The state of disclosures on stakeholder

engagement in sustainability reporting in Australian

local councils

Amanpreet Kaur
Sumit K. Lodhia

School of Commerce
University of South Australia, Australia

Paper submitted to the 10th A-CSEAR Conference, Launceston

 The state of disclosures on stakeholder engagement in
sustainability reporting in Australian local councils

Abstract

Purpose – This study explores the state and level of disclosures on stakeholder engagement
in sustainability reporting in Australian local councils.

Design/methodology/approach – Content analysis was used to analyse sustainability/ State

of Environment/annual reports of 558 local councils (city, shire, district, borough and
regional) in Australia for the year 2009-10. A stakeholder engagement index was developed
on the basis of the literature review to examine the level of disclosures on stakeholder
engagement.

Findings –This study identifies: the Australian local councils that are engaging with their
stakeholders in the development of sustainability reports; key stakeholders for sustainability
reports; media and approaches being used for engagement; and difficulties in the engagement
process. The results suggest that stakeholder engagement is an essential component in the
development of sustainability reporting as it informs the reporters of material concerns, issues
and aspirations of the key stakeholders.

Research limitations/implications –The focus of this paper is the state of disclosures on

stakeholder engagement in sustainability reporting. The findings of the paper are limited to
only one level of governance of the public sector, that is, local councils.

Originality/value –International standards such as Global Reporting Initiative and

AccountAbility 1000 have signified the role of stakeholder engagement in the development
of sustainability reporting. However, there has been a little research that demonstrates
whether or not organisations engage with their stakeholders for reporting purposes. This
paper provides evidence about stakeholder engagement in sustainability reporting in
Australian local councils.

Keywords: Stakeholder engagement, sustainability reporting, local councils

Paper type – Research paper

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1. Introduction

Since the Brundtland Report on sustainable development in 1987, the importance of

environmental issues and the pursuit of sustainable development have been on the agenda of
both the government and corporate sectors (Bebbington & Gray 1993). Stakeholders from
organisations ask for more transparency and accountability than ever before (Milne & Gray
2007). Increasing concerns about the environmental and social impacts of organisational
activities have raised the need for disclosure on environmental and social issues (Lamberton
2005; Guthrie & Farneti 2008a). Therefore, sustainability accounting and reporting is
becoming necessary to manage and report sustainability issues as the traditional financial
reports are insufficient to provide a complete description of the economic, social and
environmental impacts of an organisation‟s operations (Guthrie & Farneti 2008a). The Global
Reporting Initiative defines sustainability reporting as:

a vehicle to assess the economic, environmental and social impacts of the

organisation’s operations, products, and services, and its overall contribution to
sustainable development. (GRI 2004, p.20)

During the preparation of a sustainability report, stakeholders‟ reasonable expectations and

interests are a key reference point for many decisions involved, such as the scope, boundary,
application of indicators and assurance (GRI 2006, 2011). International accountability
guidelines such as the Global Reporting Initiative and the Institute of Social and Ethical
Accountability place a major emphasis on stakeholder engagement as the primary means for
developing sustainability reporting structures (Owen, Swift & Hunt 2001). Stakeholder
engagement is critical for sustainability reporting because it facilitates the identification and
understanding of the material concerns, issues, perceptions, needs and expectations of
stakeholders in relation to sustainability issues (AccountAbility 2005; GRI 2006;
AccountAbility 2011). Moreover, it can also address the problem of determining the extent of
accountability of councils by placing boundaries on the reporting (Herbohn & Griffiths
2007), and enhances stakeholder receptivity and the usefulness of the report (GRI 2006,
2011). Adams and McNicholas (2007, p.385) argue that:

stakeholder engagement, an important aspect of many organisations’ sustainability

reporting process, has the potential to be a particularly powerful driver for change,

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 because its purpose is to challenge the company’s role in social and environmental
sustainability.

Although stakeholder engagement and dialogue is a critical aspect of sustainability reporting,

there is a lack of evidence as to whether or not such engagement and dialogue is actually
happening in the current sustainability reporting practices (ACCA 2005; Unerman 2007).
This study aims to respond to this gap in the literature by exploring the state and extent of
disclosures on stakeholder engagement in sustainability reporting by Australian local
councils. We use a public sector entity, the Australian local council, as the setting for the
analysis. These findings should be of interest to policy makers who are concerned with
formulating policies and strategies related to stakeholder engagement in sustainable
development programs, particularly those in the public sector.

Empirical evidence highlights a low level of disclosures on stakeholder engagement in

sustainability reporting in Australian local councils. A further analysis of the level of
disclosures reveals key stakeholders for sustainability reporting, the extent of engagement for
reporting, media used to engage with stakeholders and difficulties in engagement.

2. Literature review

Sustainability accounting and reporting in the Australian public sector

Research studies on the social and environmental disclosure practices of the Australian public
sector first emerged in mid 1990s. Since then, numerous studies have been conducted to
explore: the state of sustainability accounting and reporting practices; trends in sustainability
reporting; and influences on sustainability reporting in the Australian public sector
organisations (PSOs). This section of the paper highlights the findings of prior studies to
identify gaps in the existing literature.

An increase in the up-take of sustainability reporting in the Australian public sector has been
reported in the several studies (Burritt & Welch 1997; Dickinson et al. 2005; Lynch 2010;
GRI 2010). Sustainability reporting in Australian PSOs is driven by a range of factors such
as: sustainability performance monitoring; public relations; regulatory requirements;
leadership; concerns about climate change, population growth and urban growth; a high level
of interest in sustainability issues within councils; and national and international pressures
(Dickinson et al. 2005; Herbohn & Griffiths 2007; Farneti & Guthrie 2009; Sciulli 2011;
Lodhia et al. 2011 ). In addition to these factors, the quantity and type of sustainability

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disclosures in the majority of PSOs including local councils is related to the perceived
importance by internal stakeholders such as employees (Frost & Toh 1998; Dickinson et al.
2005; Herbohn & Griffiths 2007; Farneti & Guthrie 2009); external pressure by mandatory
stakeholders such as Ministers (Farneti & Guthrie 2009) and level of the community
engagement (Sciulli 2011). However, prior research shows a low level of involvement of
external stakeholders in sustainability reporting (Herbohn & Griffiths 2007).

The Australian PSOs are embracing the GRI reporting guidelines to report on sustainability
issues (Dickinson et al. 2005; Farneti & Guthrie 2009). Moreover, the majority of local
government‟s reports are consistent with the GRI sustainability reporting guidelines (Burritt
et al. 2009). The key elements included in sustainability reports comprise: indicators/data;
business strategy and objectives; performance outcomes; stakeholder engagement;
engagement strategies and disclosures on corporate governance (Dickinson et al. 2005).
Disclosures on stakeholder engagement indicate that although sustainability reporting is
internally driven, PSOs are engaging with their stakeholders. However, it is still not clear
how and to what extent this engagement is taking place in the public sector entities.

The prior literature suggests that although there has been a substantial increase in the public
sector‟s sustainability reporting practices over the last two decades, it is still in its infancy
when compared to private sector reporting practices (Gibson, R & Guthrie 1995; Dickinson et
al. 2005; Ball & Grubnic 2007; GRI 2010). Guthrie and Farneti (2008b) in their study
examined disclosures on social and environmental issues by seven Australian PSOs. The
study revealed that these organisations „cherry picked‟ the GRI indicators they wished to
disclose, and their reports lacked complete disclosures on the social, environmental and
economic impacts of their activities. Relatively similar findings were made by Sciulli (2009)
in an examination of sustainability disclosures in Australian local councils in six coastal
regions. He found an overall low level of disclosures on sustainability issues in these councils
and, recognised stakeholders‟ needs as an influence for encouraging disclosure on social and
environment issues.

The other issues concerned with sustainability reporting in the Australian public sector are:
insufficiency of environmental performance standards and accountability assessment
frameworks (Burritt & Welch 1997); heterogeneous reporting practices in relation to scope,
format and quality (Ryan, Stanley & Nelson 2002; Jones et al. 2005; GRI 2010); and
assurance and verification (Dickinson et al. 2005). Recently, Lynch (2010) examined annual

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reports of 18 state government departments in four Australian states over the period from
2000–01 to 2007–08. She noticed a low level of external stakeholders‟ participation in
sustainability reporting, as there were few stakeholders‟ comments on the reports and only
occasional enquiries were received. She argued that lack of disclosure in some departments
could be due to lack of pressure from external stakeholders, as, unless external pressures
exist, departments may find little benefit in reporting on social and environmental issues.

Given the current state of sustainability reporting practices in the Australian public sector,
prior research has not explored elements that could accelerate sustainability reporting
practices among PSOs. Hence there is a need to take a step back and study the key elements
in structuring a sustainability report. One such crucial element is stakeholder engagement
(GRI 2006; Unerman 2007; Manetti 2011). Although stakeholder engagement is critical to
the sustainability reporting process, these previous studies have examined it in a limited
manner. It is argued that low level stakeholder engagement could be the reason for the low
level of sustainability disclosures on the presumption that PSOs have not yet managed to
identify the information needs and expectations of their stakeholders and report accordingly.
An in-depth study is required to explore the current state of stakeholder engagement in
sustainability reporting by PSOs. This paper adds to the literature by examining: how
stakeholder engagement mechanisms function during the development of sustainability
reports for Australian local councils and to what extent this engagement takes place. The
focus of this paper is to analyse stakeholder engagement through documentary analysis.

3. Theoretical framework

Stakeholder theory
Stakeholder theory asserts that organisations should consider the concerns of individuals and
groups that can affect or are affected by their activities (Gibson 2000) while making decisions
and achieving organisational goals. Organisations are expected to do so because they are
responsible and accountable to a broad range of stakeholders for their activities, rather than
just shareholders. Stakeholder theory recognizes the existence of a dynamic and complex
relationship between organisations and their stakeholders (Gray, Owen & Adams 1996) and,
emphasises the management of these relationships (Friedman & Miles 2002). Therefore,
stakeholder theory plays a significant role in understanding the stakeholders‟ influences on
organisations‟ actions and how organisations respond to these influences.

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Modern stakeholder theory is an expansion of Freeman‟s seminal work Strategic
Management: A Stakeholder Approach (Freeman 1984). Before this, theorists were struggling
to establish the duties and responsibilities that an organisation has towards other groups and
individuals besides shareholders, suppliers, customers and employees (Shankman 1999).
Stakeholders can be defined as „any group or individual who can affect or are affected by the
achievement of the organisation‟s objectives‟ (Freeman 1984, p. 46). According to this
definition stakeholders have the potential to both benefit and harm organisations (Gibson
2000). Therefore stakeholders‟ concerns should be recognised and addressed by organisations
to ensure their survival and successful goal accomplishment.

In order to recognise and address stakeholder‟s needs and expectations Clarkson (1995)
categorises stakeholders into primary and secondary stakeholders. The primary stakeholders
are those individuals and groups whose support is essential for the survival of an
organisation, whereas secondary stakeholders are those individuals and groups who affect or
are affected by the activities of an organisation. On the basis of the above categorization,
organisations can have a wide range of current and potential stakeholders such as: fund
providers, employees, suppliers, investors, shareholders, regulatory authorities, Non-
Government Organisations, media, labour unions, society and local community.

Organisations can have a broad range of stakeholders with different interests and it is not
possible for organisations to address the issues and concerns of all their stakeholders.
Therefore identification of stakeholders which can impact or are impacted by an
organisation‟s actions becomes essential. In the absence of stakeholder identification, the
effectiveness of stakeholder engagement becomes questionable or doubtful (Belal 2002).The
key criteria for identifying and prioritizing stakeholders include: attributes of power,
legitimacy and urgency; and the stakeholders‟ ability to affect or be affected by the
organisation‟s actions (Mitchell, Agle & Wood 1997).

In order to explain how organisations respond to stakeholders‟ pressure and expectations,

Donaldson and Preston (1995) recognize descriptive/empirical, instrumental and normative as
the three distinct but supportive features of stakeholder theory. Descriptive/empirical
stakeholder theory is used to describe what organisations actually do to manage their
relationships with stakeholders (Jones 1995) and whether or not stakeholder interests are
taken into account by organisations (Gibson 2000). Instrumental stakeholder theory has been
used to explain that „the predicted outcomes are contingent on behaviour of certain type‟

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(Jones 1999). It emphasises the role of management to achieve a balance between the
interests of all stakeholders (Shankman 1999). Normative stakeholder theory is used to
explain moral and philosophical principles to state how an organisation should deal with its
stakeholders (Donaldson & Preston 1995).

This study uses the descriptive aspect of stakeholder theory to observe actual behaviour of
local councils in responding to stakeholders‟ concerns about social and environmental issues.
The descriptive aspect of stakeholder theory will also be useful to explore how councils
engage with their stakeholders while reporting on social and environmental issues and to
what extend this engagement takes place.

Stakeholder identification and prioritization are critical for this research study to understand
and explain how and why the interests of a particular stakeholder group are included or
excluded in reporting on social and environmental issues. „Who and what really counts‟ in
local councils in the context of social and environmental reporting can be quite different from
„Who and what really counts‟ in corporations, due to the range of stakeholders that local
councils have and the level of impact of their activities on the environment and society. The
existence of numerous stakeholder groups and individuals with different information needs
can make the whole sustainability reporting process quite complex. Therefore identification
and prioritization of stakeholders is essential to study disclosure practices in local councils.

Stakeholder engagement
In recent years the focus of stakeholder theory has been entirely shifted from an approach of
stakeholder management towards more of a network-based, relational and process-oriented
approach of stakeholder engagement (Andriof & Waddock 2002). The main reason why
organisations are moving towards stakeholder engagement is to increase trust, transparency
and accountability and to provide better communication on their activities and impacts
(Burchell & Cook 2006). Stakeholder engagement aims at enhancing mutual understanding
and alignment between organisations and their stakeholders (Gable & Shireman 2005).

According to Andriof & Waddock (2002, p.42) stakeholder engagement can be defined as a
„trust-based collaboration between individuals and/or social institutions with different
objectives that can only be achieved together‟. Advancing sustainable development is one
such goal that needs the trust-based collaborative effort of both the organisations and their
stakeholders to ensure its success (Andriof & Waddock 2002; Gao & Zhang 2006).
Moreover, while pursuing sustainable development objectives, organisations realise that they

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cannot act alone to develop a sustainability report (Isenmann & Kim 2006), as organisations
require the cooperation of their stakeholders to identify social and environmental issues
perceived by stakeholders. For example, a research study conducted by Yau (2010) on waste
recycling in Hong Kong, where landfill space is becoming scarce, suggested that to promote
waste recycling behaviour in the community, it is necessary to understand what encourages
people to act in a particular manner before formulating policies and schemes. If policies and
schemes do not agree with the community‟s expectations and needs, all the efforts to promote
such initiatives will become ineffective; especially in matters where direct and active
participation of stakeholders is a must for the success of a project (Yau 2010).

In order to respond to the demands of stakeholders, organisations must know about the
different interests, concerns and expectation of various stakeholder groups regarding
organisational activities. Here stakeholder engagement can play an important role for
understanding the reasonable expectations and interests of different stakeholders (ISEA
1999). Stakeholder engagement facilitates organisations to recognise stakeholders‟
information demands regarding content, form and media to prepare a sustainability report that
meets their specific needs (Isenmann & Kim 2006). A meaningful engagement demonstrates
organisational accountability towards stakeholders and ensures that the organisational
decisions are based on an accurate and full understanding of stakeholder aspirations and
needs (ISEA 1999). The basic purpose to engage stakeholders is to:

drive strategic direction and operational excellence for organisations and to

contribute to the kind of sustainable development from which organisations, their
stakeholders and wider society can benefit by... learning, innovating and
performing... (AccountAbility 2005)

Stakeholders can be involved in the planning, accounting, auditing and reporting stages to
bring transparency and enhance mutual understanding on the sustainability actions of
corporations (Gao & Zhang 2006). During the sustainability reporting process stakeholders
can be engaged in the following manner (Isenmann & Kim 2006):

1. At the beginning of the reporting process, to involve stakeholders to articulate their needs
and expectations as to reporting.
2. During reporting process, to obtain feedback and criticism of reports.
3. During publication and release, to get consultation on future efforts on sustainability
issues and the coming reporting cycle.

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For engaging stakeholders in all these activities a range of media can be used such as:
questionnaires; telephone and internet; media releases; interviews; magazines and internet
bulletin boards; public meetings; round table discussions; community forums; seminars;
conferences and workshops; and briefing sessions (Cummings 2001; Belal 2002; Gable &
Shireman 2005; Thomson & Bebbington 2005). In addition to direct engagement with their
stakeholders, an organisation can arrange stakeholder meetings facilitated by an independent
party. Use of independent agencies allows free expression of opinions and promotes
meaningful engagement (Belal 2002). Such stakeholder initiatives not only provide an
opportunity for stakeholders to voice their environmental concerns, but also assist
organisations to collect material information about their stakeholders in an effective manner
(Grafé-Buckens & Hinton 1998). However, the selection of the appropriate engagement
method is dependent upon the size, geographical location, resource availability and nature of
stakeholders to be involved (Belal 2002).

Stakeholder engagement is not often comfortable; sometimes it can raise complex issues for
the organisations (Thomson & Bebbington 2005). The key complexities that can interrupt
stakeholder engagement and dialogue processes include: heterogeneous stakeholders‟ views
and expectations; conflicting interests between the organisation and its stakeholders;
difficulty in stakeholder identification and prioritization; and the impossibility of engagement
with certain stakeholders such as the natural environment and future generations (Thomson &
Bebbington 2005; Unerman 2007).

Moreover a majority of organisations interpret stakeholder engagement as a one-sided

process, by not involving stakeholders in their decisions and simply communicate the
decisions, in the belief that this will best serve their needs (Belal 2002; Foster & Jonker
2005). This one-way dissemination of information to stakeholders is often regarded as a
relatively weak form of engagement (Burchell & Cook 2006). The effectiveness of
stakeholder engagement lies in engaging stakeholders in a two-way relationship so that the
decisions are made after considering the conflicting interests of the organisation and its
stakeholders (Foster & Jonker 2005; Burchell & Cook 2006). The existing stakeholder
engagement practices are designed not to give stakeholders control and delegated power in
decisions on social and environmental issues (Cummings 2001). Belal (2002) in his study
found that a majority of organisations do not identify their stakeholders clearly and
systematically in order to engage them in the social and ethical reporting process. He also

9
found that social and environmental issues are addressed unilaterally on the basis of feedback
from stakeholders without incorporating them in the decision making process.

Stakeholder engagement models

Stakeholders can be involved by an organisation using a range of methods in different
activities such as decision-making, planning and implementation and reporting. However, the
quality of the engagement outcome depends upon the extent of their involvement. This
section of the paper reviews stakeholder engagement frameworks for assessing and
evaluating the extent and quality of stakeholder engagement in sustainability reporting. The
frameworks include: Arnstein‟s Ladder of Participation, AccountAbility 1000, Global
Reporting Initiative and The Environment Council‟s stakeholder evaluation and benchmark
criterion.

In order to observe the extent of stakeholder engagement by an organisation, Arnstein (1969)

suggests a Ladder of Citizen Participation. The eight rungs of the ladder explain the different
engagement techniques that can be applied to engage with the stakeholders. These rungs are:
1. manipulation; 2. therapy; 3. informing; 4. consulting; 5. placation; 6. partnership; 7.
delegated power 8. citizen power. The manipulation and therapy rungs are levels of non-
participation, aiming at enabling power holders to educate the participants through public
relations (Cummings 2001). Informing, consulting and placation are regarded as first steps to
participation. These are one-way communication processes wherein stakeholders can be
heard, however, decision and veto lies with the power holders (Cummings 2001). The
partnership form of participation enables participants to negotiate and trade off with
traditional power holders (Arnstein 1969). In the delegated power and citizen power rungs
stakeholders possess full managerial power and can make decisions in their own right.

A research study conducted by Cummings (2001) regarding levels of stakeholder engagement

in organisations in the UK concluded that most of the organisations used rungs 3, 4 and 5 of
the ladder to involve stakeholders. Only a few organisations used partnership and delegated
power to engage with their stakeholders.

A more recent study on the quality of stakeholder engagement in sustainability reporting by

Manetti (2011)found that Italian companies have reached the first five rungs of the Ladder of
Participation. Only a few companies that were subject to legal requirements were using
delegation of power and citizen control to involve stakeholders.

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AccountAbility 1000 (AA1000) is an international accountability standard that also focuses
on securing the quality of social and ethical accounting, auditing and reporting. The process
of stakeholder engagement is at the heart of AA1000. Stakeholder engagement guidelines
aim at improving accountability and ensuring the quality of consultation and dialogue
between an organisation and its stakeholders. AA1000 provides accountability assessment
criteria for stakeholder engagement for the users of social and ethical reports in order to
understand the different components and their quality included in a report. The AA1000
stakeholder engagement assessment criterion is:

Inclusion of Quality of
Component of report
component? component
Stakeholder commentary on social and ethical performance
Stakeholder commentary on the social and ethical accounting, auditing and
reporting process
Survey of stakeholder views
Evidence of stakeholder participation in the social and ethical accounting,
auditing and reporting process – in definition of values
Evidence of stakeholder participation in the social and ethical accounting,
auditing and reporting process – in definition of objectives and targets
Evidence of stakeholder participation in the social and ethical accounting,
auditing and reporting process – in identification of issues
Evidence of stakeholder participation in the social and ethical accounting,
auditing and reporting process – in identification of indicators
Process for stakeholder feedback on report
Table 1: AA1000 stakeholder engagement assessment criteria

Furthermore, the GRI underpins the importance of engaging stakeholders in sustainability

reporting process. The G3 and GRI‟s Sector Supplement for Public Agencies (GRI-SSPA)
identify key reporting principles to produce a balanced and reasonable report on an
organisation‟s social, environmental and economic performance. One of these principles is
„stakeholder inclusiveness‟ which recognises stakeholder engagement as an essential element
to determine the scope and enhance the quality of a sustainability report. In order to provide
evidence of stakeholder engagement practices in sustainability reporting, GRI-SSPA (2005)
offers an indicator under the sub-section „Governance structure and Management Systems‟.
This indicator requires the PSOs to disclose items such as: the basis for identification and
selection of stakeholders with whom to engage; approaches to stakeholder engagement,
including type and frequency; and key issues identified through stakeholder engagement and

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how organisations used this information. Moreover, G3 highlights (Figure: 1) four key areas
for disclosing stakeholder engagement initiatives:

4.14 List of stakeholder groups engaged by the organisation. Examples of stakeholder groups are:

 Communities;
 Civil society;
 Customers;
 Shareholders and providers of capital;
 Suppliers; and
 Employees, other workers, and their trade unions.

4.15 Basis for identification and selection of stakeholders with whom to engage.

This includes the organisation’s process for defining its stakeholder groups, and for determining the groups
with which to engage and not to engage.

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder
group.

This could include surveys, focus groups, community panels, corporate advisory panels, written
communication, management/union structures, and other vehicles. The organisation should indicate whether
any of the engagement was undertaken specifically as part of the report preparation process.

4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organisation
has responded to those key topics and concerns, including through its reporting.

Figure 1: GRI stakeholder engagement indicators

The Environment Council (TEC) has developed evaluation and benchmark criteria for
stakeholder engagement in practice and reporting. TEC is a UK based charity, whose main
goal is to pioneer the use of more collaborative and interactive techniques to co-create or
inform decision-making in the sustainability arena (ACCA 2007). These criteria have been
used by ACCA Australia (2007) to study disclosures on stakeholder engagement in the ASX
Top 50 companies in Australia. The TEC criteria includes the following six sections:

 Stakeholder identification
 Evidence of engagement
 Target and metrics
 Integration of engagement programs
 Use of engagement results in report development
 Opportunities for feedback

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In order to study disclosure practices on stakeholder engagement in Australian corporations,
ACCA(2007) examined social and environmental reports, websites and annual reports of the
Australian Securities Exchange (ASX) top 50 corporations. The study revealed the existence
of diverse disclosure practices among these corporations and concluded that only a few
companies were providing high quality disclosures on stakeholder engagement. Given that
reporting on stakeholder engagement is a voluntary practice, the study stressed that
insufficient stakeholder engagement disclosures do not always imply that stakeholder
engagement is not taking place; rather sometimes efforts remain unnoticed by readers due to
the lack of disclosure on stakeholder mechanisms and results.

4. Research method

The sustainability/State of Environment (SoE)/annual reports of 558 local councils from six
states and one mainland territory in Australia for the year 2009-10 were analysed using
content analysis. The Australian Capital Territory (ACT), another major mainland territory,
was excluded from this analysis as it does not have a local government tier of governance and
all the functions of local government are administered by the legislative assembly. Online
sustainability reports were also observed. This analysis aimed at identification of local
councils that were engaging with their stakeholders in the development of the sustainability
reports and, investigation of the extent of stakeholder engagement in sustainability reporting
disclosures. In order to identify such local councils, a general overview of 558 local councils‟
reports was undertaken. This general view at first instance identified the local councils who
were reporting on their sustainability issues and, subsequently, the local councils that
engaged with their stakeholders in the sustainability reporting process.
Having identified the local councils, a further analysis was undertaken to examine the level of
disclosures on stakeholder engagement in these local councils. For this analysis a stakeholder
engagement index (table 2) was developed. The index included seven stakeholder
engagement indicators to observe what and how information was being reported on
stakeholder engagement initiatives by the local councils. The analysis focused on the
“inclusion/exclusion” of stakeholder engagement indicators in the sustainability reports.

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No. Stakeholder engagement indicators Elements of each indicator
1. Stakeholder identification  Definition of „stakeholder‟
 Stakeholder list
 Key attributes of stakeholder groups
 Relationship to the reporting organisation

2. Basis for stakeholder identification and  Differentiation: Key/wider

selection  Method of identification
 Level of interest (perceived) noticed

3. Media and approaches used for  Media used for engagement

stakeholder engagement  Degree of stakeholder involvement
 Frequency of stakeholder engagement

4. Key concerns and issues raised through  Nature of issues and concerns
stakeholder engagement  Stakeholder comments/concerns/questions quoted
 Concerns and issues addressed

5. Evidence of stakeholder engagement  Case studies on stakeholder engagement

 Photographs/pictures
 Assurance of stakeholder engagement

6. Future targets for stakeholder  Future Target setting

engagement  Report on last year's targets

7. Opportunities for feedback  Feedback welcomed

 Feedback form provided
 Contact details/email/website
 Explanation on use of feedback

Table 2: Stakeholder engagement index

The scope of stakeholder engagement indicators developed for analysing disclosures on

stakeholder engagement in sustainability reporting in the local councils is discussed below:

Stakeholder identification:

This indicator considers whether or not an organisation defines and identifies its key
stakeholders. This indicator also looks for disclosures on stakeholders involved; the number
of groups involved; key attributes of stakeholder groups and the relationship of each
stakeholder group with the local council.

Basis for stakeholder identification and selection:

This indicator examines disclosures on the process and method of identification and selection
of stakeholders for sustainability reporting. The various categories of stakeholders are such
as: primary or secondary; key or wider; and level of interest (perceived) noticed.

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Approaches/media used for stakeholder engagement:

This indicator looks for disclosures on the range of media/methods being used by local
councils to involve stakeholders such as surveys, community forums, focus groups, advisory
panels and meetings. It also records the frequency and degree of stakeholder engagement.

Key concerns and issues raised through stakeholder engagement:

This indicator categorises disclosures on the nature of key concerns and issues raised through
stakeholder engagement; how these concerns and issues were addressed`; and whether or not
stakeholder comments, concerns and questions were quoted in sustainability reports.

Evidence of stakeholder engagement:

This indicator identifies evidence of stakeholder engagement in the sustainability reports of

the local councils. This evidence can be in the form of case studies describing the purpose of
stakeholder engagement, how stakeholders were engaged, the number of participants
involved and the outcomes of stakeholder engagement. This indicator includes other evidence
of stakeholder engagement such as photographs and assurance of stakeholder engagement.

Future targets for stakeholder engagement:

This indicator evaluates whether or not the local councils set targets for stakeholder
engagement and thereafter measure and report their performance against set targets.

Opportunities for feedback:

This indicator is measured by determining whether or not the local council has a process for
stakeholders to provide feedback. It also focuses on different feedback opportunities provided
to stakeholders such as a feedback form, contact details, encouragement for feedback and an
explanation on feedback use.

4. Findings& Discussion

Analysis of state-wide disclosures on stakeholder engagement in sustainability reporting

by local councils
This section highlights the state of disclosures on stakeholder engagement in the development
of sustainability reporting in Australian states and territories. Table 3 shows the percentage of
local councils in each state and territory reporting on stakeholder engagement in

15
 sustainability reporting. The results from this table indicate a low level of disclosures on
stakeholder engagement in sustainability reporting by Australian local councils. In most
cases, engagement with the stakeholders was found to be in relation to planning, policy
formulation, decision-making and sustainability actions. Local councils in four states
provided information about their initiatives to involve stakeholders only while preparing
sustainability reports. NSW was found to have the highest number local councils (13.79%)
that were making these disclosures. Queensland, Victoria and Western Australia each had one
local council reporting on the involvement with stakeholders in the development of their
sustainability reports.

State No of local No of local No. of local councils Percentage of local

councils
councils in reporting on Stakeholder councils reporting
reporting on
each state sustainability engagement in on stakeholder
issues
sustainability reports engagement
NSW 152 145 20 13.79%
Queensland 73 29 1 3.45%
South Australia 68 64 0 0%
Tasmania 29 29 0 0%
Victoria 79 78 1 1.28%
Western Australia 141 32 1 3.12%
Northern Territory 16 11 0 0%
Total 558 388 23 5.92%
Table 3: Local councils reporting on stakeholder engagement in sustainability reporting

Twenty three local councils throughout Australia were found to be reporting on stakeholder
engagement for sustainability reporting. All of these local councils in their reports
highlighted the significance of involving stakeholders during the development of
sustainability reports. Some examples of disclosures by local councils that underpinned the
role of stakeholder engagement in the preparation of a sustainability report included:

Community involvement is an integral component in the development of SoE (State of

Environment) reporting…. In partnership with the local community; Council has
developed 31 sustainability indicators that best represent how the community wants
progress toward environmental sustainability measured.

…..City Council recognises that the SOE (State of Environment) is a useful

environmental reporting tool that benefits from the input of the other organisations,

16
 groups and the general public. Council therefore encourages community input and
consultation for the compilation of the report.

Analysis of level of disclosures on stakeholder engagement indicators

After the identification of local councils that are disclosing their initiatives on stakeholder
engagement for sustainability reporting, an extensive analysis of the level of stakeholder
engagement disclosures was conducted in terms of what and how information was being
reported. This analysis was undertaken for 23 local councils identified in the state-wide
analysis of disclosures on stakeholder engagement in sustainability reporting.

Table 4 highlights the percentage of local councils disclosing information against each
stakeholder engagement indicator. This percentage has been calculated on the basis of the
total number of local councils found to be disclosing information on stakeholder engagement
sustainability reporting.

Stakeholder engagement indicators No. local councils Percentage of local councils

making disclosures making disclosures
Stakeholder identification 19 82.60%

Basis for stakeholder identification 14 60.86%

Approaches/media used for stakeholder engagement 21 91.30%

Key concerns raised through stakeholder engagement 18 78.26%

Evidence of stakeholder engagement 1 4.34%

Future targets for stakeholder engagement 0 0%

Opportunities for feedback 15 65.21%

Table 4: Disclosures on stakeholder engagement indicators

Stakeholder identification

The findings in table 4 highlight that the majority of local councils were identifying their
stakeholders in their reports. 82.60% of the local councils explicitly identified their
stakeholders. Therefore local councils seem to be aware of the audience of their sustainability
reports. However, the reports lacked the definition of stakeholders.

The key stakeholders involved for sustainability reporting included: community, local
environmental groups, community organisations, employees, local businesses, councillors,
suppliers, state and federal government and ratepayers. Our analysis also provided evidence
of a number of graphical presentations, such as stakeholder mapping being utilised. However,

17
only one council disclosed information about the relationship of various stakeholder groups
to the organisation and the key attributes of these stakeholder groups.

Basis for stakeholder identification

60.86% of local councils were found to be disclosing information on stakeholder

identification issues related to basis of stakeholder identification and selection. 14 local
councils differentiated between their key and wider stakeholders. However, no local council
provided any information about the method of stakeholder identification and selection.

Approaches/media used for stakeholder engagement

The study of approaches/media for stakeholder engagement indicator highlights that a range
of media are being used by a majority of local councils for engaging with stakeholders. These
media included: surveys, workshops, public forum, focus groups, meetings, face-to-face
discussions, „bang-the-line‟ online forums, E-newsletters, local newspapers and direct mail.
Some councils were also found to be using peer review within the council and public
exhibition of a draft report to involve employees and staff in the preparation of the report. In
relation to the degree of stakeholder involvement in sustainability reporting, the majority of
local councils were found to be undertaking consultations with their stakeholders for
reporting.

The councils were also found to be involving the community through community
partnerships and community education programs. However, these approaches were mainly
used to involve the community in planning, policy formulations and sustainability actions.

Key concerns raised through stakeholder engagement

The findings of Table 4 highlight that the key concerns raised through stakeholder
engagement are being reported by the majority of local councils. These concerns were usually
related with social and environmental issues and concerns of the community and other key
stakeholders. These issues were well addressed by local councils while reporting on
sustainability issues. Findings related to the study of this indicator also suggest that
stakeholder engagement was not convenient for all the local councils. One of the local
councils commented on unsuccessful stakeholder involvement for reporting as follows:

The community was invited to form a ‘Focus Group’ for the 2008/09 Comprehensive
SoE Report. Advertisements were placed in local papers calling for expressions of

18
 interest (EOI) for community representatives during March and April 2009, however,
Council did not receive any written responses. Following this Council moved forward
with developing the draft structure and commenced preparations for drafting the
Report. The draft 2008/09 Comprehensive SoE Report was presented to Council at its
meeting of 8 September 2009, where Council resolved to endorse the draft Report for
the purposes of public exhibition. The draft Report was placed on formal public
exhibition for a period of 28 days from Tuesday 15 September to Tuesday 13 October
2009. The draft Report was made publicly available on Council’s internet site and
hard copies were distributed for public viewing at Council’s Customer First Centre
and at South West Rocks, Hat Head and Stuarts Point Libraries during normal
opening hours. At the conclusion of the public exhibition period, no submissions had
been received on the draft Report.

Evidence of stakeholder engagement

Only one local council presented evidence of stakeholder engagement in its sustainability
report. This evidence included detailed information on how stakeholders were engaged,
graphic presentation of community surveys and photographs of community engagement.

Future targets for stakeholder engagement

No local council disclosed any information on future targets for stakeholder engagement.
Thus, local councils appear to be less directed and motivated by future stakeholder
engagement goals.

Opportunities for feedback

The findings in table 4 suggest that 65.21% of the local councils provided feedback
opportunities to stakeholders in their sustainability reports. Most of these local councils
provided contact details to provide feedback or enquire about sustainability reports.

Only two local councils provided an explanation as to why stakeholders should respond and
how feedback will be used, and encouraged their stakeholders to provide feedback on the
quality of their sustainability reports.

The number of local councils offering a feedback form to their stakeholders was also found to
be very low. Only two local councils provided a feedback form to their stakeholders in order
to get feedback on various issues related to the sustainability report.

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Discussion

The study of the state of disclosures on stakeholder engagement in sustainability reporting in

Australian local councils indicates a low level of disclosures on stakeholder engagement in
sustainability reporting. However, this does not imply that stakeholders are not being engaged
by these local councils, however, „efforts go largely unnoticed by readers due to lack of
disclosures on stakeholder engagement mechanisms and results‟ (ACCA 2007). The study
identified 23 Australian local councils that were disclosing their efforts in relation to
stakeholder engagement in the development of sustainability reports. The shire and regional
local councils were found to be more involved with their community and key stakeholders
than the city councils.

A further extensive study of disclosures in the identified local councils highlighted the
importance and role of stakeholder engagement in sustainability reporting. Descriptive
stakeholder theory was applied in this to explain who the key stakeholders for local councils
are and how and to what extent this engagement is taking place. The findings of the study
suggest that the majority of local councils do recognize their key stakeholders. In addition to
internal stakeholders such as employees, this study highlights the involvement of external
stakeholders such as the community, environmental groups, ratepayers and local community
organisations. Most of the local councils considered the community as their key stakeholder
for the purpose of sustainability reporting. This finding is inconsistent with the key
stakeholders recognised by Farneti and Guthrie (2009) in their study of sustainability
reporting in Australian PSOs. They found that sustainability reporting in public sector
organisations is mainly driven by internal stakeholders. However, no local council disclosed
the method of stakeholder identification which is critical to the engagement process.

In reference to Arnstein‟s Ladder of Participation, the findings of this research suggest that
the local councils are positioned at the 3rd, 4th, and 5th rungs of the ladder. The stakeholder
engagement approaches included informing techniques such as newsletters, E-newsletters,
direct mails and local newspapers; consultation techniques such as surveys, online forums,
peer review, workshops and meetings; and placation techniques such as focus groups, public
forums and face-to-face discussions.

The majority of the local councils used a consultative approach to identify key concerns and
issues of their stakeholders and gather the feedback on their sustainability reports. Cummings
(2001) in the study of stakeholder engagement in UK organisations also observed

20
consultations as the commonly used level of engagement along with informing and
partnership. However, this form of engagement could restrict the implementation of
suggestions and recommendations provided by stakeholders because in such a form of
engagement, decision and veto lies with the power holder (Arnstein 1969). No council
reported on the frequency of their stakeholder engagement.

Furthermore, engagement strategies and frameworks were found to be guided by state-wide

legal requirements. A low level of use of international frameworks such as AccountAbility
and GRI was observed in the reporting practices of these councils. This diversity in
engagement and disclosure practices in local councils could reduce comparability. This study
also finds that disclosures on stakeholder engagement were high in the local councils where
state legislation made it mandatory to involve stakeholders in the reporting process. Manetti
(2011) in his study of the quality of stakeholder engagement in sustainability reporting also
observed the same regulatory influence on engagement policies. This implies that the
majority of local councils engage with their stakeholders to comply with the mandatory
requirements rather than recognising them as a key means to attain sustainability goals.

This analysis also highlights complexities and difficulties in the engagement process. A lack
of stakeholders‟ interest to engage was the major difficulty observed in this study. This
contributes to the list of complexities and difficulties identified by Underman (2007).

5. Conclusion

Local government is the level of governance closest to the people and therefore it can play a
vital role in educating and responding to sustainability issues of the public (Local Agenda
21). This study highlights the stakeholder engagement initiatives of local councils in relation
to sustainability issues and the importance of stakeholder engagement in the identification of
material issues and the development of sustainability reports.

The research explored the state and level of stakeholder engagement in sustainability
reporting in Australian local councils and argued that stakeholder engagement is a critical
component in the development of sustainability reports (GRI 2006; Unerman 2007; Manetti
2011). The findings of this study suggest that the community is the key stakeholder in the
local councils in relation to sustainability concerns, issues and reporting. Stakeholders are

21
being engaged using two-way communication tools such as consultation and placation.
Online forums are emerging as new and efficient media for stakeholder engagement in the
local councils. Our study also suggests that stakeholder engagement strategies and processes
in local councils are more driven by state regulations than international accountability
frameworks. Hence, there is a need for mandatory regulations nation-wide to encourage local
councils to involve stakeholders in sustainability issues in order to attain the goal of
sustainable development.

This paper examines the emerging area of stakeholder theory to observe the extent and
mechanisms of stakeholder engagement in the development of sustainability reports. The
findings of this study provide the information about the current stakeholder engagement
mechanisms to practitioners and the engagement opportunities available to stakeholders. Our
study highlights current stakeholder engagement practices in Australian local councils and
extends the limited literature on the role of stakeholder engagement in sustainability reporting
by providing evidence of stakeholder engagement in Australian local councils. A further in-
depth study is required to explore the role of stakeholder engagement in sustainability
reporting and the motivations for stakeholder engagement in sustainability reporting in the
public sector organisations. Such a study would provide insights into the stakeholder
identification and selection process, the extent to which stakeholders‟ concerns and issues are
incorporated in the sustainability reports and barriers to stakeholder engagement.

22
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