FROM FINANCIAL TO “SUSTAINABLE” CAPITAL MAINTENANCE

Abstract

How should corporate sustainability be addressed in financial reporting? This re search investigates the potential use of capital maintenance as a framework to de velop sustainability reporting. Its claim is that the disclosure of capital should be reconsidered to strengthen corporate accountability. After conducting a historical review of capital maintenance theories, three pur -pose-oriented treatments are identified: the net assets, dynamic and sustainable views. From the viewpoint of stakeholders’ information and corporate social re -sponsibility, disclosure based on the sustainable capital maintenance view would enhance transparency. Furthermore, it would provide a measurement basis that cur rently lacks for subsequent regulation of corporate behavior. Consistently, relevant accounting methods should be developed to complement the loopholes of modern reporting standards. The claim of this research is that sustain able capital maintenance could be implemented by defining and disclosing three key elements of equity: capital contributed by shareholders, retained earnings, and a sustainability reserve, which would reflect the financial assessment of future en vironmental and social risks. Since this reserve would only affect the allocation of retained earnings and not the measurement of performance, it would be compatible with international financial reporting standards.