A holistic model of governance and

accountability: CSR and Sustainability

Reporting
Corporate Social Responsibility: Development

 Religious beliefs
 Industrial revolution
 Terrible working conditions of mill-workers
 Christian socialist movement in the UK
 Concerned wealth generated was not from socially responsible business.
 ‘Welfare capitalism’ of late 19th century
 1950’s saw CSR emerge as discipline in its own right
Corporate Social Responsibility: Corporate
Accountability?

 Where do the boundaries of business responsibility lie?

 Can a company be attributed with ethics and morals?
 Milton Friedman (1970) argues “any attempts by companies to
spend money on charitable donations or to satisfy stakeholders
other than shareholders is at best misguided”.

 Sign of a shift in what society expects of both business and

government (i.e. business is indifferent to and out of touch
with the values of society.
Corporate Social Responsibility: Corporate
Accountability?

 BP’s oil spilt in the Gulf of Mexico in 2010

 US Congress: “A culture at BP dominated by a drive for short-
term cost saving.”
 https://www.youtube.com/watch?v=L10W8tgpPwc
 https://www.youtube.com/watch?v=O5treUQL-o0 ( Barack
Obama )
Corporate Social Responsibility: Corporate
Accountability?

 Oil spills in the Niger Delta and Shell (1960’s onwards)

http://www.bbc.co.uk/news/world-30699787
Corporate Social Responsibility: Corporate
Accountability?

 Rana Plaza Collapse, Bangladesh (2013), 1130 deaths, 2500

injuries
 Terminology
 Social accounting
 Sustainability reporting
 Social disclosure
 Social reporting/corporate social reporting
 Social and environmental accounting
 Social, environmental and ethical reporting
 Corporate responsibility reporting/disclosure
 The basic idea of CSR is that business and society are interwoven rather
than distinct entities; therefore society has certain expectations for
appropriate business behaviour and outcomes” (Wood, 1991)

 “(CSR is) practice that improve the workplace and benefit society in ways
that go above and beyond what companies are legally required to do”
(Vogel, 2006)

 “It involves extending the accountability of organisations (particularly

companies) beyond the traditional role of providing a financial account to
the owners of capital, in particular, shareholders. Such an extension is
predicated upon the assumption that companies do have wider
responsibilities than simply to make money for their shareholders.”
(Gray et al. 1996)
 Why engage with CSR- Different Perspectives

 The Stakeholder Perspective

Alignment of corporate values and actions with the expectations and
needs of their stakeholders – shareholders, customers, employees,
suppliers, communities, regulators, interest groups and society as a
whole.
 The Ethical Perspective

Corporate entities, like individuals, have an obligation to act for the

benefit of society as a whole, contributing to society while doing no
arm to others
 Philanthropic Perspective

Viewpoint that companies should give something back to society

from where they reaped all the benefits
 Why engage with CSR- Different Perspectives

 The Political Perspective

Companies are encouraged to adopt CSR policies - owing to political pressure
– incentives include improve the company’s corporate image, to attract
investment, as a form of political lobbying
 The Legitimacy Perspective

Organisations seek to ensure they operate within the bounds and norms of
their respective societies - activities are perceived to be ‘legitimate.
 The Strategy-Driven Perspective

Business social responsibility is an integral part of the wealth creation process

(i.e. it enhances competitiveness, increase customer satisfaction, improves
employee relations and enhances shareholder value – a business case)
 CSR and Regulatory Guidance

 Corporate governance initiatives have highlighted the importance

of broadening the corporate governance agenda that focuses on
the needs of all corporate stakeholders
 Modernising UK Company Law, 2006

…the company’s need to foster relationships with its employees,

customers and suppliers, its need to maintain its business
reputation, and its need to consider the company’s impact on the
community and the working environment
Similar propositions in the revised Bangladesh Companies Act (?)
 UN principals for responsible investment call for companies to

consider environmental, social and governance issues

 EU call for companies to adapt CSR policies
CSR and Firm Performance: Evidence

Earlier studies have found mixed and inconsistent evidence as to

the presence of this link and the nature of this link
 Vance (1975) found a negative link among CSR and firm

performance suggesting that it is a net cost to the firm

 Alexander and Buchholz (1978) find no association between

CSR and performance

 McGuire et al (1988) report that CSR is positively associated

with firm performance

CSR and Firm Performance: Evidence

Recent studies finding more positive association, e.g:

 Waddock and Graves (1997) argued that the association among

CSR and performance flows both ways

 In a comprehensive study, they find that firms with better past performance
have more funds to spend on CSR and firms with higher levels of CSR
perform better.

 Hillman and Keim (2001), suggest CSR that targets direct

stakeholders, such as its customers and employees, has positive
impact on profitability.
 Solomon and Solomon (2007): "You can make a fast buck by
ignoring corporate social responsibility but you can't run a long-
term sustainable business without it!” Pension fund director
 Sustainability Reporting
 Why should organizations engage in sustainability
reporting?
 To whom should they target the report?
 What info should the report disclose?
 How should the report be compiled?
 Sustainability Reporting: Why?

Theoretical perspective:
 Legitimacy (social contract)
 Institutional pressures (mimetic, coercive, normative)
 Stakeholder/Societal/Ethical motive
- it seeks to address the info needs of a broader range of
stakeholders.
 Economic/management motive
- use CSR to protect or enhance shareholder economic value.
 Sustainability Reporting: Why?

 to win & retain customers who have personal commitments &

concerns for CSR;
 to gain competitive advantage by improved sustainability
management;
 to avoid bad reputation from critics about sustainability issues;
 to manage risks arising form sustainability issues (e.g. BP);
 to drive operational efficiencies through savings on managing
sustainability;
 to access capital from environmental concerned investors
Hopwood et al (2010)
 Sustainability Reporting: Why?

Academic evidence:
 Anderson & Frankie (1982) find market reacts to social
disclosure.
 Lorraine et al. (2004) find significant impact on share price
within a week of announcements about fines for environmental
pollution.
 Patton and Zhao (2014): Reporting companies exhibit higher
environmental reputation scores in spite of having worse
environmental performance
Sustainability Reporting: to whom?
Sustainability Reporting: to whom?

Owen et al (2005) survey on managers’ ranking of

stakeholders on a scale 0-5:
 shareholders (3.95);
 employees (3.83);
 environmental pressure groups (3.68);
 governmental regulators (3.58);
 local communities (3.48);
 customers (3.20);
 non-equity investors (2.80);
 suppliers (2.65).
 Sustainability Reporting: for what?
 Those social and environmental issues stakeholders wish to hold
organizations responsible and accountable for.
 Is there a demand from stakeholders for any particular type of
information?
 Deegan & Rankin (1996) find:
 stakeholders do hold firms responsible and accountable.
 environmental info can assist shareholders in making their decisions;
 annual report is the main source of info concerning a firm’s interaction with
the environment.
 Sustainability Reporting: How?

 Beginning early 1990s, UK firms published stand-alone social &

environmental reports.
 From late 1990s to mid-2000s, “triple bottom line reporting” gained
prominence
 Economic info - Social performance info - Environmental info

 Much variation in how sustainability reporting is implemented:

 A range of guidelines (UN, OECD, ISO) emerged to provide
direction on appropriate sustainability reporting
 Integrated Reporting
 Global Reporting Initiatives (GRI)
Integrated Reporting

 Integrating material social and environmental information into

the company’s annual report:
 Reporting about wider social and economic aspects of
performance rather than profit and financial position alone
 Reporting to broader range of interest groups – How
corporate activities affect groups including employees,
local community, consumers and environment.
 Mandatory in South Africa
 More holistic approach towards financial reporting
 Sustainability Reporting: How?

Global reporting initiatives:

 At international level, the Global Reporting Initiative’s (GRI)
Sustainability Reporting Guidelines is dominant;
 developed by organizations from various countries;
 an attempt to codify the best reporting practices;
 consist of principles for defining report content and ensuring the
quality of info and standard disclosures;
 comprise performance indicators and other CSR disclosure
items.
 Sustainability Reporting: How?

Global reporting initiatives:

 THE GRI includes 55 core indicators and 29 additional indicators

across environmental, economic and social performance areas.

 In addition the GRI has an Application Levels system

- These indicate the extent to which The Guidelines have been

applied in sustainability reporting.
- They communicate which part of the reporting framework has
been addressed and reflect the degree of transparency in reporting.
 Adoption of GRI guidelines is voluntary, but could be used as a
basis for mandatory reporting
Sustainability Reports

What does CSR reporting look like?

 Variety of forms – here are some examples from a few FTSE 100
companies:
BP 2017
Bangladesh-IDLC finance
Primark- anti slavery statement
DBL Group

This is in addition to the published financial statements, which

are produced, updated and audited separately
 Sustainability Reporting Assurance

 Sustainability reporting is voluntary in nature

 Similarly, the assurance of sustainability reports is
voluntary
 BUT assurance has increased with the spread of
sustainability reporting
Why assurance?
 Credibility.
 To avoid CSR reporting being labelled simply a
public relations exercise without substance.
 Whole process of social and environmental
reporting can be undermined without robust
assurance procedures (O’Dwyer and Owen, 2005)
 Important legitimisation process.
Who does the assurance?
 Qualified auditor
 But lack appropriate expertise and independence
 Registered with environmental auditors registration
association.
 Environmental consultants
 Internal management team
 Scientist consultants
 Or - New professional body including accountants
 However companies prefer the existing frameworks and
did not want new body to oversee the process
 Sustainability Reporting Assurance

Academic evidence:
 There has been support for verification of environmental and
social disclosure in the academic literature
 Adams and Evans (2004) stated that external verification was
important to the credibility of social and environmental
reporting
 Sustainability reporting will not be credible to the user unless
the information is externally audited
 Indeed, the whole objective of social and environmental
reporting is undermined unless robust assurance processes
are introduced
 Sustainability Reporting Assurance

Professional bodies view:

 KPMG (2011) suggest that companies which produce some form
of corporate responsibility reporting ‘should’ want to have this
information assured in order to verify the quality and reliability of
their disclosures.
 They conclude, “…. companies without an external assurance
program not only run the risk of restatements in the future, but also
send the message that CSR information is not held in as high
regard as financial information, which is frequently assured in
most businesses”
 Sustainability Reporting Assurance: Global
Trends

Recent Report (KPMG) compared CSR reporting in 100 largest

companies in each of 49 countries

Issues it considered:
 Which companies/industries are reporting?

 What information is being disclosed?

 Internationally, where is CSR being practised?

 What are key features of the CSR reports?

 Format and integration with financial reporting

 Use of reporting guidelines and standards

 Verification of information provided (i.e. audit)

Sustainability Reporting Assurance: Global Trends
(KPMG, 2017)
KPMG, 2017
Sustainability Assurance Statements: BP (2017)
Sustainability Reporting Assurance: Academic
critique

 Genuine stakeholder inclusivity and accountability has been

questioned
 Ball et al. (2000) used content analysis to evaluate the extent to
which verification statements of 72 ‘leading-edge' corporate
environmental reports promoted organizational transparency and
the empowerment of external stakeholders
 Concluded that although the environmental reports were mainly
addressed to external stakeholders, there was confusion over the
extent to which companies were really carrying out the exercise
for internal constituencies.
Sustainability Reporting Assurance: Academic
critique

Stakeholder Engagement
 An essential mechanism of holistic governance and stakeholder
accountability
 Described as, "... a range of diverse, qualitative information
gathering method” (Thomson and Bebbington)
 about non-shareholding stakeholders
 Scepticism concerning the true value of the engagement process
to the stakeholders themselves
 Sustainability Reporting Assurance: Academic
critique

Managerial capture
 Ball et al. (2000) identified managerial capture of environmental
verification
 Owen et al. (2000) define ‘managerial capture' in this context as,
“… the concept that sees management take control of the whole
process (including the degree of stakeholder inclusion) by
strategically collecting and disseminating only the information it
deems appropriate to advance the corporate image, rather than
being truly transparent and accountable to the society it serves”
(p. 85).
Sustainability Reporting Assurance: Academic
critique

 Jones and Solomon (2010) canvassed the views of corporate social

responsibility (CSR) managers in FTSE 100 listed companies on
the verification of social and environmental reports
 Found a reluctance by companies to wholeheartedly endorse
external verification of social and environmental reports for a
variety of reasons
 interviewees' belief that social and environmental reporting was

relatively unimportant and complex.

 the cost in money and managerial resources of verification was

considered an obstacle
 apparent lack of independence of the audit.
 Sustainability Reporting Assurance: Academic
critique

 The findings supported the view from earlier literature

that there was managerial and professional capture of
the social and environmental audit process
 Interviewees confirmed that the verification process
was dominated more by internal control concerns than
by a genuine desire to discharge accountability to
stakeholders
Sustainability Reporting Assurance: Academic
critique

However:
 Some recent evidence (Edgley et al, 2010) of growing

stakeholder inclusivity in the process of assurance of

sustainability reports
 Essential if the process is to enhance stakeholder

accountability rather than simply add to managerial

capture
 Sustainability Reporting Assurance
41

 Rana plaza was certified as a ‘safe building’

 All the major brands using Rana plaza as their
production premises produces sustainability reports
assured by renowned ‘independent’ assurers!
 Are we missing the point?
 Please have a look at this link in your own time-

http://www.theguardian.com/world/ng-interactive/2014/a
pr/bangladesh-shirt-on-your-back
Criticism/Challenges to CSR

Criticisms of CSR reporting

 Often purely qualitative
 Selective - choice of topics to disclose
 Lack of comparability between companies or over time
 Low level of audit to challenge or validate
Criticism/Challenges to CSR

 CSR is blind to society’s needs and is only interested in the

extension of corporate power
 MNCs are not interested in dialogue with stakeholders; they
want a licence to operate
 CSR exists to maintain the capitalist system, especially the
‘neo-liberal’ form
 Does it really enhance the corporate accountability process?
Let’s hear from Dame Anita Roddick (founder of the Body
Shop), one of the initial architects for the idea of social
responsibility by businesses.
https://www.youtube.com/watch?v=k44WifxDSX4
 To Summarise

Corporate Governance is about improving companies’ ACCOUNTABILITY

to shareholders and to non-shareholding stakeholders
 They have to be accountable to society and behave responsibly

Yet research finds:

 Companies are pervasive in their impact on society and on the

environment
 They have to be called to account for their actions

Hence:
 Sustainable, accountable companies are the only means of ensuring a safe

global environment for the future

 Assurance of the sustainability reports is important for ensuring proper

accountability - But who should do this?

 And is CSR being done in the spirit of accountability?