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Home > Auditing Best Practice > Full-Spectrum Accounting—Unlocking Strategic Value through Deeper Environmental, Social, and Governance (ESG) Practices

Auditing Best Practice

Full-Spectrum Accounting—Unlocking Strategic Value through Deeper Environmental, Social, and Governance (ESG) Practices

by Henning Dräger


The path to a fully fleshed out concept of environmental, social, and governance (ESG) concerns has been a long and illustrious one spanning many centuries, a myriad of philosophies and political concepts, and the refinement of ethical behavior and practices. That decisions about potential investments, asset valuation, risk appraisal, and partnerships should be based on more than financial returns has found proponents in many corners over time, ranging from the Quakers, abolitionists, philanthropists, progressive company owners, and environmental and social movements all the way to today’s socially responsible investment (SRI) fund managers.

Jumping to the latter part of the 20th century, a string of events—including the Bhopal gas disaster in 1984, the Chernobyl nuclear disaster (1986), the Exxon Valdez oil spill (1989), and the increased focus on companies operating in apartheid South Africa—led to renewed debate and pressure for greater accountability beyond the bottom line. These events were accompanied by a number of impactful books and reports, from Rachel Carson’s Silent Spring (1962), which documented the detrimental effects of pesticides on the environment, and the Club of Rome’s Limits to Growth (1972), on the consequences of global population growth based on a finite resource base, to E. F. Schumacher’s Small is Beautiful: A Study of Economics as if People Mattered (1973), which outlined appropriate use of technology and highlighted the sustainability problems inherent in the modern economic system.

One of the first examples of involving investors in applying political pressure to companies materialized in 1989 when the Ceres coalition of investors and environmental groups was formed. By leveraging the power of its collective investors to encourage companies and capital markets to incorporate environmental and social challenges into their day-to-day decision-making, Ceres was one of the pioneers in catalyzing the formalization of ESG practices. Today the Ceres coalition represents one of the world’s strongest investment groups, with more than 60 institutional investors from the United States and Europe managing over US$4 trillion in assets.1

The 1992 Rio de Janeiro Earth Summit catalyzed further corporate interest in exploring the concept of sustainable development. This spawned the 1995 World Business Council for Sustainable Development (WBCSD), which was formed to share knowledge, experiences, and best practices, and to advocate business positions on these issues in a variety of forums, working with governments, NGOs and intergovernmental organizations.2

However, it was sustainability consultant John Elkington’s seminal book Cannibals with Forks: The Triple Bottom Line of 21st Century Business (New Society Publishers, 1998) that brought the concept of a financial, social, and environmental bottom line to a global audience. As well as widening the debate on companies’ nonfinancial value creation and destruction, its attempt to monetize their social and environmental impacts remains a key contribution that is reflected in many of today’s corporate social responsibility, ESG, and sustainability initiatives.

Today a growing number of global initiatives, including the UN Environment Programme Finance Initiative (UNEP FI) and UN Global Compact, promote the formalization of linkages between sustainability and social and financial performance. It is, however, fair to say that the agreement and promotion of ESG practices is still met by dominant behavior of the type already identified by influential economist Milton Friedman when in the 1970s he put forward his arguments for businesses to abandon any other role than to maximize profits. Friedman wrote that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits…”3

Friedman’s core arguments continue to echo in today’s debate about the role of companies in engaging in and profiting from solutions to the global environmental and social challenges posed by climate change, poverty, and the energy needs of a growing population. For all the headway proponents of ESG have made, this ingrained and systemic view is quite possibly the biggest obstacle to mainstreaming social, environmental, and governance criteria for corporate activities in the absence of global legislation. However, the evidence base that corporate engagement with ESG practices can be positive and profitable is growing, as will hopefully be reflected in the rest of this chapter.

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Further reading

Assurance Standards

  • AA1000 Assurance Standard 2008 on sustainability assurance (AccountAbility):
  • SA8000 Social Accountability (British Standards Institution):


  • BDO (Binder Dijker Otte & Co.):
  • KPMG (Klynveld Peat Marwick Goerdeler):

Company Examples

  • Interface:
  • Novo Nordisk:
  • Puma environmental profit and loss account:


  • European Commission on sustainable and responsible business:
  • HM Treasury on sustainability and environmental reporting:
  • International Labour Organization (ILO):


  • Global Reporting Initiative (GRI):
  • UN Global Compact:


  • Dow Jones sustainability indexes:
  • FTSE4Good index series:

Investor Guidelines

  • Carbon Disclosure Project:
  • UN Principles for Responsible Investment (UN PRI):

Management Standards

  • ISO 14000 Environmental Management:
  • ISO 26000 Social Responsibility:


  • Sustainability at Work:
  • Sustainability HQ:


  • Eurosif:
  • International Integrated Reporting Committee (IIRC):
  • UN Environment Programme Finance Initiative (UNEP FI):
  • World Business Council for Sustainable Development (WBCSD):

Rating and Recognition

  • Bloomberg:
  • Corporate Register:
  • Sustainable Business:

Screening Agencies

  • Ethical Investment Research and Information Service (EIRIS):
  • Morgan Stanley Capital International (MSCI): [PDF].

SRI Asset Managers

  • Aviva Investors:
  • SVM Asset Management:
  • Threadneedle Investments:
  • UK Sustainable Investment and Finance (UKSIF):

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