of self-respect.

Partridge (1984, p.122), paraphrasing Hardin (1968) illustrates the contradiction

between the individual and communal approaches in his analysis of the use of common property:

And yet, given the lack of communal rules of management or procedures of rule enforcement
(ie., no effective moral or legal restraints on range use) the rational decision is to add to ones
personal flock...But once an enforceable regulative order is accepted by each, and imposed
upon all, the welfare of each herdsman is enhanced through this system of "mutual coercion
agreed upon".

The use of common property in this `communal manner promotes closeness and overall

efficiency. Rawls theory becomes more important within the communal setting allowing us to

escape the straight-jacket of impartiality, the neutrality of decision-usefulness and the limitations

of any market-based solution. Moreover, as the rights of all must be protected so market power

would not become further entrenched nor would market domination rear its more unpleasant

features.

CONCLUSION

This essay has explored the moral nature of accountability and identified the obligations

of corporations to provide an account of their actions and use of the environment. Two important

and interrelated premises have been developed. The first is that environmental accounting is not a
 21

call for more information and more regulation. That information is available and accessible. I am

arguing that the inclusion of environmental data in annual reports does more than provide

information, it establishes and articulates an accountability relationship between corporations and

others. Relying on Williams (1987), the essay established the fact that beyond providing mere

information, there is a moral aspect which is based on a legitimate concern for fairness. This then

establishes the second premise that accounting information forms part of a public account given

by a firm to justify its behaviour. These premises indicate that accounting is a moral discourse and

justifies a Rawlsian argument for accountants to put environmental matters on their agenda.

It was then argued that the notion of accountability must be explicitly stated as a

legitimate accounting criteria because it cannot be submerged within the traditional decision
usefulness criteria. This led to the argument that financial reporting must consider what are taken

to be democratically arbitrated "primary goods" that reflect values and beliefs in society. As a

moral discourse, accountability requires that accounting evaluates and explains its data. This

argument does not imply that justice will prevail over powerful interest groups, rather it suggests

that failure to account for the different views and life-plans in society will mean that the affected

individuals life goals will be unattainable - stigmatised, marginalised, humiliated, and it will

undermine their self-respect (Van Parijs, 1991, p.105). Rawls suggests that in these situations

such individuals will be plagued by failure and self-doubt, their life empty and vain (Rawls, 1971,

p.440).

Rawlsian ethical theory has been used to provide a basis to develop and justify the

corporate social and environmental project pioneered by Gray et al., (1987, 1988, 1991) and

Gray (1983, 1990, 1992) which has inspired this essay. It has been suggested that pluralism is a

feature of modern democracies and that middle-of-the-road theorising can use self-respect in the

original position to avoid charges of relativism as an adjudicating mechanism. Developed along

these lines the argument cannot be said to be going along with the crowd since most businesses

would prefer not to be more transparent in their procedures. The notion of closeness adds clarity

to the argument for regarding accounting as a moral discourse. As a consequence, a theory of

justice has been developed which provides a non-reductionist way to contextualise accounting. It

transcends decision-usefulness to satisfy a necessarily larger range of accountability relationships.

21
 22

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