Business Finance - Management assignment busn 311

ISSUES IN ACCOUNTING EDUCATION American Accounting Association Vol. 37, No. 1 DOI: 10.2308/ISSUES-18-032 February 2022 pp. 125–139

Sustainability Reporting Insights: The Case of Ford Motor Company

Wayne G. Bremser Villanova University

Eva K. Jermakowicz Tennessee State University

Alan Reinstein Wayne State University

ABSTRACT: This case helps students comprehend the materiality concept within the context of a sustainability

reporting in the automotive industry. Students researching sustainable business reporting frameworks can use Ford

Motor Company’s sustainability report to understand how that company assesses key sustainability issues and

integrates sustainable development initiatives within its overall business strategy. Students gauge Ford’s

sustainability performance and explore how the company and its peers assess the materiality of sustainability

issues. They assess the motivations and judgmental nature behind sustainability reporting and challenges facing

preparers. Assignable on an individual or team basis, this case introduces important, and interesting, sustainability

reporting concepts and issues. With increasing investors’ and other stakeholders’ interest in sustainability issues, we

argue that accounting programs should include this relevant topic. We view Financial Accounting courses and

Accounting courses as the most appropriate opportunity to employ this case. However, we also successfully adapted

this case in a Managerial Accounting course.

Keywords: sustainability reporting; materiality assessment; performance evaluation; assurance.

I. THE CASE

Sustainability Reporting at Ford

T his case is designed to provide insight into sustainability reporting that Ford Motor Company provides to its

stakeholders. Sustainability reports offer stakeholders information on environmental, social, governance (ESG), and

economic issues. Unlike mandatory compliance with financial reporting standards (e.g., U.S. GAAP or IFRS) and SEC

regulatory filings, U.S. sustainability reporting is currently voluntary. The Global Reporting Initiative (GRI) defines

sustainability reporting as ‘‘an organization’s practice of reporting publicly on its economic, environmental, and/or social

impacts, and hence its contributions—positive or negative—towards the goal of sustainable development’’ (GRI 101-A, Global

Reporting Initiative 2016). This case shows how Ford assesses the materiality of sustainability issues, how it integrates

We thank Barbara Apostolou (West Virginia University), Natalie Churyk (Northern Illinois University), Barry J. Epstein (EpsteinþNach LLC), Robert D. Hayes (Tennessee State University), and participants of the 2018 Mid-Year Meeting of the IAS AAA for their helpful comments on earlier drafts of the case. We are grateful to our graduate and undergraduate students participating in the case and graduate assistant Don Glazier (Wayne State University) for their feedback used to make this case a better learning experience.

Wayne G. Bremser, Villanova University, Villanova School of Business, Department of Accountancy and Information Systems, Villanova, PA, USA; Eva K. Jermakowicz, Tennessee State University, College of Business, Department of Accounting, Nashville, TN, USA; Alan Reinstein, Wayne State University, Mike Ilitch School of Business, Detroit, MI, USA.

Supplemental materials can be accessed by clicking the links in Appendix A.

Editor’s note: Accepted by Valaria P. Vendrzyk.

Submitted: April 2018 Accepted: January 2021

Published Online: March 2021

125

sustainable development initiatives within its overall business strategy, and how it assesses its progress toward achieving

sustainability goals.

Henry Ford founded Ford Motor Company in 1903, and a major innovation was using an assembly line to produce the

Model T car in 1913. Controlled by the Ford family and headquartered in Dearborn, Michigan, Ford sells automobiles in North

America, South America, Europe, Asia, and Africa. Listed on the New York Stock Exchange, Ford Motor Company (Ford

2018a) was one of the six largest global automobile manufacturers in 2018, and tied for second in the U.S. at that time, with

respective 7.5 percent and 14.3 percent market shares. The company’s core brands are Ford and Lincoln; the F-series pickup

has long been the U.S.’s best-selling vehicle (DW Business 2018). To remain competitive in changing the global environment,

Ford’s electrification, autonomous vehicles, and mobility technological innovations (e.g., see Gao, Kaas, Mohr, and Wee 2016)

seek to produce pioneering products to support key aspects of its sustainability strategy. However, beyond matters of product

development, the business environment now exerts more pressure on firms to be socially responsible and conduct operations

sustainably. Ford has issued sustainability reports as a response to growing stakeholder demand for such information (Ford

2018b).

Since issuing its first report in 1999, ‘‘Connecting with Society,’’ Ford (2019) has reported periodically on its sustainability

goals and progress. Ford and stakeholders, such as investors, dealers, communities, supply chain partners, customers, and

employees, increasingly recognize that sustainability issues—e.g., climate change, resource constraints, population growth,

globalization, and technological innovation—can significantly affect business outcomes. While financial statements remain

vital for decision makers, investors increasingly look beyond them to include sustainability measures in order to more

comprehensively examine how companies can create short-, medium-, and long-term value and make better-informed capital

allocations (Hertz, Monterio, and Thomson 2017).

Ford separately releases its stand-alone periodic sustainability and its financial reports. About 95 percent of the world’s 250

largest companies (G250) issue separate sustainability reports (KPMG 2017). Yet, many users find little connection between a

firm’s financial reports and the nonfinancial information in stand-alone sustainability reports. This suggests the need to integrate

sustainability information with financial information, such as expounding upon the cost of sustainability initiatives (Cheng,

Ioannou, and Serafeim 2014; Bouten and Hoozée 2015). Stand-alone sustainability reports can be costly to produce and may

fail to focus on the ‘‘material’’ sustainability issues of greatest interest to investors, namely those most likely to significantly

affect a company’s business, performance, value, and brand (Hertz et al. 2017). Thus, Ford and its competitors can selectively

disclose such information to their stakeholders on a piecemeal basis, hindering the comparability among those reports. This

perennial issue impacts the quality of sustainability reporting.

Ford follows a reporting framework (i.e., it follows internationally promulgated standards) to signal its intent to provide

high-quality sustainability reports. While leading sustainability standards-setting organizations such as the Global Reporting

Initiative (GRI), International Integrated Reporting Council (IIRC 2013), and Sustainability Accounting Standards Board

(SASB) focus on voluntary sustainability reporting, mandates for reporting are growing. As of 2017, European Union (EU)

companies have to make some mandatory sustainability disclosures. The EU Directive on Nonfinancial Disclosure requires

public companies with over 500 employees operating in Europe to report on selected ESG metrics, including information on

environmental protection, social and employee-related aspects, human rights, anti-corruption and bribery issues, and boards of

directors’ diversity (EU Directive 2014/95/EU, European Union 2014). Because these requirements also apply to non-

European companies operating in Europe, they are a consideration for Ford.

While European and Asian firms have provided leadership in global adoption, U.S. companies increasingly voluntarily

report sustainability activities and performance. In the U.S., Regulation S-K already requires the disclosure of material

information. In seeking public input on sustainability disclosures, however, the Securities and Exchange Commission (SEC)

has recognized that some stakeholders historically have not considered this information to be material (SEC 2016). Under the

SEC’s guidance, when sustainability information is included in statutory filings, it is also subject to the same disclosure controls

and procedures, as well as the same completeness and accuracy certification requirements that apply to financial reporting (SEC

1934).

Ford’s Sustainability Report

Ford’s 2017/18 Sustainability Report’s strategy and governance section presents its sustainability strategy and long-term

goals. Its long-term vision is to improve people’s lives with the freedom to move more efficiently and sustainably. Ford’s stated

aims for this vision focuses on trusted mobility with smart vehicles, driving human progress with products and services to help

create a better world, and making a positive impact with product innovation to contribute constructively to society. Ford’s

strategy features investing in core businesses for sustainable growth that involves emerging opportunities in these key areas: (1)

electrification, (2) autonomous vehicles, and (3) mobility services and solutions. These strategic initiatives are responsive to

opportunities that reflect global trends, such as: rapidly growing cities, shifting lifestyles, changing aspirations, and consumer

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Issues in Accounting Education Volume 37, Number 1, 2022

trends; major challenges facing all of humanity, such as climate change, congestion, and air quality concerns; and emerging

technologies, which can help address those challenges (Ford 2018b, 2–3).

Ford states five long-term goals: (1) Global Mobility, (2) Customers and Products, (3) Operations, (4) Human Rights/

Supply Chain, and (5) Health and Safety. The sustainability report is organized according to these goals. The first goal, global

mobility, reflects Ford’s long-term vision as an automotive and mobility company. Ford describes its climate change strategy

that affects all five goals to include reducing vehicle emissions, improving manufacturing efficiency, and supporting suppliers

to make positive changes (Ford 2018b, 3).

Ford’s report describes its contributions toward achieving the United Nations (UN) Sustainable Development Goals (SDG)

(Ford 2018b, 5–7). In 2015, the UN issued the SDGs as part of its new global ‘‘Agenda 2030’’ (UN 2015), seeking to end

poverty, protect the planet, and ensure global prosperity. In a follow-up report, the UN stated that ‘‘socially responsible and

accountable private business activity, investment, and innovation are major drivers of productivity, employment and economic

growth’’ (UN 2017).

Ford’s governance standards stress its need to maintain stakeholder trust. Integrating sustainability within the business

helps to ensure transparency and accountability. Also, a code of ethics and ethics compliance processes are described as an

essential means to buttress corporate governance (Ford 2018b, 7–10).

The reporting on governance includes describing Ford’s formal materiality process that ‘‘enables us to define our reporting

priorities, identify emerging sustainability issues, shape our sustainability strategy, set goals, and allocate resources’’ (Ford

2018b, 10). The process seeks to link sustainability goals with business strategy. The materiality principle prioritizes

sustainability information and stakeholder inclusiveness (GRI 101-1.3). As an early adopter, Ford published its first materiality

analysis in its 2004/05 Sustainability Report (Ford 2018b). After assessing many internal and external stakeholders’ views, the

results appear graphically on a materiality matrix that shows key financial, environmental, human, social, and governance

issues that can affect Ford and society. Exhibit 1 presents Ford’s 2017/18 materiality matrix.

The customers and products section reports on initiatives to achieve Ford’s second set of long-term goals: reduce vehicle

CO2 emissions, use sustainable materials, strengthen product quality, and improve vehicle safety. For example, Ford’s extended

electric vehicle strategy—including its efforts to produce smaller, lighter, cheaper batteries—aligns with its increasing ‘‘green

agenda.’’ Its biomaterial research into alternatives to petroleum-intensive plastics has produced sustainable vehicle materials

made from soy-based polyurethane foam, castor oil, wheat straw, kenaf fiber, cellulose, wood, coconut fiber, and rice hulls

(Ford 2018b, 14–30).

Operations is Ford’s third long-term goal. The report’s operations section emphasizes reducing energy, emissions,

water use, and waste—which should reduce costs and increase firm profits. It describes innovations in manufacturing and

other aspects of operations, including green buildings. Improved operational efficiency helps lower emissions and energy

usage, which lower costs. Ford’s reported efforts include relationships with suppliers. Initiatives include sharing best

practices and developing supplier training programs for greenhouse gasses (GHG) emissions and water management (Ford

2018b, 31–37).

The people and society section of the report focuses on Ford’s fourth and fifth long-term goals: human rights/supply chain

and health and safety, respectively. The scope of Ford’s human rights initiatives described in the report encompasses

employees, contractors, dealers, and people in the supply chain. Ford broadly views health and safety as integrated with human

rights. The scope includes product safety and a safe and healthy work environment. Ford has a zero-tolerance policy toward

both forced and child labor, with procedures to safeguard against these threats to the firm and its supply chain. Ford also

describes how its global mobility plan uses technology and innovation to address challenging global trends, such as crowded

cities and poor air quality (Ford 2018b, 38–57).

Ford’s performance data and reporting section presents its five long-term sustainability goals, commitments, and targets,

including an overview of its progress (i.e., in process, on track, achieved, or not achieved) in achieving the five goals. Ford

presents three years of comparative key performance data relevant to some goals. Key performance data covers areas such as

vehicle safety, fuel economy, CO2 emissions, water usage, supply chain, employee satisfaction, and adjusted pre-tax profit

(Ford 2018b, 58–63). Ford also provides information on data assurance and the reporting frameworks used.

There is a growing demand that sustainability reports receive external assurance. Unruh et al. (2016) find a growing

investor interest in the quality of sustainability (ESG) data. This interest often centers on sustainability disclosures’ reliability

and completeness (Moser and Martin 2012) and the need for assurance of sustainability reports (Moroney and Trotman 2015;

Brown and Kohlbeck 2017). Most companies provide assurance for a very limited number of ESG issues. This often includes

GHG emissions, but rarely includes issues related to energy usage and water consumption. Moreover, the level of assurance is

often limited to data collection and methodology and ignores verification of the data itself. If verification of ESG data is subject

to assurance, in most cases it relates to GHG emissions (Singer 2018). Public accounting firms, engineering firms, or other

specialists may be engaged by firms to provide assurance of ESG data and disclosures (Rao 2012).

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EXHIBIT 1 Ford Materiality Matrix in the 2017/18 Sustainability Report

Source: Ford Sustainability Report 2017/18 (Ford 2018b, 11).

The full-color version of Exhibit 1 is available for download, see the link in Appendix A.

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Issues in Accounting Education Volume 37, Number 1, 2022

Sustainability Issues in the Automotive Industry

Ford operates in a mature, highly competitive, resource intensive, $2.5-trillion industry. Digitization, increasing

automation, and new business models have revolutionized the automotive industry. These forces can lead to disruptive

technology-driven industry trends (Gao et al. 2016). Following recent emission scandals and revelations of inconsistent

emissions results and testing regimes, the automotive industry faces major pressure on several material sustainability topics,

ranging from environmental practices to risk management and corporate governance (SASB 2014).

Specifically, regulatory emphasis has focused on reducing the environmental impact of automobile production and

increasing automobile product safety in order to align the interests of investors with those of society. Industry environmental

standards encompass fuel efficiency, use of hazardous chemicals, waste management, and the recyclability of vehicles. A long-

term trend toward more fuel-efficient vehicles has led to increasing consumer acceptance of alternative fuel regulations,

reduced emissions, and improved fuel efficiency. The movement toward more stringent regulations has also led to continuous

improvement in motor vehicle safety features. An auto company’s ability to innovate and address more stringent environmental

and safety regulations, as well as provide concise disclosures on those issues, will likely increasingly determine the business’s

value (SASB 2014).

SASB’s sustainability reporting standards are industry-specific, since its competitors face similar, major sustainability risks

and opportunities (e.g., regulatory environment, approaches to handling resources) (Eccles, Krzus, Rogers, and Serafeim 2012).

The SASB Automobiles Research Brief identified Ford as a representative automobile company when describing the material

sustainability issues that were considered in developing the industry’s sustainability accounting standards (SASB 2014, 2018).

SASB standards focus on investor stakeholders, which is a narrower view than the broader stakeholder view that GRI and IIRC

use.

II. CASE REQUIREMENTS

1. Access and review Ford’s Sustainability Report 2017/18 (available at: https://media.ford.com/content/dam/fordmedia/

Europe/de/2018/06/Ford%20Sustainability%20Report%202017.pdf ). Page 11 of this Sustainability Report discloses

five areas of Materiality: Financial, Environmental, Human, Social, and Governance, and 19 subcategories appear in

the materiality matrix. This matrix appears in Exhibit 1 of this case.

a. Identify the standards or frameworks that Ford followed in its sustainability report (Ford 2018a, 63). Because the

GRI, Sustainability Accounting Standards Board (SASB), and International Integrated Reporting Council (IIRC)

provide the prevalent generally accepted standards to guide preparers of sustainability reports, briefly describe each

organization’s mission, guidelines, and stakeholder group(s) of interest.

b. Compare Ford’s definition of materiality (Ford 2018a, 11) with the GRI, SASB, and IIRC definitions of materiality.

Is Ford’s definition similar to those of GRI, SASB, and IIRC? If not, describe some key differences.

c. Ford describes three key steps in its materiality process—identification, prioritization, and review (Ford 2018a, 11).

List Ford’s key stakeholders and discuss whether its process (i ) treats some stakeholders as more important than

others, or (ii ) uses a balanced approach. In your discussion, give consideration to how stakeholders might use Ford’s

sustainability report. Assess whether Ford responded to all stakeholder recommendations.

2. Ford’s materiality matrix (Ford 2018a, 11) prioritizes 19 issues into five categories—financial, environmental, human,

social, and governance. Drawing a diagonal line from the intersection of the x- and y-axes (lower left corner) to the

upper right corner of the matrix facilitates the interpretation of Ford’s materiality matrix.

a. List Ford’s materiality matrix’s three most important environmental issues, shown in order of priority. Which issue

shows the greatest difference in importance when comparing Ford to stakeholders? List, in order of priority, the

three most important environmental issues from your perspective; compare your list with Ford’s three most

important environmental issues. Do all of the environmental issues on the materiality matrix seem important to you?

b. Merge Ford’s three human and five social issues into one category (eight issues). Identify Ford’s three most

important human and social issues. List separately, in order of priority, the three most important social issues to

stakeholders. How do you interpret seeing ‘‘human capital management’’ and ‘‘employee wellness, health, and

safety’’ omitted from Ford’s three most important human and social issues?

c. Ethical business practices and government regulation and policy are two governance issues. Compare Ford’s

importance-positioning of these issues on the matrix with stakeholders. How might this be interpreted?

d. Compare and interpret the importance of financial issues to Ford and its stakeholders. Does Ford integrate

sustainability and financial information? What type of information would you expect it to provide that is not

provided?

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3. Examine the ‘‘Performance, Data and Reporting’’ section (Ford 2018a, 58–63). The ‘‘Goals and Progress’’ subsection

shows examples and status relative to material issues classified into five categories: Global Mobility, Customers and

Products, Operations, Human Rights/Supply Chain, and Health and Safety. The ‘‘Key performance data’’ subsection

(Ford 2018a, 61–63) provides some relevant metrics for assessing sustainability performance. In answering the

following questions, it may be helpful to compare the key performance data for 2017 with 2015 and indicate an F

(favorable change) or U (unfavorable change) for each of the metrics presented in the five categories.

a. Assess Ford’s sustainability performance in Customers and Products. With regard to the achievability of the

Customers and Products goals, are there any you would rate as challenging or highly challenging?

b. Assess Ford’s sustainability performance in Operations.

c. Describe Ford’s progress to date on sustainability performance metrics for Supply Chain, Communities, and Our

People.

d. Describe Ford’s overall progress on sustainability goals.

4. Review the ‘‘Strategy and Governance’’ section (Ford 2018a, 2–13). Also access Ford’s 2017 Annual Report on Form

10-K and review its corporate strategy as discussed in the ‘‘Letter from Our Executive Chairman’’ (Ford 2018a, 3),

‘‘Letter from Our President and CEO’’ (Ford 2018a, 5–7), ‘‘Sustainability’’ (Ford 2018a, 10), and Trends and Strategies

(Ford 2018a, 29) in ‘‘Management’s Discussion and Analysis’’ sections.

a. Analyze and explain whether Ford integrated the sustainability issues in its corporate strategy.

b. List at least four motivations and four challenges for Ford in providing voluntary sustainability disclosures. You

may refer to such publications as EY and Boston College Center for Corporate Citizenship (2015), and Krištofı́k,

Lament, and Musa (2016), or conduct your own web search.

5. Download SASB’s sustainability accounting standards for the automobile industry. (Go to https://www.sasb.org/; on

the standards tab select ‘‘Download Current Standards’’; select ‘‘transportation’’ and next ‘‘automobiles.’’) Review the

background and descriptive material (pages 1–5). Review Table 1, Sustainability Disclosure Topics & Accounting

Metrics (pages 6–7), for five categories: Product Safety, Labor Practices, Fuel Economy & Use-phase Emissions,

Materials Sourcing, and Materials Efficiency & Recycling (pages 8–22).

a. Does Ford’s sustainability report disclose insightful information in all five categories? Are there any categories

recommended by SASB that are not included in Ford’s sustainability report? Did Ford include some categories that

were not identified in the SASB standards?

b. Review Ford’s 2017 Annual Report on Form 10-K. Does Ford make any reference to SASB standards in this

report? Why? Where would be the most likely location on Ford’s Form 10-K for ESG disclosures?

6. Analyze the Data Assurance disclosures in Ford’s 2017/18 Sustainability Report (Ford 2018a, 63).

a. Examine Ford’s data assurance section (Ford 2018a, 63). What level of assurance is given?

b. Who provides assurance services for Ford’s report? Does just one institution provide assurance for Ford’s

sustainability report, as is the case for its annual report? Why might this differ?

7. Competitors within an industry make different sustainability reporting choices. Compare the format of Ford’s

materiality matrix and the number of issues with a similar matrix in Honda’s sustainability report for a comparable

period (available at: https://global.honda/content/dam/site/global/about/cq_img/sustainability/report/pdf/2018/Honda-

SR-2018-en-all-02.pdf ).

a. List the seven material sustainability issues shown as being most important to Ford and Honda and their

stakeholders in their respective materiality matrices. Identify two issues on this list that are most similar for Ford and

Honda. Do the remaining five issues on the Ford list of seven most important material sustainability issues appear to

be unimportant to Honda?

b. What are the levels of assurance described in the reports, and who are the providers of assurance identified in each

sustainability report?

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III. CASE LEARNING OBJECTIVES AND IMPLEMENTATION GUIDANCE

Sustainability accounting presents an opportunity for accounting educators. In November 2018, the Sustainability

Accounting Standards Board (SASB 2018) published the world’s first set of industry-specific sustainability accounting

standards, which could influence the SEC to require sustainability disclosures (SEC 2016). In 2017, the European Union (EU)

mandated sustainability reporting on selected issues. There is a trend of increasing investor interest in sustainability factors. The

US SIF Forum for Sustainable and Responsible Investment (US SIF 2018) biennial report announced that investors consider

ESG criteria for $30.7 trillion of professionally managed assets globally in five major markets, a 34 percent increase over the

two years ending in 2017.

Increasing investor interest in sustainability reporting will pressure businesses to initiate or improve disclosures, spurring

them to use skilled professionals to implement changes, thus providing new career opportunities for accounting students. We

argue that accounting programs should at least provide an overview of sustainability accounting to accounting majors, and we

believe that our case is an effective method to do this.

Learning Objectives

Upon completion of the case, students will be able to:

1. Explain the concept of materiality in sustainability reporting.

2. Describe sustainability reporting requirements under both the GRI and SASB standards.

3. Evaluate differences in sustainability reporting choices between competitors within an industry.

4. Discuss motivations and challenges for preparers when reporting on material sustainability issues.

5. Explain how investors and other stakeholders can utilize the sustainability report.

Implementation Guidance

Using the case of the Ford Motor Company (Ford 2018) can help enhance students’ knowledge in order to effectively

research and analyze various sustainability issues. Ford is one of a few pioneering automotive firms in sustainability reporting

(Tuppen 2012). The case guides students to examine Ford’s sustainability strategy and the firm’s decisions about the content

and priorities in its sustainability report. Because today’s students prefer eco-friendly products (Schroeder 2019), we expect

them to also be interested in sustainability accounting; our experience with this case supports this expectation.

Although believing that sustainability accounting is an opportunity for accounting educators, we recognize the competition

for space in the accounting curriculum. We used this case in both undergraduate and graduate financial accounting courses, and

it logically fits into such courses because sustainability accounting and reporting is about disclosures made to investors and

other stakeholders. Also, materiality is an important factor in financial reporting and sustainability accounting. The financial

accounting options include intermediate, advanced, and international accounting courses, depending on which course can best

accommodate it. We have found that international financial accounting is a good choice for introducing the topic, and some

international accounting textbooks cover much sustainability material.1

Class testing the case has shown that undergraduate managerial accounting also represents an opportunity, especially given

its focus on performance measurement. Some managerial accounting textbooks include financial and nonfinancial performance

measures of selected sustainability material.2 For example, the balanced scorecard is an important framework for using

performance measurement for strategy implementation, which is included in managerial accounting textbooks. Sustainability

report disclosures include performance measurement, and some firms include them in their balanced scorecards at various

levels in the organization (Hansen and Schaltegger 2016). This case requires students to examine Ford’s performance

measures, assess Ford’s performance, and describe Ford’s overall progress toward sustainability goals; students can see that this

task requires judgment. Focusing on the assurance of disclosures in sustainability reports, this case was also class tested in an

auditing course.

Table 1 matches the different case questions to the learning objectives and to Anderson, Krathwohl, Airasian, Cruikshank,

Mayer, Pintrich, Raths, and Wittrock’s (2001) and Bouten and Hoozée’s (2015) cognitive process categories: remember/

understand, apply, and analyze/evaluate/create. The table shows that most of our case learning objectives relate to higher-order,

concept-related—rather than fact-related—skill development. This suggests that the case is especially suited for upper-level

undergraduate and graduate accounting courses.

1 For example, Doupnik, Finn, Gotti, and Perera (2020) includes a chapter on sustainability reporting. 2 For example, see Hilton and Platt (2020) and Braun and Tietz (2018).

132 Bremser, Jermakowicz, and Reinstein

Issues in Accounting Education Volume 37, Number 1, 2022

Sustainability Reporting Trends

As more entities issue sustainability reports, the need to educate future accounting professionals on how to measure and

report sustainability activities has become more apparent (FEE 2018). Recent studies examining sustainability reporting issues

have found that a growing number of academics have incorporated these issues into accounting curricula (Dyball and Thomson

2013; Fakoya 2015; Haskin and Burke 2016; Shimko 2016). With increasing sustainability reporting demand and the

expanding availability of sustainability accounting course materials, more universities will likely offer entire courses dedicated

to sustainability accounting (Wong, Pippin, Weber, and Bergner 2016).

Eynon and Stevens’ (1996) students accounted for contingent environmental liabilities, focusing on key ethical—not

accounting—issues. Ashbaugh and Johnstone’s (2000) students assessed how firms report their environmental liabilities related

to nuclear power plant decommissioning costs. Krawczyk and Showalter (2020) had student groups examine Environmental

Protection Agency investigations of hazardous materials cases. Student groups documented and presented their methodologies

and conclusions regarding accounting and tax treatments of the negligent firms’ environmental remediation obligations. We

instead examine how one major company and a competitor assess the materiality of sustainability-related issues.

Per Table 2, Gray, Bebbington, and McPhail (1994) and Gordon (1998) added some social responsibility concepts to their

accounting courses. Since then, several other studies have described various methods to incorporate sustainability issues in

accounting curricula. In addition, some financial and managerial accounting textbook chapters provide related sustainability

reporting content (Wong, Pippin, Weber, and Bergner 2016; Brown and Kohlbeck 2017) and case materials are available, such

as the Beasley, Buckless, Glover, and Prawitt (2019) case study ‘‘Going Green.’’

Teaching Approach

This case encourages students to critically assess sustainability disclosures, such as assessing the materiality of ESG issues

and providing assurance on sustainability reports. We interchangeably use the terms ‘‘sustainability reporting’’ and ‘‘ESG

reporting’’ in discussing this case.

The case material is suitable for individual and team learning techniques. For both methods, we recommend that instructors

introduce sustainability reporting when assigning the case and cover these key points:

1. The trend of more global public companies issuing sustainability reports exists due to societal pressures and increased

investor interest in sustainability factors.

TABLE 1

Case Alignment Chart

Learning Objective

Cognitive Process Categories According to Bloom’s Revised Taxonomy

(Anderson et al. 2001; Bouten and Hoozée 2015)

Remember/ Understanda Apply

Analyze/ Evaluate/ Createa

LO1. Explain the concept of materiality in sustainability reporting. Questions 1, 2 Questions 1, 2 Questions 2, 3

LO2. Describe sustainability reporting requirements under both the GRI and

SASB standards.

Questions 3, 4, and 5

LO3. Evaluate differences in sustainability reporting choices between

competitors within an industry.

Question 7

LO4. Discuss motivations and challenges for preparers when reporting on

material sustainability issues.

Questions 3, 4, 6

LO5. Explain how investors and other stakeholders may utilize the

sustainability report.

Question 1

LO¼ learning objective. a We combined the following cognitive process categories: (remember and understand) and (analyze, evaluate, and create) into two categories (see

Anderson et al. 2001, 234–236; Bouten and Hoozée 2015, 378–380). Table 1, in its original format, is available for download, see the link in Appendix A.

Sustainability Reporting Insights: The Case of Ford Motor Company 133

Issues in Accounting Education Volume 37, Number 1, 2022

TABLE 2

Summary of Selected Published Sustainability Accounting-Related Cases

Publication Corporate Sustainability Content

Gray, R., J. Bebbington, and K. McPhail. 1994. Teaching ethics in

accounting and the ethics of accounting teaching: Educating for

immorality and a possible case for social and environmental

accounting education. Accounting Education 3 (1): 51–74.

Gray et al. stress that many audit failures arose from accounting

educators teaching their students ‘‘superficial learning strategies

and immature learning positions,’’ thus motivating them to

substantially increase social and environmental accounting

coverage in the classroom.

Gordon, I. M. 1998. Enhancing students’ knowledge of social

responsibility accounting. Issues in Accounting Education 13

(1): 31-46.

Gordon’s pre- and post-study shows that class readings and

discussion in an accounting theory course sensitized students to

social responsibility/sustainable development accounting and

reporting, which shows that such learning is teachable.

Deegan, C. 2002. The legitimizing effect of social and

environmental disclosures: A theoretical foundation. Accounting, Auditing and Accountability Journal 15 (3): 282–311.

Deegan suggests that current research should extend Ernst &

Ernst’s 1970s studies on how various organizations disclose

recent social accounting disclosures.

Fleischman, R. K., and K. Schuele. 2006. Green accounting: A

primer. Journal of Accounting Education 24 (1): 35–66.

Accounting Principles, Intermediate Accounting, and Cost

Accounting students study the professor’s ‘‘green accounting’’

primers to improve their knowledge of environmental issues.

Holtzblatt, M., and N. Tschakert. 2011. Expanding your

accounting classroom with digital video technology. Journal of Accounting Education 29 (2): 100–121.

International accounting students successfully used video clips to

discuss sustainability accounting and integrated reporting issues.

Apostolou, B., R. B. Dull, and L. L. Schleifer. 2013. A framework

for the pedagogy of accounting ethics. Accounting Education 22

(1): 1–17.

A framework for sustainability accounting courses should include

GRI developments in standalone or other accounting courses.

Assessments should use proper course learning objectives and

learning outcomes.

Lawson, R. A., E. J. Blocher, P. C. Brewer, G. Cokins, J. E.

Sorensen, D. E. Stout, G. L. Sundem, S. K. Wolcott, and M. J.

Wouters. 2013. Focusing accounting curricula on students’

long-run careers: Recommendations for an integrated

competency-based framework for accounting education. Issues in Accounting Education 29 (2): 295–317.

Recognizing that analysis increasingly uses nonfinancial

information to follow the Pathways Commission’s

recommendation to bridge the gap between accounting practice

and education, Lawson et al. suggest that accounting programs

increasingly focus on corporate sustainability issues.

Bouten, L., and S. Hoozée. 2015. Challenges in sustainability and

integrated reporting. Issues in Accounting Education 30 (4):

373–381.

Through the reporting practices of a telecommunication company,

students are introduced to the concepts of sustainability and

integrated reporting. The case shows the pivotal role of

materiality and completeness in assessing the quality of

sustainability reporting.

Brown, V. L., and M. J. Kohlbeck. 2017. Providing assurance for

sustainability reports: An instructional case. Issues in Accounting Education Teaching Notes 32 (3): 1–10.

The case involves determining the procedures necessary to provide

assurance on a sustainability report. Students are required to use

judgment in deciding the most appropriate type of assurance

and related procedures to provide.

Bradford, M., J. B. Earp, D. S. Showalter, and P. F. Williams.

2017. Corporate sustainability reporting and stakeholder

concerns: Is there a disconnect? Accounting Horizons 31 (1):

83–102.

Upon receiving pilot testing survey responses from 119 graduate

business students and responses from 505 IMA members, the

survey results reveal that corporate sustainability reporting often

focuses on issues that are unimportant to stakeholders.

Beasley, M. S., F. A. Buckless, S. M. Glover, and D. F. Prawitt.

2019. Going Green. Sustainability and External Reporting. Auditing Cases: An Interactive Learning Approach Case Textbook. Pearson Education, 7th edition: 423–426.

Students are introduced to the major elements of a sustainability

report and the potential advantages and disadvantages of

sustainability reporting. The types of assurance services and

potential issues with obtaining third-party assurance on

sustainability reports are also discussed.

Table 2, in its original format, is available for download, see the link in Appendix A.

134 Bremser, Jermakowicz, and Reinstein

Issues in Accounting Education Volume 37, Number 1, 2022

2. Issuing sustainability reports is currently voluntary in the U. S., but the EU requires sustainability reporting about

selected issues.

3. The Global Reporting Initiative’s (GRI) sustainability reporting standards provide widely adopted guidance for firms’

reporting practices (GRI 2016). The GRI is an independent international organization founded in 1997, headquartered

in The Netherlands.

4. The Sustainability Accounting Standards Board (SASB) Foundation is a nonprofit organization based in San Francisco

and founded in 2012; it published industry-specific sustainability accounting standards in 2018.

5. Materiality is an important issue for the GRI and SASB standards. Materiality standards provide guidance on what is

important to report. Ford’s sustainability report contains a materiality matrix that provides insight into stakeholders’ and

the firm’s perspectives on the importance of sustainability issues.

The instructor could introduce students to the history of sustainability reporting. It began in the 1980s, and it was shaped

by the United Nations World Commission on Environment and Development’s [Brundtland Commission] report, ‘‘Our

Common Future.’’ It advocated ‘‘sustainable development’’; that is, ‘‘development that meets the needs of the present without

compromising the ability of future generations to meet their own needs’’ (WCED 1987; Eccles, Serafeim, and Krzus 2011;

Baron 2014; Flower 2017). Instructors may also refer students to some academic papers to help them assess the motivations

and challenges for companies providing voluntary sustainability disclosures, such as Eccles et al. (2011), Cheng, Ioannou, and

Serafeim (2014), EY and Boston College Center for Corporate Citizenship (2015), and Krištofik, Lament, and Musa (2016).

Individuals

If using the individual method, students’ written homework could include answering all or some selected requirements.

Considering student workload, instructors could skip questions 4b, 4c, 5b, 6b, and 6c—which expand upon questions 4a, 5a,

and 6a—as well as questions 7 and 8—which focus on higher-level comparability and sustainability issues. Class discussions

could also cover priority issues in-depth. If not assigning question 7 for homework, the instructor could ask students to work

together to compare Ford’s materiality matrix to that of Honda.

Teams

This case was developed using teams of from three to five students. Based on our experience, we recommend that students

should submit their assigned written results to the case requirements before class. Instructors might choose to lead class

discussions after student team presentations, or they could have one team present and call on other teams for their solutions. Or,

each team could present one or two case requirements, and the instructor could seek other teams’ input. We have found that

lively discussions usually develop when student groups defend their answers. Guidance from the instructor can help students

develop more advanced topics as the discussions progress, including the challenges facing preparers and auditors of where to

place the developed sustainability reports. The instructor should stress the judgmental nature of identifying, measuring, and

reporting sustainability issues. Hence, students should be challenged to critically evaluate their own and their classmates’

arguments.

For team student presentations, the instructor could use a video to highlight or explain some sustainability issues. Many

videos are available online for this, ranging from company examples to TED talks. For example, a YouTube search for ‘‘Ford

Motor company sustainability’’ will yield many examples.

Other Insights

The case helps students discover the role of materiality assessments in determining the content of sustainability-related

disclosures, as well as the challenges in providing assurance on sustainability reports. Our experience shows that this case can

be covered in one class period. If class-time pressure is a concern, instructors need not use all available case requirements. For

example, rather than focus on specific assurance on ESG data issues, managerial accounting students could emphasize

integrating sustainability issues in their corporate strategy. Requirement 3, assessing overall progress on sustainability goals, is

a priority for managerial accounting because it involves interpreting Ford’s ESG metrics. Conversely, data assurance

(requirement 6) is a low priority matter.

Financial accounting instructors may want to stress discussing the materiality concept, which is commonly viewed as a

threshold for impacting financial statement users’ economic decisions. Regarding class time concerns, Ford’s overall progress

on sustainability goals (requirement 3) is a medium-to-low priority matter for financial accounting. Specific instructor teaching

objectives will determine the assigned case requirements. Suggested in-class discussion topics appear in Table 3 and are

discussed below.

Sustainability Reporting Insights: The Case of Ford Motor Company 135

Issues in Accounting Education Volume 37, Number 1, 2022

While students often quickly grasp some basic sustainability concepts, they frequently are unaware of the scope of

sustainability issues, the fact that many companies issue sustainability reports, and that such report data often have various

forms of third-party verification. Providing students with class time to discuss sustainability reporting issues among themselves

helps to develop their considering key issues.

Regarding comparability over time, since 1999 Ford (2018) has released annual sustainability reports that detail its

performance and progress toward its sustainability and corporate responsibility goals. Prior sustainability reports are available

on its website. Ford has used the same materiality analysis methodology to identify and prioritize key ESG issues. Our

Teaching Notes provide suggested answers to the case requirements for the most recent report at the time of writing (2017/

2018). If professors choose to use a more recent report, with certain edits to suggested answers to case requirements 2–4, our

Teaching Notes should remain relevant.

Case Efficacy

In this section, we present the results of student feedback to assess the efficacy of the case. In Fall 2018, two professors at

different universities assigned the case in three undergraduate managerial accounting sections and a graduate M.B.A.

international financial accounting section. In Spring 2020, a revised case was used in an elective undergraduate international

financial accounting course. To provide feedback, students were able to respond anonymously to a voluntary survey about the

case after the case coverage was completed. Table 4 shows the means for five learning objectives and an overall assessment of

the case usefulness using a five-point Likert scale [from 1 (strongly disagree) to 5 (strongly agree)]. The different instances of

student feedback are discussed in greater detail below.

In the Fall 2018 semester, the case was used in three undergraduate required managerial accounting classes, comprised of

junior and senior students who had various business majors. Some background material on sustainability reporting was

provided in a class lecture of approximately 30 minutes, and the textbook contained a short section in a chapter that covered

environmental costs and an overview of the GRI framework. All students had to prepare a hardcopy of the answers to the

assigned case questions, which they submitted during class. This graded written assignment for managerial accounting counted

for 4 percent of their final grades. After the case was presented by a student team, and followed by class discussion, the students

were asked to respond anonymously to a voluntary survey (the professor left the classroom to provide time for completion).

The overall mean for the five learning objectives, as shown in Table 4, was 4.00, which ranged from a low of 3.84 (LO2) to a

high of 4.12 (LO5). Students also viewed the case study as interesting and recommended that it be used at other universities

(mean 4.10).

The case was assigned as a Fall 2018 semester elective M.B.A. international financial accounting course, giving students

one month to solve the case and constituting up to 20 percent of their overall grades. They presented their responses to assigned

earlier case requirements in three-to-four student teams, while their classmates discussed the cases following their presentation.

All 11 students completed the assignment, with an average score of 85 percent. An instructor evaluation of the written work and

their presentation and discussion participation indicated that the case enhanced students’ achievement of the stated LOs. The

survey results showed strong agreement with all survey questions, with an overall mean score of 4.41, ranging from a low of

4.09 (LO3) to a high of 4.63 (LO5).

In the Spring 2020 semester, a revised version of the case was used in an elective undergraduate international accounting

course, which is a financial accounting course primarily focusing on IFRS, and incorporates comparisons between IFRS and

TABLE 3

Suggested In-Class Discussion Topics

Question Discussion Topics

1, 2 History of sustainability reporting and integrated reporting. Sustainability reporting frameworks, GRI vs. SASB. The

relative importance of various stakeholders under different frameworks. The role of stakeholder consultation and the

resulting materiality matrix. Professional judgment in materiality analysis.

3, 4 The importance of aligning sustainability goals with the company’s business strategy. Motivations and challenges of

companies to sustainability reporting.

5, 6 Investors’ perspective of sustainability initiatives and reporting. Challenges that auditors face in providing assurance on

sustainability reporting.

7 Comparative analysis of sustainability reporting.

Table 3, in its original format, is available for download, see the link in Appendix A.

136 Bremser, Jermakowicz, and Reinstein

Issues in Accounting Education Volume 37, Number 1, 2022

U.S. GAAP on major topical areas. The class consisted entirely of seniors—69 percent of whom were accounting majors and

31 percent finance majors. The case was slated for week 13, but the course switched from an in-person format to online due

to COVD-19. The instructor used a narrated PowerPoint presentation to introduce sustainability accounting a week before

the case was due. Also, the course textbook included a chapter on sustainability reporting. The students prepared written

answers to the assigned case questions that they submitted on Blackboard Learn before class; their grades comprised 30

percent of their final examination grade, which translated into 9 percent of their final grades. For the online class, a student

team submitted a narrated PowerPoint presentation to the professor, who inserted detailed, key discussion points. Following

the online class, an email was sent to the students with a request to voluntarily respond anonymously to an online survey.

Table 4 shows that the means for the five learning objectives ranged from 4.25 to 4.54, and the overall mean was 4.43. Also,

the mean for Q6 was 4.75, indicating that students viewed the case study as interesting and would recommend that it be used

at other universities.

In summary, the case’s effectiveness in meeting its LOs helped students to: (1) explain the concept of materiality to

sustainability reporting (mean LO1¼ 4.21); (2) explain sustainability reporting requirements under both GRI and SASB (mean

LO2 ¼ 4.06); (3) evaluate the differences in sustainability reporting among industry competitors (mean LO3 ¼ 4.11); (4)

discuss the motivations and challenges facing preparers when reporting on material sustainability issues (mean LO4¼ 4.21);

and (5) explain how investors and other stakeholders may use the sustainability report (mean LO5¼ 4.21). For Q6 the overall

mean was 4.31, indicating that students viewed the case study as interesting and would recommend that it be used at other

universities. The overall assessment of the case usefulness (Q6) unsurprisingly shows a lower mean for the required

undergraduate managerial accounting course (4.10) than the elective undergraduate international financial accounting course

(4.75)—although ratings were strong. These results support our recommendation that a financial accounting course is the best

opportunity to use the case to introduce sustainability accounting concepts.

TEACHING NOTES AND STUDENT VERSION OF THE CASE

Teaching Notes and the Student Version of the Case are available only to non-student-member subscribers to Issues in Accounting Education through the American Accounting Association’s electronic publications system at https://meridian.

allenpress.com/aaa/. Non-student-member subscribers should use their usernames and passwords for entry into the system

where the Teaching Notes can be reviewed and printed. The ‘‘Student Version of the Case’’ is available as a supplemental file

that is posted with the Teaching Notes. Please do not make the Teaching Notes available to students or post them on websites.

If you are a non-student-member of AAA with a subscription to Issues in Accounting Education and have any trouble

accessing this material, please contact the AAA headquarters office at [email protected] or (941) 921-7747.

TABLE 4

Student Assessments of the Case Assignment

Question

Mean Managerial Accounting

Undergraduate n ¼ 67

Mean M.B.A.

International Financial

Accounting n ¼ 11

Mean International

Financial Accounting

Undergraduate n ¼ 28

Overall Mean

LO1 4.04 4.45 4.54 4.21

LO2 3.84 4.54 4.39 4.06

LO3 3.93 4.09 4.54 4.11

LO4 4.09 4.36 4.44 4.21

LO5 4.12 4.63 4.25 4.21

Q6 4.10 4.45 4.75 4.31

LO mean 4.00 4.41 4.43 4.16

LO1: Explain the concept of materiality in sustainability reporting. LO2: Describe sustainability reporting requirements under both the GRI and SASB standards. LO3: Evaluate differences in sustainability reporting choices between competitors within an industry. LO4: Discuss motivations and challenges for preparers when reporting on material sustainability issues. LO5: Explain how investors and other stakeholders may utilize the sustainability report. Q6: This case study was interesting, and I would recommend the case be used at other universities.

Sustainability Reporting Insights: The Case of Ford Motor Company 137

Issues in Accounting Education Volume 37, Number 1, 2022

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APPENDIX A

ISSUES-18-032_Exhibit 1: http://dx.doi.org/10.2308/ISSUES-18-032.s01

ISSUES-18-032_Tables 1-3: http://dx.doi.org/10.2308/ISSUES-18-032.s01

Sustainability Reporting Insights: The Case of Ford Motor Company 139

Issues in Accounting Education Volume 37, Number 1, 2022

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