Critical Perspectives on Accounting xxx (xxxx) xxx

Contents lists available at ScienceDirect

Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa

A foundation for ‘ethical capital’: The Sustainability Accounting

Standards Board and Integrated Reporting
Claire Parfitt
Department of Political Economy, University of Sydney, Social Sciences Building, Camperdown, NSW 2006, Australia

A R T I C L E I N F O A B S T R A C T

Keywords: What purpose does ESG accounting really serve? As the “alphabet soup” of sustainability ac­
Sustainability counting standards thickens with the growing interest in ESG investing, this article looks beyond
Ethics the usual critiques of social and environmental accounting to reveal how these new standards are
Financialisation
productive for capital. Analysing the work of the SASB and the International Integrated Reporting
Investing
Council (IIRC), the article shows that accounting for ESG is more than the smoke-screen or green-
washing exercise that critical voices often observe. By mapping, quantifying and coding social,
environmental and political issues to be incorporated into capital’s valuation regime, ESG ac­
counting standards establish a technical and rhetorical basis upon which ethical claims can
become productive for capital, regardless of whether or not these ethical claims translate into any
practical difference in business operations and their socio-ecological impacts.

1. Introduction

This article requires a two-part introduction. The first introduces the peculiar concept of “ethical capital” and the second introduces
the particular background of this article.

1.1. What is “ethical capital”?

Almost invariably, the phrase “ethical capital” evokes a forceful and emotional response. Such responses vary considerably, usually
dependent upon one’s worldview or politics. Despite the fact that the term typically generates immediate (and perhaps inherent)
misunderstanding, I am committed to using it for two reasons. The first is that it is central to the phenomenon I am exploring and
without it some necessary analytical purchase is lost. Second, and equally importantly, the term is used here in order to unsettle the
reader and generate the conflict over ethics that capital aims to obscure. The very emotional responses evoked by the term “ethical
capital” reveal the underlying tensions, debates and disagreements that drive the production of this type of capital. By developing a
critique of “ethical capital” I aim to expose these contradictions. So, having established that I am using the term to provoke and to
challenge, what precisely does it mean in the context of this article?
Ethical capital is a process by which ethical claims or credentials are incorporated into intangible assets such as corporate repu­
tation and credit ratings. Political challenges to capital, based on social and ecological concerns, become risks to accumulation. Capital
absorbs these risks and transforms them, through financial calculus, into profit-making opportunities. Corporate brands and rankings
that manifest ethical capital are commodities in a dual sense: they impart use value to consumers who purchase branded goods and

E-mail address: claire.parfitt@sydney.edu.au.

https://doi.org/10.1016/j.cpa.2022.102477
Received 17 July 2021; Received in revised form 6 May 2022; Accepted 8 May 2022
Available online 11 June 2022
1045-2354/© 2022 Published by Elsevier Ltd.

Please cite this article as: Claire Parfitt, Critical Perspectives on Accounting, https://doi.org/10.1016/j.cpa.2022.102477
C. Parfitt Critical Perspectives on Accounting xxx (xxxx) xxx

services, and they can be bought and sold by firms as a form of intellectual property that also bolsters stock values. Ethical capital
accumulation relies on expressions of political preferences and aspirations by consumers, investors and workers, and how these are
perceived by businesses. As a frontier of accumulation, ethical capital generates profit-making opportunities not only for the specific
firm that makes the ethical claim(s), but also for third party investors who speculate on which ethical credentials will be most valuable
in financial markets.
There is no suggestion here that the phenomenon of ethical capital as a way of making profits means that capital has become more ethical.
Rather, we can say that the full spectrum of ethical possibilities is commodified. Consider the fact that different investors express
different ethics. There is a well-documented growth in ESG (environmental, social and governance) investing, which is the primary
focus of this article. But more recently, anti-woke investment funds have emerged, aiming to provide an investment option for those
whose ethics are not met by ESG metrics (Bloomberg.com, 2021). Ethical capital arises from investing based on ethical claims, and the
ethics underlying those claims are as varied as the people who assert them.

1.2. ESG Accounting: A foundation for “ethical capital”

In the current political economic conjuncture, social change is often envisaged and enacted through a bleak capitalist realist
(Fisher, 2009) frame that implies responsible corporations are the most effective agents of change. This is reflected in campaigns that
focus on ethical consumption and investment through which people are implored to vote with their dollars and to achieve social
change through an aggregated expression of individual preferences. Though many investors do not engage with ESG investing at all
(Christophers, 2019), where they do, it is an opportunity to generate ethical capital.
The concept of ethical capital accumulation relies on a series of propositions about ethics, risk and value. First, ethics are treated as
risks that are managed by firms, along a spectrum of possible ethical positions those firms might take. Second, risks are commodified
through financial markets and instruments. Third, by translating positions on ethics (risks) into commodities and intangible corporate
assets, ethics become an accumulation strategy. Finally, in order for ethics to become legible for capital accumulation, they must be
identified and measured.
The production of ethical capital depends, as do other processes of capital accumulation, on accounting. It is accounting that
supports the last of the above propositions. Accounting systems are required to codify and rationalise ethics so that they can become
legible to capital. Critical accounting literature has long recognised the limitations of social and environmental accounting (SEA).
Looking beyond those limitations, I ask what do ESG accounting initiatives like SASB and IR actually do? What is the productive
function of these accounting frameworks? Reading SASB and IR through the literature on intangible assets, SEA and the co-constitutive
relation between accounting and the social (Broadbent, 2002; Burchell et al., 1991; Hines, 1988; Hopwood, 1976), reveals how these
new accounting practices render ethics legible to capital, providing this necessary foundation for the production of ethical capital.
Grounded in an historical analogy with the emergence of double-entry accounting (Carruthers & Espeland, 1991), the analysis
below shows that IR and SASB, driven by the material conditions of this moment in history, develop the technical tools to make ethical
claims legible to capital as both risks and assets, and the rhetorical frameworks that support using these accounting categories in new
ways. The political pressures associated with managing social and environmental impacts of economic activity drive businesses to
present as responsible citizens and ESG positioning becomes a measure of competitive advantage. At the same time, the increasing
economic significance of intangible value provides a vehicle for the accumulation of a new form of “ethical capital” which comprises
these ESG positions. SASB and IR standardise and rationalise the ethical issues that arise in SEA, making those issues legible to capital
as ESG risks (Parfitt, 2020).
At the intersection of accounting for intangible assets and SEA, ESG accounting raises challenges regarding the rationalisation and
standardisation of ethical issues into financial accounting concepts. The article asks: How do IR and SASB reimagine measuring ac­
counting categories like value, capital, profit, costs and risk through a lens of ethical risk? What are the rhetorical functions being
played by IR and SASB? What are the implications of understanding the function of SEA in this way? By exposing how these new
accounting initiatives aim to commensurate the incommensurable, their failures in doing so, and the accumulation processes they
facilitate despite these failures, this article reveals the politics of valuing ESG risk.

2. Method

While there are many accounting and reporting initiatives that engage with ESG issues, IR and SASB are the focus here for several
reasons. First, they most coherently connect intangible value and ESG issues, which is the nexus at which ethical capital is produced.
Second, they both focus on the provision of information specifically for investors and therefore for ESG investing, which is a core driver
of ethical capital production. Finally, both SASB and the IR project have garnered significant support amongst their stakeholder
groups, notably accounting firms and advocates of responsible investment. SASB is closely related to the influential Bloomberg
company, and its methods are being incorporated into Bloomberg’s ESG analysis. IR is an initiative of the world’s largest accounting
firms, professional associations of accountants, major asset owners and managers, transnational organisations, and other reporting
organisations including the Global Reporting Initiative (GRI). Since the research underpinning this article was first undertaken, SASB
and the IIRC have announced their merger, further confirming the confluence of the two projects as world-leading efforts to stan­
dardise ESG information for investors.
The method here involves a content analysis of the IR framework and associated guidance documents, and the SASB standards,
methodology and guidance. The purpose of this analysis is to understand what these two accounting frameworks aim to measure, how
they propose to measure it and to what end. For this reason, the primary focus of the empirical work is the standards and frameworks

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themselves, along with the explanatory documentation published by the IIRC and the SASB. All of the source documents used for this
empirical analysis are cited in the reference list or included as appendices. In addition to these primary source documents, some
company case studies (SASB, 2016a) and examples of integrated reports from the IIRC database (IIRC, n.d.) have been used to illustrate
the application of the frameworks.
The content analysis was conducted using a multilevel coding process which began with ‘open coding’: determining a set of codes
based on key concepts that arise both from the literature and from the source documents. These codes were then applied and refined
through several readings of the source documents to develop an understanding of how each framework understands and applies core
concepts like value, capital, standardisation / rationalisation, materiality and risk. The analysis reveals how these key concepts are
deployed in the SASB and IR frameworks, to understand the function this form of accounting plays in the practice of ESG investing.
Putting this analysis in conversation with critical accounting literatures demonstrates how new accounting practices are laying the
basis for mapping, quantifying and coding social, environmental and political issues to be incorporated into capital’s valuation regime
(Bigger & Robertson, 2017), revealing the productive function of ESG accounting.

3. Accounting for ethics at the nexus of intangible value and SEA

3.1. Beyond the conflict between profitability and sustainability

Ethical capital draws together intangible assets and SEA, two areas that accounting has been thinking together for some time
(McPhail, 2009; Pedrini, 2007). Investment advisors mirrored this convergence in scholarship with the establishment of Innovest’s
“Intangible Value Assessment” tool in 2004. This was a measure of both intangible asset values, and of social and environmental
performance (Eccles et al., 2019).
The proposition that responsible capital is more profitable is a core (and questionable) tenet of the drive towards ESG investing,
which is at the centre of this melding of accounting for intangible value and SEA. SASB and the IR framework are grounded in the
premise that there is no fundamental conflict between ethics and the economic performance of firms. This assertion is part of what
some authors identify as the ‘post-political’ nature of SEA (Brown & Tregidga, 2017). These initiatives assume that social and envi­
ronmental challenges arise from a lack of adequate information about the externalised costs of business activity, and that properly
informed investors will discipline the firms they invest in to promote sustainability. Correspondingly, the value of a business (espe­
cially their intangible assets) will rise and fall according to their compliance with the management of ESG (ethical) risks. As the Chair
of the International Organization of Securities Commissions (IOSCO), a founding member of the IIRC has asserted.
‘[a]cting ethically isn’t more important than making a profit but the key to making a profit in the first place… It isn’t that
behaving well is more important than making a profit. It’s that it’s necessary to behave well in order to make a profit. Good corporate
governance is good business’ (Flower, 2015: 13) (emphasis added).
This denial of the conflict between profit and sustainability is at odds with much of critical literature on SEA, which has long argued
that sustainability reporting is impeded by a contradiction: the pursuit of profits causes many of the problems that SEA aims to address
(Bebbington et al., 1999; Gray & Bebbington, 2000). Although some authors remain optimistic about the prospects for SEA (Thornton,
2013), many critical voices since then seem to confirm Bebbington, Gray and Owen’s reservations: financial accounting is not fit for
purpose to account for social and environmental issues or to deliver meaningful change in these areas (Cho & Patten, 2013; Deegan,
2013; Gray, 2013); the focus is too squarely on business interests and profit, rather than ecological integrity (Gray, 2013); the interests
of investors and creditors are centred, at the expense of others (Brown & Tregidga, 2017; Deegan, 2013); financial accounting creates
too narrow a frame for social and environmental accountability (Deegan, 2013, 2017; Gray, 2013); accounting and nature are
fundamentally inconsistent (Hines, 1991; Lehman, 1999; Lehman & Kuruppu, 2017); and corporate reports are misleading and
disconnected from reality (Boiral, 2013; Boiral and Henri, 2015). In a recent article specifically addressing ESG investing, and SASB
and IR in particular, Young-Ferris and Roberts (2021) similarly observe the inherent limitations of ESG. These include the commitment
to financial materiality and the focus on the reporting enterprise, which the authors say undermine both the adequacy and effec­
tiveness of ESG investing in addressing multifaceted and structural socio-economic phenomena.
While these observations are accurate, there is more to say. The processes by which accounting (always) commensurates the
seemingly incommensurable reveal the necessary politics of value and valuation (Bigger & Robertson, 2017; MacKenzie, 2009).
Malsch’s (2013) analysis of CSR reporting, for example, demonstrates that when CSR audits treat social and environmental
accountability issues as ‘apolitical objects of risk’, an instrumental form of ethics is mobilised. The ethics are flexible and market-
compatible, circumscribed by financial materiality, meaning that any ethical issues that conflict with profit become irrelevant
(Lampert, 2016). The popular and scholarly discourse about ‘double materiality’1 aims to address this shortcoming in SEA (Adams &
Abhayawansa, 2021; Calece, 2020; Tager, 2021) and to make SEA more effective at meaningfully or comprehensively accounting for
social and ecological issues.
However, a more meaningful and comprehensive accounting is not necessary for ethical capital production. Ethical capital can be
(and perhaps must be) based on ephemeral and misleading chimeras. While the critical accounting literature addresses the failure of SEA

1 1
‘Double materiality’ is used by organisations like the Global Reporting Initiative and the European Financial Reporting Advisory Group and
refers to reporting on both financially material issues and issues that are material to sustainability or ecological and social impact (Adams et al.,
2021).

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to achieve its stated purpose, the argument in this paper extends beyond those limitations, revealing what these accounting initiatives do
achieve. While they fail to comprehensively account for ethical issues, SASB and IR create a basis on which businesses can create, measure
and trade intangible “ethical assets”. The rationalisation and standardisation of ethical issues through the SASB and IR frameworks makes
a constrained form of market-compatible ethics legible to capital in the form of risk and turns ethical claims into assets.

3.2. The rhetorical and technical functions of SASB and IR

Conventions about what accounting measures and how it measures are driven by material conditions, and in turn, structure those
material conditions (Bryer, 2000a, 2000b, 2005; Chiapello, 2007). In the early development of capitalism, accounting provided
technical and rhetorical innovations that transformed social and economic life. In technical terms, double entry enabled the separation
of capital accounts from profit and loss statements, facilitating the accumulation of capital (Chiapello, 2007; Levy, 2014). Abstractions
enabled commensuration of diverse objects, with qualities reduced to quantities and uncertainty absorbed by the accounting
framework (Carruthers & Espeland, 1991).
In addition to these technical innovations, Caruthers and Espeland (1991) argue that double entry legitimated the pursuit of profit,
performing a more important rhetorical function. Similarly, in arguing that ‘accounting is ideology’ (2015: 42), Bryer has highlighted
that accounting categories change according to their context and that it is necessary ‘to locate accounting in changing historical contexts
of social accountability to help us to understand its implications for economic and social change’ (2005: 62) (emphasis added). Carla
Edgley’s recent work on the genealogy of materiality also reveals the malleability of accounting concepts, and that they are ‘built upon
assemblages of historical conditions, events and ongoing battles over [their] meaning’ (2014: 267). Levy (2014) gives an example of
this malleability – and its dependence on power and positionality – in an historical analysis of litigation around a steel mill closure,
where the company’s metric for profitability trumped that of the labour union.
Accounting rationalises, both in the technical sense of eliminating irrelevancies, and in the rhetorical sense of justifying what is to
be accounted for.
SASB and IR are establishing new frameworks for measuring material risks to capital accumulation and material assets related to
ESG issues, which are intangible assets with a relationship to ethical claims. Primarily, this means brands, corporate reputation and
credit ratings, which can be understood as ‘relational’ capital in Wexler’s (2002) taxonomy, and which have an impact on other
intangible assets like consumer confidence. Already by the early 2000s, credit rating agencies like Moody’s, S&P and Fitch had begun
to integrate brand value into their calculations of corporate worth, through the category of ‘relational capital’ (Del Bello, 2008).
SASB and the IIRC take a different approach to accounting for intangibles from that prescribed in traditional financial accounts. The IR
framework aims to overcome the practical dilemmas of traditional financial accounting in providing information about intangible assets,
by enabling firms to communicate with investors about how they manage various forms of financial and non-financial capital. The
framework is very open and gives firms great discretion in determining how their non-financial capitals are defined and measured. SASB
also enables firms to account for intangible value, to the extent that such value is associated with sustainability issues that SASB has
prescribed as ‘material’ for the relevant industry. The intangible assets covered by SASB’s standards include all three of Wexler’s (2002)
human, relational and structural capitals, but reporting according to SASB standards is not framed around the assets themselves. Reporting
is framed around the firm’s management of risks and opportunities that will either grow or deplete those assets. This allows the SASB
framework to skirt many of the practical and conceptual issues in accounting for intangibles through traditional financial statements.
Both IR and SASB state that their aims are to standardise reporting, and to improve quality and comparability of data, for the
purpose of enabling investors to exact market discipline on poor ESG performers, with material consequences for the value of a firm’s
assets. Emerging from conflicts around the social and environmental impacts of economic activity, SASB and IR shape the conditions in
which ethics are made legible and measurable for capital, facilitating the production of ethical capital.

4. Integrated reporting

IR emerged in the early 2000s, but has been formalised through the establishment of the IIRC in 2010. The practice had been
adopted by over 500 companies as at 2018, most of which report on a voluntary basis. However, the Johannesburg Stock Exchange
requires listed firms to produce an integrated report, or to explain why they have not done so. This accounts for around 130 of the
companies reporting (Wahl et al., 2020).
IR is positioned, by its proponents, as a transformation in corporate reporting norms to address the challenges of intangibles and
sustainability. One of the accounting firm participants in the IIRC, Deloitte, says ‘[the Integrated Report] is not a “complementary
report” but a structural evolution in corporate reporting’ (Deloitte, 2018: 9). The IR initiative is based on the business case for sus­
tainability: the assertion that there is no conflict between doing well (profit) and doing good (sustainability).
The IIRC brings together its assumptions (and indeed, the underlying assumptions in the rhetoric of ethical capital) about the
connections between intangibles, sustainability and market discipline when it claims:
‘[t]he cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for
financial stability and sustainability’ (IIRC, 2013: 2).

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Implicit in this assertion is that sustainability is undermined by deficiencies in capital allocation, which in turn are based on failures to
integrate thinking and reporting. The integration here refers to the IIRC’s ‘six capitals’ (financial; manufacturing; natural; human; in­
tellectual; and social and relationship) which include both financial and non-financial capitals, tangible and intangible assets. The de­
ficiencies in capital allocation on which IIRC relies for its solution to the problem of sustainability are grounded in the assumption that
when markets are properly informed about the impacts of economic activity, they will reallocate capital to more sustainable activities.
This position is reinforced by investor advocates of IR and the ‘fiduciary capitalism’ (Hawley & Williams, 1997) view of institu­
tional investors as agents of sustainability. In an open letter supporting the IR framework, a group of self-described progressive in­
vestors claimed that IR would drive a shift to long-term thinking in capital markets which.
‘will facilitate more sustainable development and stable businesses in the longer term and the growth of more transparent and
robust capital markets which will benefit us all’ (IIRC, 2018).
These investors, like other advocates of IR (Adams, 2015; de Villiers & Sharma, 2017; Gleeson-White, 2014), also associate the
increasing economic significance of intangible assets with questions of sustainability. Frequently drawing on the volume of intangible
capital in the global economy, mirroring the intellectual capital literature (Lev and Gu, 2016; OECD, 2013; Petty & Guthrie, 2000), IR
draws intangible assets into its framework through its non-financial capitals. The six capitals identified by the IIRC are those things it
considers to be relevant to value creation and which are at the heart of its proposed transformation of corporate reporting. In preparing
Integrated Reports, companies are required to provide information about how their activities have impacted on the growth or
depletion of each of these six capitals.
The IIRC publishes a framework to guide the preparation of a company’s Integrated Report (IIRC, 2013). The framework does not
specify particular items or standards for disclosure. Instead, it provides suggested ‘content elements’ for Integrated Reports
(Appendix A) and a list of ‘guiding principles’ (see Appendix B and the table below). The contents of an Integrated Report should
include an overview of the firm’s operations and business model, the risks and opportunities to which it is exposed, governance
structure, past performance, outlook, and the ‘basis for presentation’ through which the firm justifies its methodology for preparing the
Integrated Report and its inclusions / exclusions (IIRC, 2013: 5).

Guiding principles for preparation of Integrated Reports

strategy and future orientation
connectivity of information
how the organisation relates to stakeholders
should disclose material information
should be concise, reliable and complete, consistent and
comparable
the organisation’s ability to create value in the short, medium and long term
the interdependency between the six capitals
how and to what extent the organisation understands, takes into account and responds to their needs
and interests
that is, matters that substantively affect the organisation’s ability to create value over the short,
medium and long term

The IIRC states that the ‘primary purpose’ of an Integrated Report is to inform investors (IIRC, 2013: 6). At the same time, IIRC claims
that ‘all stakeholders’ of a firm will benefit from an Integrated Report (IIRC, 2013: 6). This claim is not substantiated explicitly but
appears grounded in the questionable assumption of a confluence of interests between investors and all other stakeholders, or that
there is no contradiction between profit and the social and ecological impacts of business activity. Another stated aim is to ‘enhance
accountability and stewardship’ (IIRC, 2013: 2) of all of the six capitals. Again, the connection between IR and better stewardship is
assumed, and reflecting the concordant ideological premises of the IR initiative and ESG investing.

4.1. New capitals

The six capitals essential to the IR framework embed the IIRC’s particular concept of capital: ‘The capitals are stocks of value that are
increased, decreased or transformed through the activities and outputs of the organization’ (IIRC, 2013: 4) (see Appendix C).
Firms preparing Integrated Reports are required to provide details of the ‘stock of value’ for each of the ‘six capitals’ that the IIRC
defines including financial, manufactured, human, social and relationship, natural and intellectual. In addition to traditional financial
statements which provide details of financial and manufactured capital, companies provide details of their non-financial capitals
through information such as number of employees, ethnic and gender diversity among staff, the value of their brand, customer and / or
employee engagement figures, staff training expenditure, energy and water use, and greenhouse gas emissions (see for example, In­
tegrated Reports issued by Vodacom, Generali, MTN and Lloyds Banking Group from the IR examples database (IIRC, n.d.)).
Recalling historical developments in capitalist accounting, the numerical definition of assets ‘powerfully propels the logic of en­
terprise’ (Schumpeter, 1943: 123). The rationalisation and valuation of intangible assets through the IIRC’s six capital metrics can be
seen through both a legitimacy and a technical lens (Carruthers & Espeland, 1991). With respect to legitimacy, firms aim to present

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themselves as responsible stewards of the various stocks of value they maintain. In technical terms, IR metrics form the basis for
building a firm’s reputation and relational capital, and feeding into ESG ratings, through which the firm’s sustainability initiatives
become commodified (Hiss, 2013).

4.2. Value creation

IR performs an ideological function by broadening the concept of value from strictly monetary to include ecological, human, social,
cultural, and other non-financial values. Importantly with respect to the function of ethical capital production, these non-financial
values are always measured in relation to the financial value of the firm and for investors, not their value to other stakeholders. IR
documentation frequently refers to increasing the capacity of firms to create ‘real’ value in an effort to capture these non-financial
qualities (IIRC, 2015). KPMG, a member of the IIRC, presents IR as part of a series of projects which aim to ‘develop metrics which
will provide a more complete view of value creation’ (de Draaijer, 2014) incorporating systemic risks such as those associated with
ecological deterioration, social conflicts, and political turmoil. This points to the possibility of a technical as well as a rhetorical
function for IR in transforming corporate valuation measures according to risk. KPMG’s ‘true value’ methodology, for example, re­
duces earnings expectations for firms according to perceptions of ESG risk (de Draaijer, 2014). In practical terms, the critical social and
environmental accounting (SEA) literature suggests that the voluntary nature of IR means that firms are unlikely to fully disclose risks
(Boiral, 2013). Nonetheless, adjusting corporate valuation according to ESG risks demonstrates how accounting is facilitating the
financialisation and commodification of ethics (Hiss, 2013) for the benefit of investors.
The IR framework also performs an ideological function by connecting its concept of value to stakeholder theory, while eliding its
privileging of investor-stakeholders. The IIRC’s states that value is created through relations with stakeholders and the external envi­
ronment, and that it is dependent on the capitals relevant to those stakeholders (IIRC, 2013: 10) (see also Appendix C). IR is premised on
the idea that ‘[t]he ability of an organization to create value for itself is linked to the value it creates for others’ (IIRC, 2013: 10) (see
also Appendix D). At a surface level, this is reminiscent of a classical Marxian approach to value, through the relations between the
productive forces of capital and labour. But the IIRC’s framing of capitals as interdependent ignores the crucial Marxian element of
subordination and the conflicts of interest between the firm and the stakeholders whose interests are represented in its six capitals. The
IIRC positions investors as the primary audience for Integrated Reports and implicitly assumes the primacy of returns to financial
capital (Gleeson-White, 2014). By eliding conflicting interests, ignoring the centrality of profit, and presenting value creation as a
cohesive, pro-social process, IR performs an ideological function to buttress capital accumulation and the claims of ESG investing that
capital can be ethical and sustainable. This is one of the most powerful and problematic elements of the ethical capital phenomenon: its
promise to be all things to all stakeholders.

4.3. Rationalisation

The IIRC framework reflects some of the critiques in the SEA literature regarding the challenges of translating environmental and
social issues into metrics for corporate reporting (Hines, 1988, 1991; Lehman, 1999). The IIRC suggests that firms use a mixture of
quantitative and qualitative reporting measures for the six capitals (IIRC, 2013: 8) and highlights the importance of the connectivity of
the qualitative and quantitative (IIRC, 2013: 8, 16–17). Firms producing Integrated Reports tend to use a combination of numerical
and narrative forms to report on their use, depletion and creation of the six capitals (see, for example, Integrated Reports issued by
Vodacom, Generali, MTN and Lloyds Banking Group).
One interpretation of the IIRC’s proposal to use combined qualitative and quantitative criteria is that the critical SEA literature
accurately identifies the challenge, or even the impossibility, of rationalising the complexities of social and ecological values (Hines,
1988, 1991; Lehman, 1999; Radin, 1996). Another interpretation is that there is resistance to finding comprehensive measures for the
social and ecological impact of business activity. Developing and applying quantitative measures inherently involves a level of
abstraction and reduction that is dependent on accounting ideology (Bryer, 2015). While some phenomena lend themselves more
readily to this type of rationalisation, it is a process that can be applied to any. The work of Viviana Zelizer, for example, demonstrates
how quickly social conventions have changed with respect to valuing human life, through the development of a market for life in­
surance. Zelizer (2010) also shows that such conventions can work in reverse, putting certain people or things beyond commensu­
ration, through her examination of changing social and economic conventions regarding children, child labour, and the role of the
family. Zelizer implicitly rejects the positions of scholars like Hines (1991) and Lehman (1999) that some things can never be mar­
ketised and that markets and morals inhabit ‘hostile worlds’ (Zelizer, 2010). Similarly, Bigger and Robertson show that rather than
simply arguing incompatibility, it is necessary to question how incompatibilities are ‘socially constituted through different measures
and often reconciled in more or less violent or absurd ways’ (Bigger & Robertson, 2017: 69). When incompatible socio-cultural values
are ‘made the same’ (MacKenzie, 2009), there is a politics in interrogating the means by which this commensuration is effected.
Accounting and value theory scholars might adopt one of many positions on rationalisation of socio-cultural values, from Zelizer’s
instrumentalist approach to analysing markets and marketisation, to the view that some forms of commodification are ‘inappropriate’

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(Radin, 1996) and not all social dilemmas and decisions can be framed in terms of costs, benefits and interests (Hines, 1991; Lehman,
1999; Radin, 1996). But one should question why the leaders of the IIRC, comprising some of the world’s largest accounting firms and
most qualified accounting standard-setting organisations, are shying away from the business of rationalisation. The use of a combination
of qualitative and quantitative information in Integrated Reports means that these reports will never be comparable in the same way as
traditional financial accounts. Capitalist accounting requires the translation of values into money in order to facilitate managerial de­
cisions about how to organise production, and investor decisions about how to allocate finance. The failure of the IIRC to complete this
rationalisation process undermines the objectives of the IIRC to provide investors with information that is more consistent, complete,
reliable, and comparable. Crucially though, this failure does not undermine the function of IR in providing a foundation for ethical
capital. Indeed, the failure of SASB and IR to complete this rationalisation process is essential to the production of ethical capital.

5. The Sustainability Accounting Standards Board

The Sustainability Accounting Standards Board (SASB), funded by Bloomberg, Rockefeller Foundation, Deloitte, Ernst & Young,
Price Waterhouse Coopers, and the Ford Foundation among others, has developed standards for measuring and reporting on ESG
metrics. SASB was established with a mandate to develop accounting standards for sustainability information, directed at investors, in
a form comparable to the United States Securities Exchange Commission’s (SEC) requirements for financial reporting. To that end,
SASB’s standards are designed similarly to those of the Financial Accounting Standards Board (FASB) and are positioned as a
development or evolution of those standards, comparable to Deloitte’s assertion that IR is an ‘evolution’ of corporate reporting
(Deloitte, 2018: 9).
The final version of SASB’s 77 industry standards were released in late 2018. One year later, it was reported that over 100 com­
panies were using SASB’s standards in their reporting (Ashwell, 2019). In addition, several investors have incorporated the SASB
standards into their analyses. The SASB investor advisory group included 49 investors as at late 2019, representing over USD 34 trillion
in assets under management (Ashwell, 2019). Most companies reporting with SASB’s standards say that they implement some, but not
all, of the recommendations in the standards (Ashwell, 2019). Companies have discretion to determine which of the items referred to in
SASB’s standards are material to their own operations.
The work of SASB is driven by two issues that are important here. First, the increasing economic significance of intangible assets.
Bringing together accounting for intangibles and SEA, SASB’s work focuses on reporting financially material information about what it
calls ‘sustainability topics’, for the purpose of measuring the intangible value associated with ESG risks and opportunities. SASB
explicitly argues that intangible value is composed of, among other things, sustainability performance (SASB, 2018a: 10) and that good
ESG performance increases the intangible value of firms (SASB, 2016a, 2018b). Material ESG risks might include financial or legal
exposure due to human rights abuse, failure to meet environmental standards, and reduced access to necessary resources due to
environmental pressures. Material ESG opportunities might include the possibility to capitalise on a growing market for organic food
consumption, markets for fair trade clothes, or renewable energy generation.

Table 1
Sustainability topics in SASB’s Materiality Map.
Dimension General Issue Category

Environment GHG Emissions

Air Quality
Energy Management
Water & Wastewater Management
Waste & Hazardous Materials Management
Ecological Impacts
Social Capital Human Rights & Community Relations
Customer Privacy
Data Security
Access & Affordability
Product Quality & Safety
Customer Welfare
Selling Practices & Product Labelling
Human Capital Labour Practices
Employee Health & Safety
Employee Engagement, Diversity & Inclusion
Business Model & Innovation Product Design & Lifecycle Management
Business Model Resilience
Supply Chain Management
Materials Sourcing & Efficiency
Physical Impacts of Climate Change
Leadership & Governance Business Ethics
Competitive Behaviour
Management of the Legal & Regulatory Environment
Critical Incident Risk Management
Systemic Risk Management

Source: SASB, https://materiality.sasb.org/ accessed 14 February 2020.

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This leads to the second issue of interest in SASB’s work. If firms’ intangible value is increased by better ESG performance, then
rationally self-interested investors can be expected to effect market discipline on those firms to demand better ESG performance.
Consistent with an efficient markets hypothesis, SASB’s work is premised on the conviction that the only limitation to this operation of
market discipline is the full disclosure of information about ESG risks and opportunities. SASB and its advocates recognise that ESG
data and ratings are inconsistent, giving the examples of the divergence between ratings from ESG industry leaders MSCI and Sus­
tainalytics (Anderson, 2019; SASB, 2018b; Wigglesworth, 2018). Disclosure and documentation of ESG risks and opportunities,
facilitating ‘enhanced data quality’ (SASB, 2016a) are presented as the basis of improving sustainability and ESG performance.
Common themes are transparency in assessing ESG performance, accuracy, consistency, and objectivity (SASB, 2018b: 5–6). As one
credit analyst says in a SASB white paper:
‘everyone knows exactly what a BAA [rated] bond means no matter where they are. We want to bring that to the ESG discussion’
(SASB, 2018b: 14). SASB emerges in a context where investors have an appetite for information about sustainability because of the
proposition that it drives profits and is a factor of competition (Anderson, 2019).

5.1. Materiality

Materiality, located at the top of SASB’s conceptual framework (see Appendix E), is central to how the organisation operates and its
theory of change. SASB has developed a ‘Materiality Map’ that ranks the priorities of sustainability topics for each of the 77 industries
for which it has developed accounting standards (Table 1).
Materiality is the basis of the reporting under SASB standards, and the key driver of its work. This concept brings to the fore the
importance of profit maximisation and the centrality of the investor perspective. Given its materiality focus, the issues that SASB
highlights should already be reported in a company’s 10K report, as required by the United States SEC. Indeed, SASB recognises that
much of the information relevant to their standards is already reported but says the quality and comparability of the information can be
improved (Anderson, 2019). This reflects a faith in the power of fully informed markets and a functionalist theory of SEA, based on the
idea that sustainability is a technical issue rather than a political one. This renders sustainability issues ‘apolitical objects of risk’
(Malsch, 2013: 150) and suggests that sustainability is being redefined for market compatibility.
In order to determine materiality for each of its industry standards, SASB coordinated a lengthy process of research and consul­
tation for drafting its Materiality Map. The first few months involved using data-driven algorithms to mine publicly available docu­
ments such as financial news, SEC filings, corporate sustainability reports, and legal cases to identify critical issues in each industry,
where there was a concentration of attention on certain topics. This process highlighted ESG issues that are both prominent in public
debate and that generate social, political, economic or legal risk. The resulting list was used as a proxy for issues that investors might be
interested in.
Once this baseline of issues was identified, SASB assessed market compatibility. The researchers looked for evidence that particular
companies had experienced material financial impacts associated with any of the identified sustainability topics. For example, if the
company had lost market share because of a brand or reputational issue, or they had been fined, or they reported in their financial
statements either increased revenue due to taking advantage of an ESG opportunity or had suffered losses due to ESG risk. This second
cut of research produced a list of subtopics per industry where there was both some evidence of investor or public interest in the issue,
and evidence of financial impacts. If there was either great public interest but no financial impact, or significant financial impact but
little interest, the topic was decided not to be financially material. With these topics, SASB convened industry working groups
comprised of companies in the industry, investors analysing the industry, and other ‘subject matter experts’ such as accountants,
academics, lawyers, and non-profits. The industry working groups voted on SASB’s initial findings and provided guidance about the
financially material ESG issues companies face in their industries (Sustainability Accounting Standards Board, n.d.).
The result of this process is that the SASB standards provide a tightly constrained set of issues for companies to report on.
Importantly, companies also have discretion as to whether or not to report on all topics prescribed in SASB’s standards. Firms decide
for themselves what is material in their own context. For example, in some industries such as airline services and automobile
manufacturing, SASB has concluded that employee collective representation is a material sustainability topic. In others such as retail,
hospitality, and education, it is not. The International Labour Organisation’s position is that freedom of association is a fundamental
human right. Although every industry employs labour, the question from the perspective of SASB standards is how costly labour
disputes may be and the relative power of trade unions, not respect for basic human rights. The dissection of sustainability topics and
reporting frameworks according to financial materiality creates a very particular, market-driven form of sustainability. Ethical or
sustainability issues that do not have a significant financial impact on the relevant industry or firm are excluded from consideration.
This speaks to Lampert’s intervention regarding the limitations of the corporation as a moral agent. Business ethics fail at precisely the
point where they are most important: when they conflict with profit (Lampert, 2016). This reflects the concerns expressed in much of
the SEA literature regarding the creation of a narrow frame for sustainability (Deegan, 2013, 2017; Gray, 2013; Malsch, 2013; Spence
et al., 2013). Ethics must be constrained if the responsible capital imaginary at the heart of ESG investing is to be realised. Profit is only
compatible with ethics if ethics are molded to fit the market. Market-compatible ethics privilege certain principles and exclude others.
This is a form of ethics that can be commodified, establishing the possibility of “ethical capital” production.

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5.2. Standardisation

There is great variation in the sustainability information provided in corporate reporting and SASB identifies quality and
comparability as the areas that it can improve. SASB claims that corporate reports often provide ‘boilerplate’ information that is vague,
of little use and not specific to the relevant industry (SASB, 2016b). For this reason, SASB aims to produce information that can
facilitate comparison, particularly between competitors. This standardisation facilitates commensuration of different firms’ sustain­
ability positions or different ESG risk profiles, within an industry, competing in the same financial markets for access to capital. This
can be seen as a commodification of sustainability (Hiss, 2013) suggesting the technical function that SASB’s standards are playing in
the development of new accounting techniques to facilitate the commensuration of different “ethical capitals”.
While the SASB framework provides for standardisation of information, rationalisation into the monetary or numerical unit is
incomplete. Like the IR framework which provides for a combination of numerical and narrative data, SASB standards require a mix.
Some information must be quantitative, such as quantity of greenhouse gas emissions; or total water withdrawn or consumed; food
safety violation rate; rates of non-conformance for suppliers’ labour code of conduct; employee turnover rates; amount of materials
used in production that are certified for environmental or social sustainability; and ethnic and gender diversity among employees.
Other information required under the standards is discursive or qualitative such as commentary on managing risks regarding data
security or use of chemicals in production; strategies for managing labour and environmental risk in the supply chain; processes for
identifying and managing emerging dietary preferences; or policies and practices regarding behavioral advertising and customer
privacy.
The limits that both SASB and the IIRC put on rationalisation and standardisation of ESG risks prevents a comprehensive reckoning
of the ecological and social costs of business (Boiral & Henri, 2015; Gray & Bebbington, 2000; Malsch, 2013). But these limits of
rationalisation and standardisation do not prevent the rendering of ESG (ethical) risks for commodification. It is precisely these limits,
in fact, which create the market-compatible ethics that can become the basis of producing “ethical capital”.

5.3. Investors as change agents

The SASB conceptual framework (Appeendix E) focuses on the role of investors, requiring that information provided under SASB
standards be ‘decision-useful’, have the capacity to impact on value creation, be verifiable, and be ‘of interest to investors’. These
aspects of SASB’s framework highlight the rhetorical function that the standards play in supporting ESG investing, and the broader
social responsibility project. ESG investing elevates predictions about risk assessment as a driving force behind ethical or responsible
decision making in investment. That is, ethical issues that can be shown to present financial risks become ‘decision-useful’ information
because they have the capacity to impact on (financial) value creation. The SASB framework is built around the primacy of investor
interests and the assumption that the only ESG issues that should be actioned are those with material (financial) implications. This
supports several underlying premises of ESG investing. First, that it is legitimate for investors to decide ethical questions. Second, that
questions of financial risk should drive ethical debate. And finally, that fully informed financial markets will find a sustainable or
ethical equilibrium. We need not accept these premises as facts, and ESG investors typically prefer not to use the term ‘ethics’ to avoid
appearing unscientific, but they are the implicit rhetorical basis for ESG investing and ethical capital production.

5.4. Disclosure bias

Some of the concerns raised in the SEA literature regarding disclosure (Boiral, 2013; Cho & Patten, 2013) are borne out in the SASB
standards and the case study documents issued by some SASB supporters. For example, Cho and Patten (2013) highlight the risk of
disclosure bias in sustainability reporting: firms that are large enough, well-resourced enough or savvy enough to disclose ESG data
obtain benefits even if they perform relatively poorly on environmental and social issues. A hint of this kind of bias is revealed in
Bloomberg’s case study on their experience in implementing SASB standards, which shows that.
‘[a]s a result of publishing the SASB metrics, Bloomberg realized an enhanced reputation as measured through the earned media
associated with their SASB-consistent reporting, Twitter chat, and social media campaign’ (SASB, 2016a: 3).
This indicates the function of reporting in commodifying sustainability (Hiss, 2013), which does not depend on any meaningful
change in social or ecological impact of business activity. That is, sustainability can be commodified and transformed into an intangible
asset, a component of a firm’s brand or credit rating, through disclosure and reporting, rather than, and regardless of, the firm’s actual
operations. Again, this reinforces the argument that the veracity of the information generated by ESG accounting and the extent to
which it reflects any meaningful change in the social and environmental performance of firms is not particularly relevant to the
production and accumulation of ethical capital.

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6. Discussion

ESG investing may or may not make a meaningful difference to the real-world social and environmental impacts of business ac­
tivity. Boiral et al. (2021), for example, recently argued that despite their limitations in rigour and comparability, sustainability
metrics may exert a disciplinary impact on corporate conduct. But regardless of practical impacts, firms and investors are able to profit from
making and measuring ethical claims. ESG accounting frameworks facilitate this by proving a basis for measuring the pecuniary value of
those claims and positions.
The emerging ESG industry is concerned with the production of information that shapes ethical capital assets. The accounting
initiatives analysed here create a foundation for standardising and mapping that information. This process is analogous to historical
mapping and metricisation efforts, like those of William Petty and the political arithmetic movement, which has also been compared to
intangible accounting (Mårtensson, 2009). It can also be understood as part of the colonialist rationalisation exercises that Jason
Moore defines as ‘abstract social nature’: ‘the family of processes through which states and capitalists map, identify, quantity, measure,
and code human and extra-human natures in service to capital accumulation’ (Moore, 2015: 194).
SEA practices are mapping, identifying, quantifying, measuring and coding social, environmental and political issues that may form
the basis of ethical claims, and then ethical capital assets. SASB does this by determining the material ethical issues pressing on a
particular industry, through analysing news media, NGO reports and other elements of public discourse. These streams of information
are generated by public debate, by expressions of ethical or political concern that create legitimacy risks for capital. In IR, the six
capitals provide a framework through which to map, identify and measure the value of particular ethical positions.
There is also an important observation to make regarding the failure of ESG accounting frameworks to develop fully quantitative
measures. Some argue that there are inherent constraints on quantifying the social (Hines, 1991; Lehman, 1999) but this ignores the
fact that accounting has always imposed quantitative measures on social phenomena and facilitated the commensuration of things that
seem inherently incommensurable (Bigger & Robertson, 2017; Robertson, 2012). So why does SEA pull back from the task of
developing fully quantitative measures for social and ecological issues? Why do organisations like SASB and the IIRC, backed by
influential global leaders in the accounting profession, permit the inclusion of qualitative and discursive information in these accounts
which prevents them from performing the function that traditional financial accounts would perform? I argue that there are two,
interrelated reasons. First, a full reckoning of social and environmental costs would devastate the rate of profit. Second, and more
importantly, a full reckoning is unnecessary. Accounting for ESG performs its function on a constrained definition of ethics. A market-
compatible ethics suffices for the purpose of enabling firms to present themselves as compliant with certain ethical positions and to
generate ethical capital.
The incomplete rationalisation in the accounting frameworks offered by SASB and IR reveals a crucial limit-point for the quan­
tification of ESG issues: the point at which ESG issues conflict with and undermine profitability. Importantly, this incompleteness and
imprecision is necessary for the production of ethical capital. Though some sustainability advocates offer ‘double materiality’ to
address this flaw in SEA (Adams & Abhayawansa, 2021; Calece, 2020; Tager, 2021), profit-driven actors are likely to see double
materiality as too much of a threat to their financial interests. By contrast, the bolstering of legitimacy claims which drives the pro­
duction of ethical capital can be achieved without double materiality, or any other, more rigorous, reckonings with social and
ecological impacts. Even if corporate sustainability reports are misleading, incomplete and inaccurate, as observed by Boiral (2013)
they can still perform the technical and rhetorical functions of building a foundation for ethical capital. Accounting for ethics, as
established by SASB and IIRC, allows firms and investors to engage in the illusion that profitability and sustainability are consistent,
while obscuring the underlying conflict between those two objectives.

7. Conclusion

This article has presented “ethical capital” as a process through which political challenges to capital are subsumed and transformed
into profit making opportunities. This frontier of accumulation has emerged in the context of what Mark Fisher called ‘capitalist re­
alism’, which he characterised by the ‘implicit concession that capitalism can only be resisted, never overcome’ (2009: 28). With ESG
investing, responsible corporations are rather hopelessly cast as the best chance for climate action, the defence of human rights and so
many other progressive efforts.
Like other forms of capital accumulation, ethical capital production depends upon accounting. Standards like those set by SASB and
the IIRC facilitate the translation of ethical issues, social and ecological challenges to capital, into metrics and checkboxes that cor­
porations use to bolster their sustainability credentials. Where these credentials become part of an intangible asset like a brand or a
credit rating, they boost stock values, creating ethical capital.
While critics of SEA are correct to identify that ESG standards fail to properly account for social and ecological value, that they have
regard only for financial interests and that they are disconnected from reality, these arguments miss a crucial point. ESG accounting
does not need to be accurate nor comprehensive to support the accumulation of ethical capital. Indeed, if ESG accounting was more
comprehensive, it would undermine ethical capital production, which relies on concealing the conflict between profitability and
sustainability, and the conflicted interests between capital, workers, and the biosphere.

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This article has revealed the technical and rhetorical functions of IR and SASB’s standards at this frontier of accumulation. In
addition to performing a powerful rhetorical function by justifying capital accumulation through increasingly pressing ecological and
social crises, these new forms of accounting create a foundation for “ethical capital” accumulation, which bears little or no relationship
to generating the kinds of social and political change many of its advocates proclaim.

Acknowledgements

The author gratefully acknowledges the support, encouragement and constructive feedback from Dick Bryan, Gareth Bryant and
Jane Andrew which have been crucial to developing this argument.

Appendix A. IIRC content elements

An Integrated Report includes eight Content Elements (IIRC, 2013: 5) that are fundamentally linked to each other and are not
mutually exclusive:

• Organizational overview and external environment: What does the organization do and what are the circumstances under which it
operates?
• Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long
term?
• Business model: What is the organization’s business model?
• Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the
short, medium and long term, and how is the organization dealing with them?
• Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
• Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms
of effects on the capitals?
• Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the po­
tential implications for its business model and future performance?
• Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such
matters quantified or evaluated?

Appendix B. IIRC Guiding Principles

The following Guiding Principles (IIRC, 2013: 5) underpin the preparation of an Integrated Report, informing the content of the
report and how information is presented:

• Strategic focus and future orientation: An integrated report should provide insight into the organization’s strategy, and how it
relates to the organization’s ability to create value in the short, medium and long term, and to its use of and effects on the capitals
• Connectivity of information: An integrated report should show a holistic picture of the combination, interrelatedness and de­
pendencies between the factors that affect the organization’s ability to create value over time
• Stakeholder relationships: An integrated report should provide insight into the nature and quality of the organization’s relation­
ships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to
their legitimate needs and interests
• Materiality: An integrated report should disclose information about matters that substantively affect the organization’s ability to
create value over the short, medium and long term
• Conciseness: An integrated report should be concise
• Reliability and completeness: An integrated report should include all material matters, both positive and negative, in a balanced
way and without material error
• Consistency and comparability: The information in an integrated report should be presented: (a) on a basis that is consistent over
time; and (b) in a way that enables comparison with other organizations to the extent it is material to the organization’s own ability
to create value over time.

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Appendix C. IIRC value creation process

Source: IIRC framework (IIRC, 2013: 13).

Appendix D. IIRC reporting boundary

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C. Parfitt Critical Perspectives on Accounting xxx (xxxx) xxx

Source: IIRC Framework (IIRC, 2013: 20).

Appendix E. SASB conceptual framework

Source: https://www.sasb.org/standard-setting-process/conceptual-framework/ (accessed 18 February 2020).

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