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ENVIRONMENTAL ACCOUNTING IN FUNCTION OF SUSTAINABLE

DEVELOPMENT OF HIGHLY TOURISTIC REGION OF ISTRIA

Lorena Monja kare, Associate Professor of Accounting, Juraj Dobrila University of Pula,Department of Economics and Tourism dr. Mijo Mirkovi,Preradovieva 1, 52 100 Pula, Croatia, e-mail: lmosnja@efpu.hr, tel. ++385/(0)52 377 042, fax.++385/(0)52 216- 416

Jasmina Grini, Assistant Professor of Tourism, Juraj Dobrila University of Pula,Department of Economics and Tourism dr. Mijo Mirkovi,Preradovieva 1, 52 100 Pula, Croatia, e-mail:jasmina.grzinic@efpu.hr, tel. ++385/(0)52 377068, fax. ++385/(0)52 216- 416

- research in progress -

mailto:lmosnja@efpu.hrmailto:jasmina.grzinic@efpu.hrmailto:jasmina.grzinic@efpu.hrmailto:lmosnja@efpu.hrmailto:jasmina.grzinic@efpu.hr

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1. Introduction

Environmental accounting has been gradually introducing in Croatian entities along withthe increasing awareness of environmental and social responsibility. In general, this is an

underdeveloped reporting practice in Croatia, although there are some excellent exemptions that

follow GRI (Global Reporting Initiative) Guidelines or prepare environmental/social reports on

their own. Undoubtedly, these non-financial information are of high importance for all the

enterprises and their stakeholders, independently of the type of industry, size or locality, but in

tourism, environmental disclosures are particularly significant, considering the natural features

of this multiplicatively effective industry and its contribution to growth and development of theIstrian county and the whole national economy. So, theres an urgent need to enhance

environmental reporting in tourism sector, although according to some research results that will

be presented later, services sector is in average worse environmental reporter comparing to e.g.

petroleum, gas, chemical, pharmaceutical industry, etc.

As the scale of tourism grows, the resource use threatens to become unsustainable.

Withought environmental responsibility and related high-quality accounting information, the

levels of cheaper mass tourism will increase, forcing more nature-based tourism to move on

to new destinations. This scenario is opposite to the Croatian Tourism Development by 2010

strategy.

With a favourable geographic position, almost at the heart of Europe, Istria has always

represented a bridge connecting the Middle European continental area with the Mediterranean.

This area is the most visited Croatian tourist region with 27% of all visitors and 35% of time

spent in all of Croatia. The Croatian National Banks preliminary figures for 2007 show that

international tourism generated 18.4% of Croatian GDP. For these reasons the Istrian tourism

industry can not ignore environmental issues in its management and requires the informed

participation of all relevant stakeholders (according to the Agenda 21 for tourism industry).

Properly planned tourism development, combined with environmental protection,

produces the concept of sustainable tourism. Environmentally sustainable form of tourism

represents a step forward from "sea and sun" mass tourism developed at the coastal part of

Istria.

There are a myriad of definitions for Sustainable Tourism, including eco-tourism, green

travel, environmentally and culturally responsible tourism, fair trade and ethical travel.

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Mentioned selective tourism forms are adopted as the concept of the present and future Istrian

destination development.

The wide range of potential information must be reduced to a set of useable and

meaningful measures important to the decision maker in tourism industry. Actually,

environmental reporting should be considered as an integrative part of all the efforts invested in

sustainable tourism development. That's why we have been exploring the current developments

of environmental accounting in the most propulsive Istrian tourist companies the engines of

Istrian growth and development, as well as their plans of further action. In this paper we're

going to present the temporarily results of our research in progress started in summer 2008.

2. Sustainability Reporting

Sustainable development that meets the needs of the present without compromising the

ability of future generations to meet their own needs.1 is supposed to be the global mission,

necessity and hopefully, reality. Awareness of this problem2 leads to the fact that all the world

is in the same boat, that everyone should somehow contribute to the sustainable development

and to communicate about problems, activities and accomplishments in this threatening area.

Here we come to the problem of companies sustainability disclosures and transparent

communication with their stakeholders. Actually, we mean the companies stakeholders as the

term as it is commonly used, as well as if we use the term in the broader sense - we are all

stakeholders together with the future generations dependent on companies past, present and

future acitivities toward or away of the sustainability.

As such, financial performance is no longer the exclusive driver for businesses.

Economic, environmental and social factors are now recognized as also playing important roles.

Consequently the competitive international marketplace increasingly rewards those that go

beyond the legal requirements in terms of managing their economic, environmental and social

impacts. This recognition has led to companies being encouraged by internal and external

1 World Commission on Environment and Development (1987). Our Common Future. Oxford: OxfordUniversity Press, p.43.2

In a study of 3,000 graduates in the United Kingdom, the United States and China done this year byPricewaterhouseCoopers, 87 percent of the Chinese respondents said that they would actively seek outemployers whose sense of corporate responsibility reflects their own ethics and values.While in anotherstudy from 2006, TNS, an international market research firm, found that 91 percent of Chinese consumers

said that they would be more likely to refrain from buying a product if a company failed to followenvironmental and ethical standards. (Gilbert, S.Business Growth Based on Socially Sound Model. ChinaDaily, 24.01/2008.)

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stakeholders to demonstrate their performance in these areas, which has resulted in the

emergence of sustainability reporting.3

Sustainability reporting, non-financial reporting, triple bottom-line reporting, corporate

social responsibility reporting and many-other-labels reporting emerged in the late nineties in

USA and Europe, while conventional financial reporting has been developing over the past

century, so theres no doubt that there are still many challenges on its developmental path. The

problem with sustainability is that it is not intrinsic to a product. It is not something added or

assembled by one supplier as a component or a mark of quality measured in a finished product.

Rather, it is a quality of a product pertaining to the impact its creation, use and disposal has had

on environmental, social and economic systems.4 Such impact should be measured, since

what gets measured, gets managed, so quantitative information are needed in addition to

qualitative ones to enable comparation among the companies and over the periods. So, besides

the sustainability concepts, sustainability metrics is necessary, as well, and this requires

building of substantial capacities.

Despite of many problems non-financial reporting has to face with, there are very

optimistic discussions such as In a few short years, a new generation of non-financial reporting

will have moved from the extraordinary to the exceptional to the expected, and in the process

will establish a new standard of transparency unimaginable even a decade ago.; Excellence in

reporting is an antidote to the loss of confidence in corporations documented in virtually every

opinion poll in the last few years. 5 It seems that non-financial information disclosures are

expected even to contribute to transparency and excellence in reporting that would enable a

comprehensive view of business in its integrity, helping in such a way to re-establish the

confidence in reported information.

Sustainability reporting is a living process and tool, and does not begin or end with a

printed or online publication. Reporting should fit into a broader process for setting

organizational strategy, implementing action plans, assessing outcomes, and continuouslyimproving. Whether a key element in risk management, your main vehicle for external

reporting, or a platform for stakeholder dialogue, sustainability reporting is fast becoming an

essential part of management practice for successful organizations of all sizes worldwide. 6

In the table below, there are some reasons for sustainability (not)reporting presented.

Table 1. Companies Motivations for Reporting or Non-reporting

3 Miles Hill, K. The Pakistani Perspective on Sustainability Reporting, p.2., www.triplebottomline.com.pk4 Wiemer, J., Plugge, L. Transparency in the Supply Chain, Briefing Paper, GRI, 23 July 2007, p.1.5 White, L.A. New Wine, New Bottles: the Rise of Non-Financial Reporting, A Business Brief by Business forSocial Responsibility, June 20, 2005, p. 1 and 4.6 The GRI Guidelines an Executive Summary, GRI.

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Reasons for reporting

enhanced ability to track progress against specific targetsfacilitating the implementation of the environmental strategy

greater awareness of broad environmental issues throughout the organisationability to clearly convey the corporate message internally and externallyimproved all-round credibility from greater transparencyability to communicate efforts and standardslicence to operate and campaignreputational benefits, cost savings identification, increased efficiency, enhanced businessdevelopment opportunities and enhanced staff morale

Reasons for not reporting

doubts about the advantages it would bring to the organisationcompetitors are neither publishing reportscustomers (and the general public) are not interested in it, it will not increase salesthe company already has a good reputation for its environmental performancethere are many other ways of communicating about environmental issuesit is too expensiveit is difficult to gather consistent data from all operations and to select correct indicatorsit could damage the reputation of the company, have legal implications or wake upsleeping dogs (such as environmental organisations)Source: Kolk, A. (2004). A Decade of Sustainability Reporting: Developments andSignificance, Int. J. Environmentand Sustainable Development, Vol. 3, No. 1, pp.5164., p.54.

It seems that the reasons for sustainability reporting have been recognized considering

the growing number of non-financial reporters over the period presented by figure 1.

Figure 1 Sustainability Reporting in 11 Countries in 1993, 1996, 1999, 2002 (in %)

- in years in which a country was not included in the survey, the % is set at 0

Kolk, A. (2004). A Decade of Sustainability Reporting: Developments and Significance,Int. J. EnvironmentandSustainable Development, Vol. 3, No. 1, pp.5164., p. 52.

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Despite of the continuous increase of the number of reporters, the question is if the

reporting is really accompanied by performance, so Kolk, A. (2004) has introduced the concept

of implementation likelihood to assess the real degree of sustainability performance and

reporting. Moreover, in addition to the question: is this, what has been reported, really

performed?, another question arose: is this, what has been reported, really a sustainability

report? With few, very rare exceptions, the label of "sustainability report" is attached to a

document which contains (a) the sort of partial eco-efficiency, environmental management

environmental report; (b) a brief, bland and partial social report; and (c) some brief, and

substantially un-analytic statement about what sustainability means to the reporting

organisation. Whatever else these reports might be, they are notreports on sustainability!.7

Although some companies prepare non-financial reports, they rarely link them with the

financial disclosures what results in incomplete information. Actually, theres an evident need

for integration of financial and non-financial information. Theres also a need to harmonize

non-financial disclosures to enable their international comparability, like the International

Accounting Standards International Financial Reporting Standards were introduced to

harmonize financial reporting worldwide, but with more flexibility. Here we come to the

activities of international organizations and networks, among witch Global Reporting Initiative

has been investing efforts to develop such sustainability reporting global standard.

3. Global Reporting Initiative

Global reporting initiative is the international non-profit organization established to

reach the excellence in the corporate reporting on sustainable development. GRI is itself

nothing more than a network of interested people worldwide willing to contribute their time and

expertise toward the achievement of a common goal.8 Launched by Coalition of

Environmentally Aware Economies (CERES) and United Nations Environment Program

(UNEP) in 1997, GRI is committed to guideline the companies how to prepare high quality,

comparable, credible and relevant single and consolidated sustainability reports, feasible to the

particularities of certain industries. It is complementary to UN Global Compact since the latter

defines values and principles for sustainable development while GRI provides the reporting

7Gray, R.Social and Environmental Responsibility, Sustainability and Accountability: Can the corporate

sector deliver?, presentation, Conference in Pretoria, South Africa in September 2000. Subsequent

versions published in The Corporate Citizen 2(3) 2002, pp. 9-16.8 Richards, T., Dickson, D. Guidelines by Stakeholders, for Stakeholders Is it Worth the Effort? , GRI, JCC,Spring 2007, p.21.

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framework for communicating organizations sustainability performance in a given period; GRI

works also in accordance with OECD MNE Guidelines to enable the GRI Guidelines

implementation. So, GRI together with UN and OECD exemplify international initiatives that

warrant the attention of every firm doing business in global markets.9

Its efforts are directed to development of the common framework for sustainability

reporting, considered to be the global golden standard created through the collaboration of

experts all round the world, from the business community, investors, accountants, labour

unions, international development agencies and leading non-government organization

protecting the environments, human rights and fighting against corruption. This framework

comprises the principles and indicators that enable measurement and reporting economic,

environmental, and social performance of a given organization with a vision that these non-

financial information become as routine and comparable as financial reporting.

More than 1000 organizations in around 60 countries, 94% of the world most successful

companies in 200410 and more than 1500 organizations in 200811. have already implemented

GRI guidelines, but theres an increasing number of their users also among smaller companies -

not only large multinational ones (GRI provides special guidance for SMEs), as well as among

non-profit organizations and public agencies. This growing trend is clearly presented by Figure

2.

Source: Zagreb G3 Briefing, March 6th 2007.

9 White, L.A. New Wine, New Bottles: the Rise of Non-Financial Reporting, A Business Brief by Business forSocial Responsibility, June 20, 2005, p. 4.10 Priopenje za medije - Predstavljanje G3 smjernica za izvjetavanje o odrivosti, Globalne inicijative za

izvjetavanje, (Press Announcement of GRI's G3 Guidelines on Sustainability reporting), HR BCSD, March 6,2007.11www.globalreporting.org, 18.08.08.

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Figure 2 GRI Reporters in the period 1999-2007

0

200

400

600

800

1000

1200

1999 2000 2001 2002 2003 2004 2005 2006 2007

http://www.globalreporting.org/http://www.globalreporting.org/

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The number of GRI reporters is expected to increase since it provides benefits both for

reporters and users, trying to benchmark organizational sustainability performance, its

commitment to sustainable development and enabling comparisons over time and between

organizations assessing their impacts on sustainable development. An assessment of 300+ GRI

reporting companies by the London consultancy Linstock indicates moderately positive

correlation with lower share price volatility, higher operating profits and revenue growth.12

Obviously, markets consider reporting practices as a proxy for quality of management and have

begun rewarding disclosures beyond conventional financial reporting.13

Of course, GRI Guidelines are also supposed to dynamically develop to higher levels

over time - Certainly at the time of writing, although the GRI remains the front runner in terms

of wide spread acceptance of reporting guidelines and although they have set reasonable

standards in environmental reporting, they have yet to develop any serious standards in social

reporting and are, therefore, still someway off decent TBL reporting.14 - we assume they are a

good starting point for non-experienced environmental reporters in Croatia and that's why we've

explored the possibilities of their implementation among Istrian touristic companies.

GRI Reporting Framework

GRI reporting framework is clearly presented by figure 3, based on improved G3guidelines that were released in October 2006 replacing G2 guidelines introduced in

Johannesburg 2002, while the first version was issued in 2000.

12 Linstock Consultants and Imagination. Added Values? Meauring the Value Relevance of SustainabilityReporting, London, February 2004, Section 1: Case studies and discussion.13 White, L.A. New Wine, New Bottles: the Rise of Non-Financial Reporting, A Business Brief by Business forSocial Responsibility, June 20, 2005, p. 3.14 Gray, R. Environmental Reporting And Accounting, Subsequent version forthcoming as Chapter 7 in The

Institute of Environmental Management and Assessment Handbook, London: Earthscan. www.st-andrews.ac.uk/~csearweb/researchresources/dps-socenv.html

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Figure 3

Source: GRI Portal Reporting Framework, 18.08.08.

The framework consists of:

- Guidelines as the core element for reporting of all organizations of any size, sector, or location.

Part 1 comprises reporting principles and guidance on setting the report boundary to determine therange of entities supposed to be included in the report. Part 2 includes the three different types of

Standard Disclosures measures to express strategic approach on how the organization impacts

sustainability and vice versa, management contents on how the organization manages sustainability

to achieve the results, as well as economic, environmental and social performance results (Profile,

Management Approach and Performance Indicators).

- Protocols which comprise key terms in the indicator, compilation methodologies, indicators

scope, and other technical references.

- Sector Supplements which complement the use of the Guidelines considering particularities

in sustainability reporting by different sectors. For example, Tour Operators Sector

Supplement was developed to be used together with the GRI 2002 Sustainability Reporting

Guidelines (November 2002), applying only to businesses organising holiday packages, as a

part of a tourism industry.

- National Annexes will be designed to meet the particularities in sustainability reporting of a

given country or region addressing the cultural differences, local policies and regulations

differences, etc.

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In comparison to G2, G3 guidelines are more process oriented, the prinicples are

classified into principles for defining reporting content (materiality, stakeholder inclusiveness,

sustainability context, and completeness) and principles for ensuring reporting quality (balance,

comparability, accuracy, timeliness, reliability, and clarity). Each principle is associated with

short definition, detailed explanation of its importance and the check-list of questions on the

certain principle presence in planning and decision making process. Also, there are

improvements in the part Standard Disclosures. G2 presented the economic, environmental

and social indicators as a group of questions on policies, procedures and results for each aspect,

while G3 elaborates each aspect through Management approach and Performance

indicators.15

At the moment, North America, Europe, and Japan appear to have the largest number

of reporters, and there has been only limited reporting from emerging economies.16

Among the countries accepting G3 guidelines, Croatia is also at the list, although with

only few companies that entirely or partially implement them in their reports.

G3 Guidelines Implementation in Croatia

Non-financial reporting in Croatia is in its infancy, but there are evident some positivemovements.

Croatia has adopted Management and Audit Scheme - EMAS (EU Regulation

761/2001) referred to ISO 14001, intended to be voluntary implemented in companies willing to

announce their ecological performances, that would be in force once when Croatia enters the

EU. According to World Resource Institute data, there were 8 certified ISO 14000 companies in

Croatia in 2000, comparing to 2 companies in 1997.

Croatian Business Council for Sustainable Development (HR BCSD), acting within theWorld Business Council for Sustainable Development - WBCSD's Global Network and

founded in 1997 by leading Croatian businesses, has a very important role in sustainable

development in Croatia and related reporting (on their website they clearly state: Eco-

efficiency, social responsibility and stakeholders' dialogue are the main business tools for

sustainable development.).

15 Priopenje za medije - Predstavljanje G3 smjernica za izvjetavanje o odrivosti, Globalne inicijative zaizvjetavanje, (Press Announcement of GRI's G3 Guidelines on Sustainability reporting), HR BCSD, March 6,

2007.16 Gilbert, S. The Transparency Evolution, Environmental Forum, November/December 2002, pp 19-26., p. 26.

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So far, at their workshops, they tried to improve the management of sludge from the

galvanisation process, the recovery of packaging glass, the implementation of environmental

laws and regulations, the obligatory delivery of environmental data and information from

business, the resources and energy management and waste management in

tourism, they have also led the campaign for change of taxation on municipal waste based on

surface and have organized regional business gatherings among economies in transition.

HR BCSD has been trying to introduce GRI's Sustainability Reporting Guidelines to

Croatian companies and to motivate them to prepare the standardized structure of non-financial

reports. According to HR BCSD, there are three most important reasons for GRI guidelines

implementtion in Croatia:

1. This is the global standard on sustainability reporting based on 10-year experiences in

more than 1000 organizations of all sizes and types all round the world.

2. GRI framework is harmonized with other reporting standards, particularly with UN

Global Compact. GRI operationalisation is among the goals of ISO 26000 standard for

social responsibility.

3. GRI framework presents the best of efforts in reaching the global consensus of all the

shareholders business community, civil society and public sector about

measurement and recording the influences of business and other organizations on

sustainability.

According to HR BCSD Priopenje za medije (press announcement) - GR3 Briefing,

Zagreb, March 2007, GRI Guidelines in Croatia have been implemented by Pliva, Podravka,

ZABA, INA, Coca Cola Beverages Hrvatska and partially, by Holcim. Podravka was a single

company in the sector of food industry located in the region of South-East, Middle and East

Europe that met GRI criteria and joint to the eminent club of ten best reporters onsustainability for the year 2006. Podravka is a member of WBCSD, World Business Forum, and

one of the establishers of HR BCSD.

HR BCSD invites all the Croatian companies to announce their sustainability reports on

their website (www.hrpsor.hr) and so far (August 2008), the following companies' reports can

be found there: Coca Cola Beverages HR - Sustainability Report, Hartmann Hrvatska -

Sustainability Report, Hauska & Partner - Corporate Responsibility Report, HEP -

Environmental Protection Reports, Holcim - Sustainable Development Report, INA - SocialReport, Environment Protection Report, Dukat (Lura) - Annual Report on Environments,

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Konar - Social Responsibility Report, Pliva - Sustainable Development Report, Podravka

-Sustainable Development Report, Petrokemija Kutina - Environmental Protection Annual

Report, ZABA - Social Report. It is noticeable the change of report's titles. Also in the world,

environmental reports began to be produced in early 1990s, gradually broadened by social and

financial components to sustainability reports a decade (and a half) after, although the label

sustainability report is according to Gray, R., misconcepted and mostly used unproperly, as it

was previously explained.

Currently, on the GRI's (web)list of G3 reporters, there is also (although undeclared)

Corporate Social Responsibility Report for 2007, issued by Croatian company Konar Electrical

Industry, Inc.

Evidently, considering the type of industries of Croatian reporters, world's trends are

followed: Besides financial companies, other sectors which report less than average are trade

and retail, services, and communications and media. Higher than average score chemicals and

pharmaceuticals, computers and electronics, autos, utilities, oil and gas, and food and

beverages.17 In accordance with these observations, the companies in tourism industry

(belonging to services sector) are not among the previously listed reporters in Croatia.

4. Environmental Accounting Developments

Global warming and ecological accidents are well-known threatens, the manhood has

been facing with every day. Although the manhood had started producing such an situation a

long time ago, it is usual to plot modern social accounting from the 1970s. Social

accounting (which, until fairly recently, was generally assumed to embrace environmental

accounting) attracted considerable and widespread attention during the early to mid-1970s.18,

furthermore, the roots of corporate sustainability reporting in its current form date to 1989,

when the Coalition for Environmentally Responsible Economics released the Valdez Principles a 10-point code of conduct that included a commitment to reporting on outcomes of

implementation. Environmental reporting, the precursor to sustainability reporting, began in

earnest in the early 1990s as part of the search for tools for enhanced accountability. 19There

17 Kolk, A. (2004) A decade of sustainability reporting: developments and significance,Int. J. Environmentand Sustainable Development, Vol. 3, No. 1, pp.5164., p. 53.18

Gray, R. Current Developments and Trends in Social and Environmental Auditing, Reporting &Attestation: a Personal Perspective,International Journal of Auditing4(3) November 2000, pp. 247-268.

19 Gilbert, S. The Transparency Evolution, Environmental Forum, November/December 2002, pp 19-26., p. 21.

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are interesting overviews of environmental and social accounting developments in Gray, R.'s

valuable contributions and leading thoughts.20

Environmental and sustainable development reports not only serve a communicative

role, they are also symbolic and serve as a key device in the marketplace for green images and

environmental legitimacy. The very act of providing environmental and sustainable

development reports has the potential to change behaviour. The process of reporting and

contributing to a broader discourse should serve to change management strategies and

information systems and in turn lead to changes in management philosophy and practices

(Dierkes & Antal, 1985). Similarly, the act of providing such reports makes them a social

expectation; a social expectation that an expedient might not have engaged in during the early

1990s but must engage in now.21

Environmentally driven innovation creates shareholder value by lowering costs,

improving the process of service delivery, finding new markets, enhancing the overall

competetiveness, leading to new products meeting customers needs.22 Cost and revenues related

to resources use and waste generation are important data for potential investors, as well as the

assessments of future competitive advantages. A report by the Rose Foundation for

Communities and the Environment states that inadequate disclosure of environmental liabilities

hampers the ability of investors to assess future earnings growth and shareholder value

(Goodman, Kron, and Little, 2002, p. 14).23 Graham, A. and Maher, J. has proved how external

environmental liabilities estimates influence a firms bond ratings (over and above the one

provided by environmental accruals in financial statements) and bond yields, following

previously discovered relations between external environmental cost estimates and equity firm

value (Barth and McNichols, 1994; Blacconiere and Northcut, 1997; Campbell et al., 1998).24

20 Gray, R. Social And Environmental Accounting And Reporting: From Ridicule To Revolution? From HopeTo Hubris? A Personal Review Of The Field - translated by Massimo Contrafatto - Il Social and

Environmental Accounting and Reporting: da speranza a sfida? Unopinione personale sul tema, in:Rusconi, G.

and Dorigatti, M., (eds). Modelli di Rendicontazione Etico-Sociale e Applicazioni Pratiche, Vol.3, 2005, pp.113-131.; Gray, R.Taking a Long View on What We Now Know about Social and Environmental Accountability andReporting, www.st-andrews.ac.uk/~csearweb/researchresources/dps-socenv.htm. See also: Owen, D. (2004).Adventures in Social and Environmental Accounting and Auditing Research: a Personal Reflection, in:Humphrey, C. and Lee, B. (eds.), The Real Life Guide to Accounting Research, London: Elsevier, pp. 23-36.21 Buhr, N., Reiter, S. (2006). Ideology, the Environment and One World View: a Discourse Analysis of

Noranda's Environmental and Sustainable Development Reports, in: Freedman, M., Jaggi, B. (eds.),Environmental Accounting: Commitment or Propaganda, Advances in Environmental Accounting & Management,Vol. 3, Elsevier Ltd. pp. 1-48, p. 12 and p. 45.22 Slater, A., Gilbert, S. The Evolution of Business Reporting: Make Room for Sustainability Disclosure,

Environmental Quality Management, Autumn 2004, p. 41.23 Alciatore, M.L., Dee, C.C. (2006). Environmental Disclosures in the Oil and Gas Industry, in : Freedman, M.,Jaggi, B. (eds.), Environmental Accounting: Commitment or Propaganda - Advances in Environmental

Accounting & Management, Vol. 3, Elsevier Ltd. pp. 4975, p. 50.24 Graham, A., Maher, J.J. (2006). Environmental Liabilities, Bond Ratings and Bond Yields in: Freedman, M.,Jaggi, B. (eds.),Environmental Accounting: Commitment or Propaganda, Advances in Environmental Accounting

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The World Resource Institute's studies applied a methodology of evaluation of how

environmentally related uncertainties could be translated in financial terms. WRI work showed

that individual companies have different risk and exposure levels to environmental changes and

that none of 29 explored companies had included data on environmental issues in their

financial/annual reports, while 6 of them have provided only qualitative information.25

Environmental accounting has found its way to financial reports through environmental

cost accounting techniques development, through the networks (EMAN-Ecological Monitoring

and Assessment Network) and accounting bodies that have developed guidance on

environmental accounting.26 But, disclosures under financial reporting haven't meet the goal to

assess the sustainability performance, so some voluntary frameworks for sustainable disclosure

became necessary. Despite of improvements, there would always be some sustainability data

that cannot be transformed into financial outputs. Some companies prepare separate documents

that enable cross-referencing, and some try to prepare a single annual report including financial

and sustainability disclosures. According to GRI survey (2003) on 112 organizations, 60% of

them believed combined reporting (linked and/or cross-referenced) could be performed. The

challenge for market institutions (such as stock exchanges and standards bodies) is to develop a

structure for business reporting that enables existing financial reporting systems to work in a

synergistic manner with other disclosures some of which may be in the form of financial

figures and others that will not.27

Undoubtedly, environmental reporting has been gradually spreading to wider extents,

but there is still substantial number of companies that don't recognize benefits as prevailing over

costs of environmental reporting. So, there's a number of studies trying to link some companies'

features with their environmental disclosures as well as with their real environmental

performances to better understand environmental reporting practices. Some of the studies

confirmed relation between environmental performance and disclosures (Freedman, Jaggi and

Stagliano, 2004; Patten, 2002; Hughes, Anderson and Golden, 2001; Bewley and Li, 2000; Al-Tuwaijri et al., 2004; Stanny, 1998; Cormier and Magnan, 1997; Li, Richardson and Thornton,

1997), while the others found no relation (Walden and Stagliano, 2004; Freedman and

Stagliano, 1995; Freedman and Wasley, 1990; Wiseman, 1982; Ingram and Frazier, 1980).

& Management, Vol. 3, Elsevier Ltd. pp. 111-142.25 Austin, D., Sauer, A. (2002). Changing oil: Emerging Environmental Risks and Shareholder Value in the Oiland Gas Industry. Washington, DC: World Resource Institute; Repetto, R., Austin, D. (2000). Pure profit:

Financial Implication of Environmental Performance. Washington, DC: World Resource Institute.26 Slater, A., Gilbert, S. The Evolution of Business Reporting: Make Room for Sustainability Disclosure,

Environmental Quality Management, Autumn 2004, p. 44.27 Slater, A., Gilbert, S. The Evolution of Business Reporting: Make Room for Sustainability Disclosure,Environmental Quality Management, Autumn 2004, p. 47.

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Also, some studies found environmental disclosures positively related to company's size

(Walden and Stagliano, 2004; Warsame, Neu and Simmons, 2002; Alnajjar, 2000; Neu,

Warsame and Pe-dwell, 1998), regulatory influence (Barth, McNichols and Wilson, 1997;

Stanny, 1998), and public policy pressure (Patten, 2000; Bewley and Li, 2000; Walden and

Schwartz, 1997).28 Alciatore and Dee's (2006) research performed on the sample of US oil and

gas companies confirmed positive significant relation between environmental disclosures and

size as well as leverage. It has also showed that different firms had different levels of legitimacy

to maintain which was tested during the explored period 1989-1998, confirming O'Donovan

(2002) results. Karim, K.E., Lacina, M.J. and Rutledge, R.W. (2006) have found negative

relation between environmental disclosures in footnotes and foreign concentration as well as

earnings volatility and they have also found the influence of industry type (less disclosures in

electronics versus chemical and petroleum industry), based on previous researches which

explored the relation between environmental disclosures and amount of ownership by large

institutional stockholders (Diamond and Verrecchia, 1991; Kim and Verrechia, 1994; Choi,

1999; Healy, Hutton and Palepu, 1999; Cormier and Magnan, 2003), foreign concentration (Li

et all, 1997), profitability (Lang and Lundholm, 1993; Bowman and Haire, 1975; Preston, 1978;

Neu, Warsame and Pedwell, 1998; Cormier and Magnan, 1999; Richardson and Welker, 2001;

Diamond, 1985; King, Pownall and Waymire, 1990; Cowen, Ferreri and Parker, 1987; Patten,

1991; Cormier and Gordon, 2001), earnings volatility (Yhim, Karim and Rutledge, 2003),

leverage (Buhr and Ray, 1991; Cormier and Magnan, 1999), future debting (Healy and Palepu,

2001; Reinstein, Ellis and Wierda, 1998), size (Choi, 1999; Cormier and Magnan, 1999;

Alnajjar, 2000; Bewley and Li, 2000; Cormier, Gordon and Magnan, 2004), and industry type

(Li et al., 1997, Bewley and Li, 2000).29

Some authors point out that environmental disclosures in financial reports are still

considered to be mostly voluntary, fragmentary and ad hoc.30 Also, disclosures are more often

presented in the footnotes than in the body of financial reports. So, in order to improve such asituation, Swanson, G.A. (2006) offers an interesting discussion on possibilities of systems

sciences ideas implementation in the environmental accounting developments. According to

28 Alciatore, M.L., Dee, C.C. (2006). Environmental Disclosures in the Oil and Gas Industry, in: Freedman, M.,Jaggi, B. (eds.),Environmental Accounting: Commitment or Propaganda - Advances in Environmental Accounting& Management, Vol. 3, Elsevier Ltd., p. 59.29 Karim, K.E., Lacina, M.J. and Rutledge, R.W. (2006). The Associationa between Firm Characteristics and theLevel of Environmental Disclosure in Financial Statement Footnotes, in: Freedman, M., Jaggi, B. (eds.),

Environmental Accounting: Commitment or Propaganda - Advances in Environmental Accounting &

Management, Vol. 3, Elsevier Ltd., pp. 77-109.30 Swanson, G.A. (2006). A Systems View of the Environment of Environmental Accounting, in: Freedman, M.,Jaggi, B. (eds.),Environmental Accounting: Commitment or Propaganda, Advances in Environmental Accounting& Management, Vol. 3, Elsevier Ltd., p. 171.

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Swanson, those ideas are the evidence that economies emerge in environmental processes and

are fed by them, so it is obvious that those processes should be disclosed in public financial

reports.

5. Environmental Accounting the Agent of Sustainability in Istrian Tourism

Development

5.1. Sustainable Development of Highly Touristic Region of Istria

Tourism is a consumer of natural environments, historic buildings, urban spaces and

local culture, which are facing the danger of being abandoned if the destinations becomeovercrowded and overdeveloped.31

According to the CoastLearn programme (EUCC project),32 sustainable tourism is an

industry that involves social responsibility, a strong commitment to nature and the integration of

local people in any tourist operation or development. In order to achieve continuous and

sustainable development of tourism, three interrelated aspects should be taken into

consideration: economic, social, and environmental (cf. infra figure 4).

WTO researches (2005) prove that a great number of tourism visitors (almost 87% of

German and 65% of UK tourists) are interested in destinations and trips that are involved in

sustainable development concept. Almost 42% of German tourists insisted on eco-friendly

relations in the hotel of staying, and 19% of them preferred chatalogues with eco standards.

Furthermore, it is important to note that since economic valuation of benefit is based on the

concept of willingness to pay, the shaded area measures peoples preferences for changes in

the state of their environment (Pearce, 1993).33

The Mediterranean is the worlds number one tourist destination.34Traditionally, in the

market segmentation of the Mediterranean region, leader position belongs to Spain (40,8%),

then Italy, (30%) Greece (11,8%) and Croatia (3,8%). In the last 10 years Croatia became

31 Dumont, E., Ruelle, C. and Teller, J. (2005). Multi-dimensional Matrix Gathering of Impacts, Methods andPolicy Measures; PICTURE (Pro-active management of the Impact of Cultural Tourism upon Urban Resourcesand Economies). http://www.culture-routes.lu/picture/IMG/pdf/152_long_en.pdf32CoastLearn, a Distance-Training Programme for Accession Countries, the New Independent States (NIS) andthe Mediterranean, funded by the EU. The overall aim of the programme is to promote integrated planning andmanagement of coastal resources and consequently sustainable development along the coast (Perez, 2006).33What this suggests is that when economists attempt to measure the benefits from improved environmentalquality, they are measuring not the value of the environment but the preferences of people for an environmental

good or environmental bad. (Hussen, A., 2004. Principles of Environmental Economics, second edition, London& N.Y.: Routledge, p. 146.)34It is expected that the number of Mediterranean visitors will increase to 655 million by the year 2025.

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popular Mediterranean destination, promoting the sustainable development concept. Croatia has

8.658.876 foreign tourism visits and 47.021.944 tourism nights35, from above mentioned,

considering emitive markets, German tourists make 18% and Italian 14%.

In the Istrian tourism structure, hotels are the dominant strategy with the largest number

of units. Large hotels in Istria take a part of 11472 rooms desposible on the market, while 6%

(676 rooms) belong to small and family hotels.

Table 2. Structure of Istrian County Tourism Sector

ISTRIAN COUNTY Subjects Number of units Number of beds

Hotels 84 13449 26118Aparthotels 1 176 391Apartments 19 1983 5716T. Villages 18 7119 14959

Source: Croatian Ministry of Tourism (data -18.08.2008.)

According to the Istrian Tourism Association (cf. table 3), the highest percentage of

investments is in the category of large hotel companies and new projects (23,89%, 37,58%).

Table 3. Tourism Investments in Istria

Subject

(private and public sector)

Investments

(in 000 kn)Share (%)

New projects 1.036.000,0 37,58

Large hotels 658.600,0 23,89

Towns and counties 395.200,0 14,33

MSE 355.200,0 12,88

restaurateurs 200.000,0 7,25

Private apartments 50.000,0 1,81

Tourist Association 37.000,0 1,34

Agrotourism and rural tourism 25.000,0 0,91

Total: 2.757.000,0 100,00

Source: Preparation for Tourist Season in Istria, January-August 2007. Istrian County, Department of Tourism,

Pore, February 2008.

Theres a question arising: In what ways touristic companies in Istria contribute to the

sustainable development of the local community, considering threats to sustainability in the

long-term?

Because of the dynamics and growth of the sector, tourism gives major contribution to

the Croatian economy and local destinations. Tourism revenues in Croatia cover about 64% of

35of the total sum of 10,384,921 tourism visits, and about 53,006,946 tourism nights in Croatia, www.hgk.hreconomic profite: tourism figures for Croatia 2006.

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the balance payment deficit.36 On the other hand, we have to be aware of the fact that, for

example, the estimated carrying capacity is not fixed. That means that Croatian tourism sector

does not determine the maximum number of tourists in the regional destinations (cf. The

Example of Curring Capacity Assessment, in Jurini: 2005 Slovenian case study)37.

Istria is a small Croatian county largely influenced by tourism and there is a risk of

loosing destinations values if replaced by the new one in the future. There, pressures are much

greater and impacts are immediately felt.38 In the literature many writers recognise that an

integrated approach to environmentally compatible tourism planning leads to conflict

minimisation (Rose, 1984).39 According to Torkildsen40 the planner's objective (of leisure

planning) is to provide: the right facilities, the best location, the right time and people at

acceptable costs. Istrian tourism region is successfully implementing the Ten Year Plans

tourism development bringing the new image and identity in a new and sustainable way. This

document looks at the process of developing a tourism strategy that embraces sustainability and

identifies some of the strategic choices that need to be made.

The main feature of the Croatian/Istrian tourism development is enviromentally

sustainable form in the rural, central part of Istria (cf. ergo, Z. Bokovi, D. i Z. Tomi 1998;

Ili, 2002)41. There are a number of articles and studies for rural sustainable development of

Istria but with no research results concerned of hotel tourism development (according to the

sustainable tourism indicators and tourism trends).

Tourism is an activity which involves a special relationship between consumers

(visitors), the industry, the environment and local communities.42 Figure 4 presents positive and

negative effects in linkages between tourism and sustainable development.

Figure 4. Linkages Between Tourism and Sustainable Development

36Tourism share in the Croatian BDP (period of the last nine months) is 22%.37Jurini, I. (2005). Carring Capacity Assessment of Slovene Istria for Tourism, WIT Transactions on Ecologiesand the Environment, Vol. 84. p.724-733.38Orbasli, A. (2000). Tourists in Historic Towns- Urban Conservation and Heritage Management: London and

New York: E & FN Spon.39Rose E.A. (1984). Philosophy and purpose in planning in Bruton, M.J. (ed.) The spirit and purpose of planning,London, Hutchinson, p. 31-36. Jurini, I. (2005).40Torkildsen, G. (1993).Leisure and recreation management, Spon.41ergo, Z. Bokovi, D. i Z. Tomi (1998). Restrukturiranje i prilagodba turistike ponude Istre novimtrendovima u europskom turizmu, Europski sistem ekonomske Unije i prilagodba Republike Hrvatske, Pani

Kobol, T. (ur.). Opatija: Hotelijerski fakultet Opatija, p. 9-21.42Making Tourism More Sustainable, A Guide for Policy Makers, UNEP & WTO, 2005, p. 9.

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* + indicates positive influence (i.e. improvement),- indicates a negative influence (i.e. deterioration, exacerbation).

Source: Markandya, A., Taylor, T. and Pedroso, S. (2005). Tourism and Sustainable Development: Lessons fromrecent World Bank Experience, in: Lanza, A., Markandya, A., Pigliaru, F. (eds.), The Economic of Tourism andSustainable Development, FEEM Series on Economics and the Environment, Edward Elgar, p. 226.

In Croatian/Istrian case of the environmental sustainabily, it is necessary to develop the

network of cooperation and interdependencies that will include tourism and, probably most

important, universities, institutes and agencies. Substantial efforts are made by institute and

university in Istria as an initial step forward to the hotels in the County.43

Responsible tourism is an approach to tourism that delivers benefits to tourists, host

populations and government.44Obviously, tourism takes other forms of development but still

has a long way to go before it can claim to be sustainable. 45

According to Manning E.W.46building block for sustainable tourism means:

A) Long term sustainability by the tourism sector and the resource base on which it

depends;

43Cf. Krbec, D. et al. (2007 2009).Odrivi turizam u Hrvatskoj: izrada akcijskog plana odrivosti turizma Istre,Bokovi, D. et al, (2007-2010). Valorizacija selektivnih oblika turizma u odrivom razvoju ruralnih prostora.(http://zprojekti.mzos.hr), okusistre.hr44Author's conclusion according to Demunter, C. (2008) Are recent evolutions in tourism compatibile with

sustainable development?, Statistics in focus, European Communities, Eurostat, No. 1.45

Conrady, R. and Buck, M. (2007). Trends and Issues in Global Tourism, Springer: Germany; Douglas, N. et al.(2001). Special tourism interest, Wiley & Sons, Ltd.46http://www.tourisk.org/content/projects/downloads.htm (2004)

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B) Modification of the decision processes affecting the development and management of

tourism resources;

C) Practical and strategical solutions;

D) Identification and evaluation of problems;

E) Analysis of key factors;

F) Basic information and data.

But still, there are a number of possible barriers to the sustainable tourism along with the

types of questions one would ask tourism management which may only benefit form

indicators as part of monitoring programs. Frequently tourism managers and administrators are

overwhelmed with data about tourism operations. For this reason, it may be unable to discern

which trends are relevant to the management of sustainable tourism operations. There are many

instances in which members or sectors are trying to avoid negative effects on the environment. 47

So, the indicators should be based on clear information, practical to obtain, current, and for

sure, understandable for users. Also, good sustainable indicators in tourism sector must present

changes over time and between destinations.

Specific indicators of sustainability prescribed by WTO in the form of specific

measures48 for every destination and stakeholders in Croatian tourism are still not recognized.

Besides introducing those specific indicators, Istrian/Croatian touristic companies should

developed the integral system of environmental accounting based on relevant, feasible, credible,

clear and comparable information to serve in function of sustainable development.

5.2. Environmental Accounting Developments in Istrian Tourism Industry the

Implementation of GRI Guidelines

Trying to assess the environmental accounting developments in Istrian tourism industry,we've started the research in summer 2008, that is still in progress. We've sent the

questionnaires to the most important companies at Istrian touristic market to fill them up

anonimously. The research has included 8 tourist companies in the County that cover

aproximatively 94% of the regional touristic market. As we previously mentioned, others are in

47What Tourism Managers Need to Know, A practical guide to the development and use of Indicators ofSustainable tourism, WTO, 1996, Madrid, Spain, and Guide for Local Authorities on Developing SustainableTourism, WTO,1998.48Site Protection, Stress, Use Intensity, Social Impact, Development Control, Waste Management, PlanningProcess, Critical Ecosystems, Consumer Satisfaction, Local Satisfaction. According to Making Tourism MoreSustainable, A Guide for Policy Makers, UNEP (United Nations Environment programme), WTO, 2005.

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the form of family and small hotels. Four hotel companies have returned the questionnaire,

which achive almost 86% of the total number of employees in all hotel companies in the

County. Total revenues calculate for 1.929.284.511 kn in the total Croatian hotels revenue of

5.112.844.031 (realised in the six Croatian counties)49. According to the above-mentioned, the

sample can be considered as representative.

The questionary was addressed to the accounting departments. It consisted of general-

type questions on company's size, ownership, individual or conoslidated financial reports, then

followed a group of questions about past and current experiences in environmental reporting of

a given company, and, finally there was a group of questions on its development plans.

Here we present the results relating to three large tourist companies and one middle-

sized company, according to Croatian Accounting Act criteria. The middle-sized company was

mostly in foreign ownership and prepared only individual financial statements. One large

company with dominantly domestic ownership prepared indivudial financial statements and two

large companies (one with mostly domestic, the other with foreign ownership) prepared also

consolidated financial statements.

None of the examined companies has ever reported in any form the environment-related

information, except the large one in the foreign ownership which has presented them at the

conference on ecology and tourism in 2007. There's a good news that all of the examinees will

include environmental disclosures in their annual reports for the year 2008 except one large

company. This is expected in accordance with the new Accounting Act which requires such

disclosures if they are necessary for assessment of the enterprise's development, business results

and its position.

We were interested if any of examinees implements GRI Guidelines, at least partially,

since we didnt find any of touristic companies at the HR BCSD list of GRI reporters. The

answers received were all negative. Still, there are some encouraging developments expected in

the near future since all the examined companies, except one large, plan to adopt the GRIGuidelines soon. The middle-sized company has stated its intention to introduce the GRI

Guidelines in the period of 2 years covering its environmental, as well as economic and social

performances. Among the environmental performance indicators it plans to introduce the

following ones:

EN 1 Materials used by weight or volume.EN 3 Direct energy consumption by primary energy source.EN 8 Total water withdrawal by source.

49Croatian National Statistical Board & Institute for Tourism - year 2006.

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EN 14 Strategies, current actions, and future plans for managing impacts on biodiversity.EN 21 Total water discharge by quality and destination.EN 27 Percentage of products sold and their packaging materials that are reclaimed by category.EN 28 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations.EN 29 Significant environmental impacts of transporting products and other goods andmaterials used for the organizations operations, and transporting members of the workforce.EN 30 Total environmental protection expenditures and investments by type.

One large company with dominantly domestic ownership also plans to introduce the

GRI Guidelines in the next 2 years including its economic and environmental performances,

with following environmental performance indicators for the start:

EN 3 Direct energy consumption by primary energy source.

EN 5 Energy saved due to conservation and efficiency improvements.EN 16 Total direct and indirect greenhouse gas emissions by weight.EN 20 NOx, SOx, and other significant air emissions by type and weight.EN 21 Total water discharge by quality and destination.EN 22 Total weight of waste by type and disposal method.

Also, another large company with foreign ownership has also been planning to introduce

the following environmental indicators:

EN 3 Direct energy consumption by primary energy source.EN 5 Energy saved due to conservation and efficiency improvements.EN 6 Initiatives to provide energy-efficient or renewable energy-based products and services,and reductions in energy requirements as a result of these initiatives.EN 10 Percentage and total volume of water recycled and reused.EN 19 Emissions of ozone-depleting substances by weight.EN 20 NOx, SOx, and other significant air emissions by type and weight.EN 21 Total water discharge by quality and destination.EN 22 Total weight of waste by type and disposal method.EN 24 Weight of transported, imported, exported, or treated waste deemed hazardous under theterms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported wasteshipped internationally.EN 30 Total environmental protection expenditures and investments by type.

As it is evident, the research results were not satisfying indicating that the environmental

accounting in Istrian tourism is really in its infancy. We can assume that the entities trying to

report have problems with data availability, complexity of environmental impacts

measurements, related costs, information reliability and confidentiality, as well as with

reluctancy to report because of uncertainties and potential environmental liabilities that could

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arise. Tourism, as part of the services sector, as it is previously stated, reports its environmental

performances in average less than other industries like oil, gas, chemical, etc. On the other

hand, based on all previous researches and worlds common ecological threats, as well as many

environmental reporting benefits and feasibilities, environmental disclosures are enavitable

there could be only differences in velocity of their adopting and development. Thats why we

have found some shy, but positive movements among Istrian touristic companies considering

intentions of GRI adoption in the near future, despite of presently undeveloped practices in this

field. As we can notice, theyve chosen different environmental performance indicators to start

with, depending on their business peculiarities as well as their disposable capacities, while EN 3

and EN 21 on direct energy consumption by source, and water discharge by quality and

destination were selected by all future GRI reporters.

Although it is usually expected that large companies would be more interested in

environmental accounting developments due to better capacities and community impacts, the

middle sized company has given us pretty similar answers like the large ones intending to

introduce the environmental disclosures. Two of the future reporters had foreign ownership and

one had domestic ownership. Probably the environmental reporting practice would enter in

Istrian tourism, mostly through the companies with foreign ownership that already had some

experiences trying to be imported also in Croatian businesses. Thats also the case at the

European and worlds stage where multinational enterprises spread this practice through their

whole supply chains including also the SMEs.

Considering the results integrally, we have to admit that the level of environmental

reporting in Istrian tourism industry is very low, but the good news is that the leading touristic

companies have intention to introduce environmental disclosures in accordance with GRI

Guidelines in the following 2 years. We are looking forward not only to find these leaders

included at some (inter)national environmental reporters list, but we expect them to contribute

to the growing awareness of environmental issues by introducing and broadening the cultureof environmental disclosure practices in Istrian tourism industry as one of the tools towards its

sustainable development goals accomplishment.

In addition to environmental reporting in tourism industry at micro-economic level,

similar developments are necessary also at the macro-economic level. In order to catch up the

interrelationships of tourism and natural environment in the process of sustainability strategy

implementation, the satellite account for tourism is necessary. The accounting framework

offered by internationally agreed Tourism Satellite Account Recommended MethodologicalFramework (TSARMF), and Integrated Environmental and Economic Accounts 2003

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(SEEA2003), as well as European System of Environmental Pressure Indices (ESEPI) should

be another sets of guidelines to be followed. 50 This should be considered as an indication for

further research in tourism sustainable development tracking at the regional and national level,

since the macro-economic environmental reporting aspects are out of the scope of this paper,

but are also of high importance as a support for the integral sustainability strategies

implementation at micro and macro economic level.

6. Final Thoughts and Perspectives

Previously presented results were derived among the leading touristic companies in

Istria since we perceived they would have more expertise and resources for environmental

reporting in comparison with smaller entities. But, we disagree that the smaller ones should be

exempted. The SMEs present 99% of total business entities in Croatia, and are considered to be

its growth engine, so they are also expected to contribute to sustainable growth and

development. According to OECD, there are more than 100 millions businesses worldwide

falling in the group of SMEs, approximately employing less than 200 employees. It is also in

the interest of multinational companies to encourage SMEs that function as their suppliers to

adopt environmental/social reporting practices, producing in such a way mutual positive effects

for both sides and their stakeholders. In 2007, GRI received 80 new reports from SMEs. Even

if just a small percentage of SMEs work to manage their impacts, they can make a considerable

positive contribution to a more sustainable world.51 This also definitely stands for Croatian

SMEs, too.

Here we come to a question arising if GRI's Sustainability Reporting Guidelines (or

some other environmental/sustainability guidelines/standards set) will become mandatory for all

the entities, or the group of certain entities, or for noone. Furthermore, compliance with

regulation should also be considered in relation to the level of its enforcement. Currently thereis not a global consensus on the issues of regulation, not even between the business community

or within civil society.52Government regulation of environmental reporting emerged in late

1990s (e.g. Netherlands in 1997 for listed companies, adopting GRI framework in 2003, France

for 2002 listed companies' reports). In Croatia, there are many regulations on environment

50 See more in: Costantino, C., Tudini, A. (2005). How to Develop an Accounting Framework for EcologicallySustainable Tourism in Lanza, A., Markandya, A., Pigliaru, F. (eds.), The Economic of Tourism and Sustainable

Development, FEEM Series on Economics and the Environment, Edward Elgar, pp. 104-172.

51 Plugge, L., Miles Hill, K. Sustainability Reporting in the Supply Chain.Ethisphere 01/08, 045.52 Henderson, J. Perfect Timing - Australia and G3,Reform Issue 87, 2005/06, p. 43.

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protection and waste management while environmental/social reporting is voluntary, but the

new Accounting Act, introduced in January 2008, requires the large and medium enterprises to

prepare the annual report that should include also the environmental and social aspects if they

are necessary for assessment of the enterprise's development, business results and its position.

Companies that are members of WBCSD, like Podravka, are obliged to prepare the

sustainability reports.

There are some opinions that Laws can prescribe technological solutions, but do little

to foster fluid systems that learn and adapt to change and maximize efficiencies. By definition,

it is impossible to legislate requirements to go beyond compliance.53 Croatia is a country in

transition that has inherited the practice of high regulation level in all the fields of socio-

economic life, from the previous system. With so many rules to be followed, there is very little

time and capacities left, as well as there's even a lack of good will to do anything on the

voluntary basis in addition to mandatory requirements, of course with rare exceptions.

Therefore, the two-tyre system that makes differentiation between mandatory and voluntary

environmental/social disclosures, could be one possible solution. The first could be applied to

the largest polluters according to the industry type or to the industries that significantly

contribute to national GDP growth, such as tourism industry, while the latter could be adopted

by the companies that have recognized the benefits of environmental reporting, on their own,

without any enforcement. Although, it was previously stated that we are all in the same boat

and accordingly, everyone is expected to provide environmental disclosures, this two-tyre

system could be the transitional solution for early phasis of environmental accounting

development in Croatia. Otherwise, it would hardly increase to broader extents and would

probably be limited only to leading businesses.

All these previously said, stands also for the tourism industry. Istrian county is among

the most developed Croatian's counties and it is expected that awareness of environmental

reporting and other sustainability performance disclosures' benefits would produce newreporters earlier than in many other Croatian's regions. Although there are still no GRI

reporters found among the examinees, it is encouraging that they plan to adopt GRI Guidelines

in the period in average about 2 years long. That would be even easier once when tourism sector

supplements will be developed by GRI, in additon to those so far developed only for tour-

operators. Such developments are expected particularly because of potential - mostly foreign

investors that have been widely occupying Croatian tourism and whole economy in the recent

period and that could better assess companies' performance using the valuable sources of non-53 Gilbert, S. The Transparency Evolution, Environmental Forum, November/December 2002, pp 19-26., p. 21.

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financial in additon to pure financial information. In other words, hopefully, in accordance to

sustainability reporting expectations:

1. investors and analysts will begin to have access to comparable information,

2. companies will begin to better understand their environmental impacts and make

improvements in both performance and reporting,

3. as GRI-based reporting becomes the industry standard, reporting with consistent

metrics will begin to spread through business sectors and supply chains.54

It is recommended also by GRI to prepare enviromental/social reports annualy or at least

biannually and integration with financial reporting is encouraged to enable better linkage

between financial performance and environmental (also economic and social) performance,

although alone reports as well as combined with financial ones are wellcomed. GRI

guidelines are suitable not only for experienced reporters, but also for the beginners, what

makes them feasible for many Istrian touristic companies as well as other Croatian so far not-

reporting enterprises. They could be adopted gradually, by focusing at the most important and

feasible topics at the beginnings and then extending the reporting contents over time,

progressing in such a way through three application levels that should always clearly be

declared for a given report. In order to assure the credibility of the environmental/social report,

external verification (by independent competent body or GRI itself) in addtion to internal

control is recommended. AccountAbility's AA1000 Assurance Standard launched in 2003

complements and enhances GRI guidelines and could also be applied to other standardized or

company-specific approaches to disclosure providing a systematic and consistent framework for

non-financial auditing and assurance of performance.55Actually, the accounting profession has

been already developing standards in this area like IFAC's ISAE (International Standard on

Assurance Engagements) 3000, effective after January 1, 2005, that establishes basic principles

and essential procedures for all assurance engagements other than audits or reviews of historicalfinancial information covered by ISAs and ISREs, for example, assurance engagements

regarding environmental, social and sustainability reports.56

Finally, although the GRI guidelines seems to be another complex project for their

potential implementators in Istrian tourism, they present less problem than building the

54 Slater, A., Gilbert, S. The Evolution of Business Reporting: Make Room for Sustainability Disclosure,

Environmental Quality Management, Autumn 2004, p. 48.55http://www.accountability21.net/publications.aspx?id=288, 23.08.08.56www.ifac.org/IAASB/ProjectHistory.php?ProjID=0008, 23.08.08.

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environmental sustainability awareness itself. First, the entities are supposed to be aware of

the problem and then implement the reporting guidelines to support solving the problem.

Transparency and accountability increased by GRI guidelines implementation, may improve the

relations with company stakeholders, facilitate trust between a given company, its consumers

and suppliers, as well as investors, enabling better access to capital sources, enhace the brand

value of the company, its reputation, but also, internally, environmental reporting is an efficient

management tool, particularly for environmental costs management, cost-saving measures in a

short-term, it also builds employees morale and taken all together, it helps to enhance

companys abilities of risk avoidance, contributing to the increase of the long-term shareholder

value. From the other point of view, growing the culture of regular, high-quality

environmental reporting could also contribute to strenghtening of the image of Istria as the

touristic destination.

In short: Non-financial reporting will succeed not because of specific indicators,

measurement techniques, formatting or communication strategies. Instead, it will succeed

because it offers stakeholders what financial reporting alone fails to offer: a window on the

character and competency of the reporting company.57 Moreover, during all the efforts

invested in environmental and social accounting development, one Gray R.'s thought should be

remembered: Social and environmental accounting is a profound challenge to current forms of

accounting and finance - it is neither an addendum nor a refinement of GAAP. If it ever

becomes such a redundant appendage to capitalism, we can almost certainly kiss the future of

sustainability and, thus, the future of our societies goodbye.58 Hopefully, the touristic

companies of Istria will recognize both messages.

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