The Main Motivation for Corporate Social and Environmental Reporting - Literature review Example

The main motivation for corporate social and environmental reporting is to enhance corporate image and credibility with stakeholders Introduction I agree with Adams (2002, 244-245) that the main motivation for corporate social and environmental reporting is to enhance corporate image and credibility with stakeholders. Corporate social responsibility (CSR) refers to the voluntary action of companies that aim at addressing the environmental and social concerns. The aim of CSR is to ensure sustainable development through helping the surrounding communities with basic amenities, conserving the natural resources and reduction of environmental pollution (Solomon 2007). Some social reporting incentives include the anticipated regulation, marketing, response to pressure groups, ethics, and restoration of legitimacy. In most jurisdictions, corporate environmental reporting is not mandatory, but companies will voluntarily report on the impact of their operations to the environment in order to build legitimacy for their operations. Accounting theory suggests that companies whose operations have adverse impacts on the environment provide environmental disclosures that aim at demonstrating the measures and actions that the company has undertaken in conserving the environment (Solomon 2007). The main motivation for corporate social and environmental reporting is to enhance corporate image and credibility with stakeholders. According to stakeholder theory, firms have to balance the differing interests of various stakeholders through meeting the information requirements of these groups. The surrounding communities and government are part of the stakeholders and social reports highlight the measures undertaken by companies in meeting the expectations of the society. According to legitimacy perspective, voluntary environmental reporting legitimises the existence of the company to the society. According to the political economy theory, CSR disclosures address the views and concerns of various groups such as environmental interest groups and surrounding communities. For instance, companies will highlight the health and safety measures implemented in the workplace in order to address the concerns of employees who fear for their safety while working in high risk environments such as gas exploration sites (Jones and Ratnatunga 2012). In this case, the firm will build its credibility with employees. Horrigan (2010) outlines that environmental reporting enables a firm to enhance corporate image and credibility with stakeholders through attracting and retaining talented staff, fulfilling the social obligation to the surrounding communities and enhancing relationships with business partners. The level of consumer awareness has increased tremendously due to ease in exchange of information and thus companies will engage in environmental reporting in order to build and sustain consumer loyalty through demonstrating that the firm operations aim at sustainable development (Blowfield and Murray 2014). According to stakeholder theory, the social expectations of businesses have increased over the past years and firms issue social and environmental reports that outline the firm’s commitment to fulfilling its social expectations. The numbers of environmental interest and pressure groups and intergovernmental organisations that advocate for combating climate change have increased in the recent past and large corporations are expected to demonstrate their commitment towards conserving the environment (Solomon 2007). Companies issue CSR reports in order to pre-empt attempts of increased regulation that aims at protecting consumer welfare and environment. For instance, companies will outline the community initiatives undertaken during the reporting period in order to pre-empt attempts of possible increase in taxation. A firm will report on its ethical marketing practices and measures that have been undertaken to protect consumer health in order to respond to criticisms about the quality of the products. In this case, CSR reports will maintain the corporate image and limit unwanted attention from the media, courts and government agencies since negative criticisms can ruin the economic prospects of the firm. A social and environmental disclosure will be capable of maintaining corporate image through persuading the public that the entity is committed to diversity, health and safety and environment conservation thus reducing the negative criticism (Bebbington, Unerman and O’Dwyer 2014). According to legitimacy theory, companies will engage in environmental disclosures in order to ensure that the firm’s values are consistent with the existing values in the society. According to this theory, there is an assumption or general perception that the actions of a reporting entity are desirable and appropriate when they meet the socially construed system of norms, beliefs and values of the society. The firms that perceive threatened by their actions will inform the public of their actual changes in behavior or issue environmental reports that aim at changing the perceptions of the public without changing the actual behavior. Firms operating in manufacturing industry such as oil and gas companies increase their environmental disclosures when faced with legitimacy crisis such as during oil spills. Frost (2002) conducted a content analysis of environmental disclosure reports and found out that management issue environmental reports in order to respond to perceived pressure from certain groups in the society (Adams 2004, p 731). The legitimisation process is enhanced through communicating a ‘public image’ in environmental reports and including statements that outline the intentions of the company to continue protecting the environment. The firms will engage in social and environmental reporting in order to satisfy the societal expectations. The firms will demonstrate the appropriateness of the production methods in reducing greenhouse gas emissions and outline measures that have been implemented in ensuring efficient use of natural resources such as recycling of water in manufacturing firms. The voluntary social reporting disclosures aim at satisfying the public demand for information and take many forms such as management comments in the annual reports and separate sustainability reports. The details, format and contents of social and environmental reports are not regulated thus allowing the management to set their own agendas in social reports with the view of enhancing the corporate image (Darabaris 2007). Large corporations that seek legitimacy such as British American Tobacco have implemented social reporting framework and guidelines that address the social concerns of their products thus enabling the companies to attain credibility. The management decides the information and facts that should appear in the reports and in most all the information is about the positive actions of the firm towards ensuring sustainable development. The CSR reports will omit the adverse impact of the firm’s operations such as the high emissions, water pollution, and lifestyle diseases due to unhealthy products and human rights abuses (Darabaris 2007). Companies choose phrases and words that aim at stimulating interest and attention of the stakeholders such as ‘sustainability’ report, ‘citizenship report, and ‘environment, social and governance’ report thus implying that the intention of such reports is to enhance corporate image. The details and contents of such reports are positive since large corporations provide information on the number of jobs created, the reduction in natural resource wastage and charitable initiatives undertaken by the company (Filho and Idowu 2008). The lack of general standards for environmental reporting and auditing has led to inconsistency in the environmental disclosures. The large companies issue reports and press statements on environmental targets such as reduction in emissions even without a clear policy on how to reduce the emissions. Social reporting by firms will enhance corporate image when entities disclose their pension arrangements, charitable donations, directors’ remuneration, diversity policy, and corporate governance issues (Darabaris 2007). The reports will highlight how the company has satisfied current ethical and industry standards on sickness leave, fair trade policies and accident rates. The disclosures facilitate change of stakeholder perceptions since the descriptive data outlines how the entity is committed to satisfying all stakeholder expectations. In this case, disclosures facilitate stakeholder dialogues that help in building corporate image and meaningful relationships within the firm (Freedman and Jaggi 2010). The companies that have highest adverse environmental impact such as mining firms and petrochemical companies usually have the highest number of environmental disclosures. From the textual and content analysis of their disclosures, the reports aim at responding to challenges and concerns of the society through informing the society how the company will deal with the environmental impact challenges. For instance, oil companies such as BP have issued environmental disclosures in the past with the aim of responding to the high profile oil spills and measures that would be taken to reduce the possibility of contamination of the ocean water. The stakeholder theory asserts that the management has an obligation of fulfilling the expectations of all stakeholders in the company and environmental disclosures aim at fulfilling the expectations of societal interest groups. According to stakeholder management theory, companies that are perceived to be socially responsible are capable of attaining a competitive edge in the market and better economic returns (Freedman and Jaggi 2010). In this case, the motivation of social disclosures is to enhance relationships with all stakeholders in order to develop the intangible resources and capabilities that will lead to increased financial outcomes. Resource-based perspective of CSR reports outlines that disclosures will enable the entity to enhance corporate reputation since such reports are considered as a signal of the improvement in social and environmental conduct of the firm (Freedman and Jaggi 2010). Weiss (2008) asserts that social and environmental reporting enables the companies to discharge their accountability to the society since environmental pollution and depletion of resources will affect the quality of life in the society. In this case, such disclosures are seen as a method of strengthening the firm’s accountability to shareholders thus reducing the agency gap between the management and shareholders. Conclusion The main motivation of social and environmental reporting is to enhance corporate image and credibility with stakeholders. Companies use environmental disclosures to gain, maintain or restore their legitimacy. Although there are other motivations of social and environmental reporting such as accountability to stakeholders, the voluntary nature of social and environmental reports allows the management to report positive actions undertaken in conserving the environment in order to enhance corporate image. Content and textual analysis of the reports highlights that reporting entities use phrases that aim at creating stakeholder interest and changing the stakeholders’ perceptions regarding the environmental impact of the entity’s operations. Social and environmental reporting enhances relationships with stakeholders thus leading to reduction in the regulatory costs and legal liabilities of the company. Corporate environmental reporting is descriptive and outlines good intentions than actual environmental initiatives since firms rarely report negative news about the firm’s impact on the environment. Bibliography: Adams, C.A. 2004. ‘The ethical, social and environmental reporting-performance portrayal gap’, Journal of accounting, auditing and accountability, 17 (5), p 731. Bebbington, J., Unerman, J and O’Dwyer, B. 2014. Sustainability accounting and accountability. New York: Routledge. Blowfield, M and Murray, A. 2014. Corporate responsibility. Oxford: Oxford University Press. Darabaris, J. 2007. Corporate environmental management. New York: CRC Press. Filho, W.L and Idowu, S.O. 2008. Global practices of corporate social responsibility. London: Springer. Freedman, M and Jaggi, B. 2010. Sustainability, environmental performance and disclosures. London: Emerald Group Publishing. Horrigan, B. 2010. Corporate social responsibility in the 21st century: debates, models and practices across government, law and business. London: Edward Elgar Publishing. Jones, S and Ratnatunga, J. 2012. Contemporary issues in sustainability accounting, assurance and reporting. London: Emerald Group Publishing. Solomon, J. 2007. Corporate governance and accountability. New York: John Wiley & Sons. Weiss, J. 2008. Business ethics: a stakeholder and issues management approach. New York: Cengage Learning. Read More