Mandatory Sustainable Development Reporting - Report Example

Mandatory Sustainable Development Reporting Introduction This report will examine the theoretical background and the practical applications of the concept of sustainable development reporting, and consider whether such reporting by business organisations should be made mandatory. Sustainable development reporting, sometimes called “triple bottom line reporting,” is reporting on the organisation’s social and environmental impacts along with its financial performance (Milne, Tregidga & Walton, 2009: 1211), based on the somewhat fuzzy concept of “sustainability,” which is most often described by reporting companies according to the definition developed by the UN-sponsored World Commission on Environment and Development in 1987: “...a development model which ensures the satisfaction of the needs of the present without compromising the ability of future generations to meet their own needs.” (WCED, 1987 in Hussey, Kirsop & Meissen, 2001: 143-144) The concept of sustainable development reporting has its roots in the first great collapse of the stock market in 1929; before then, financial reporting was considered largely a private matter for a company and its shareholders, but the effects on the wider public of a company’s activities suddenly became painfully obvious in the stock market crash, and introduced a mindset of public accountability (Ranganathan, 1998: 1). As society at large has become more aware and concerned about social and environmental issues, accountability has evolved into sustainable development reporting. In the following sections of this report, the reasons for sustainable development reporting, who it benefits, and the means by which it is carried out will be investigated. Ethics and Responsibility The first set of key theoretical concepts suggested by the topic of sustainable development reporting is the group of theories that address organisational ethics and the responsibility of the organisation to its external environment. The broad area that encompasses organisational ethics is corporate social responsibility, which can be described as “any concept concerning how managers should handle public policy and social issues” (Windsor, 2006: 93). Garriga and Melé (2004: 52) describe four perspectives or categories of theories to explain corporate social responsibility: Instrumental theories, which view the corporation solely as a wealth-creating enterprise; political theories, which consider the organisation’s role and influence in society; integrative theories, which go farther than political theories and view the organisation’s well-being as intimately connected to its relationship with society; and ethical theories, which place the organisation’s ethical behaviour above all other considerations. Windsor (2006: 93-94) points out that ethical responsibility and economic responsibility are basically competing theoretical concepts, implying that theories that maximise ethical behaviour in organisations do not necessarily maximise economic performance, and vice versa; therefore, to be useful to the business organisation, a theoretical framework for corporate social responsibility must in some way combine ethical principles with maintaining competitive advantage. In that view, the integrative theories and ethical theories described by Garriga and Melé (2004) are the most applicable to corporate social responsibility, and to sustainable development reporting, which is a corporate social responsibility deliverable on the part of the organisation. Both the integrative and ethical theoretical perspectives fit a view of corporations as “citizens,” in a very simple sense, members of a definable political community (Matten & Crane, 2005: 169), with rights and responsibilities in the same way that a person has rights and responsibilities as a member of his community or country. There are two ways to look at corporate citizenship. The more traditional view is that the corporation is a citizen of a particular state, where there is a political structure that fills the role of a government. The second, more contemporary view is that corporations themselves play a governing role; in other words, their activities serve as guidance and support of the communities in which they operate (Matten & Crane, 2005: 171-173). This view is becoming increasingly important as the world becomes more globalised; companies are operating outside the control of a single government, or more properly, are operating in a larger, international political context wherein the perspectives of many different governments play a role, and in some places – particularly in developing economies – have responsibilities that cannot otherwise be met by under-developed local government systems (Carvalho, 2001: 387; Matten & Crane, 2005: 172-173). Because the question considered by this essay is whether or not the government should make sustainable development reporting mandatory for all business enterprises, the traditional view of corporate citizenship is more appropriate; the context of corporate social responsibility in this case is the behaviour of the enterprise as a member of a well-defined community, specifically as a citizen of Australia. Thus, the business organisation has an impact on the state as a whole – the physical environment in which it operates, and the people who are in a sense the organisation’s fellow citizens and neighbours. This perspective must be balanced against the needs of the enterprise, because as a ‘corporate citizen’ it also has rights to prosper and benefit those who have a financial interest in the company. Stakeholder Theory Stakeholder theory is a body of theoretical ideas that describe what corporations are in terms of the people or entities that have an interest in them: “Stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity. Stakeholders are identified by their interests in the corporation, whether the corporation has any corresponding functional interest in them.” (Donaldson & Preston, 1995: 67) Persons or groups with interests in corporate activity are the company’s shareholders or owners, its managers and employees, customers, suppliers, and indirectly, the shareholders and workforces of those suppliers. The people who live in the company’s environment can also be considered stakeholders; for example, people who live near a factory have an interest in the corporate activity with respect to how its existence affects their lives with noise, traffic, or pollution, even if they otherwise have nothing to do with the factory. A key part of stakeholder theory is the assumption that all stakeholders have “an intrinsic value” (Donaldson & Preston, 1995: 67); in other words, the interests of all the stakeholders must be considered equally, with no one stakeholder or set of stakeholders being inherently more important than another. While stakeholder theory can be used descriptively to explain the behaviours of a firm, the sense in which it relates to sustainable development reporting is as a normative theory, describing how a firm should behave in relation to its stakeholders (Steuer, Langer, Konrad & Martinuzzi, 2005: 265-266). Thus the objective of sustainable development reporting as “triple bottom line” reporting – social, environmental, and financial (Milne, Tregidga & Walton, 2009: 1211) – makes sense in the context of stakeholder theory; the goal should be to meet a set of normative standards in all three areas, because accomplishing this effectively serves the interests of all the firm’s stakeholders. Sustainable Development Reporting in Practise The first question the topic of sustainable development reporting raises is, “What exactly is a sustainable development report?” Considering that ‘triple bottom line’ reporting acknowledges the interests of all stakeholders and includes financial, social, and environmental factors, one way in which to describe what a sustainable development report should be is as an explanation of the linkages between those three factors (Ranganathan, 1998: 3): Social and Environmental: Land use, environmental impact from physical facilities, fair access to natural resources; Social and Economic: Job creation, fair distribution of wealth, social support (such as education, health care, infrastructure) for communities, employee education and development; Environmental and Economic: Energy and material efficiency, high economic value per unit of environmental footprint. This list of indicators, however, is constantly growing and evolving. It is a bit of a challenge for organisations to meet not only the existing mandatory requirements, such as financial reporting and disclosure of hazardous materials usage, but a sufficient number of voluntary disclosures to maintain a trusted level of transparency and avoid involuntary and harmful disclosures from ‘whistleblowers’, media reports, or court actions (Elkington, 1992: 97-98). In practise, however, many companies take a pragmatic approach to sustainability reporting in the absence of specific guidelines as to what such disclosures should provide. In a study of business reporting in New Zealand, Milne, Tregidga, and Walton (2009: 1234) conclude that most businesses primarily focus on “balancing” economic objectives with environmental responsibilities and concentrate on the “means” or a sustainability process rather than clear ends. This is understandable in some respects, if one considers that from the perspective of a business organisation, there is no reason for it to exist if there is not ultimately an economic benefit to doing so. Thus, social and environmental factors for a business are subject to discretion, are acceptable when there is no conflict with financial aims, and furthermore, are acceptable only when they provide some eventual financial benefit (Milne, Tregidga & Walton, 2004: 5). The perspective of businesses towards a greater focus on environmental factors is also understandable in view of the fact that specific environmental impacts are more easily quantifiable in short-term periods according to their type, the sort of pressure they put on the environment, their units of measure, and the steps needed to mitigate them (Hammond, Adriaanse, Rodenburg, Bryant, & Woodward, 1995: 12-13). Conclusion: Should Sustainable Development Reporting Be Made Mandatory? One framework for reporting that already exists is the Global Reporting Initiative, which is a series of 14 questions about policies, procedures, and objectives of a reporting company (Hussey, Kirsop & Meissen, 2001: 146): CEO Statement Profile of reporting organisation Executive summary and key indicators Vision and strategy Mission and values statement, code of conduct, environmental and social policies Use of precautionary principle Economic, environmental, or social codes or voluntary initiatives Organisational structure and responsibilities Status and date of economic, social, and environmental standards Principle industry and business association memberships Programs and procedures addressing economic, social, and environmental performance Approaches to measuring and improving management quality Programs and procedures for supply chain and outsourcing Programs and procedures for making decisions regarding locations of business activities. A good example of sustainability reporting that follows the general format of the Global Reporting Initiative is that of Unilever Australia, which maintains an extensive website providing information about what it calls the “Unilever Sustainable Living Plan” (Unilever Australia, 2012). The plan is divided into three general areas – “Improving Health & Well-Being,” “Reducing Environmental Impact,” and “Enhancing Livelihoods” – and each of these categories is further divided into more specific objectives, as well as a category addressing specific workforce issues such as improving employee health, reducing workplace accidents, and reducing energy usage in company offices and facilities. The downside of Unilever’s reporting, however, is that many of the goals and measures are subjective and not well-defined. For example, under “Improving Health & Well-Being” one of the company’s “Health & Hygiene” initiatives is to “Improve self-esteem,” which the company explains this way: “With our Dove brand we are helping millions of young people improve their self-esteem through educational programmes. Dove is one of our biggest brands with revenues in excess of €3 billion. Its Self-Esteem Fund is educating girls to overcome anxieties about their physical appearance and raise their self-esteem.” (Unilever, 2012) It certainly would be possible to make a reporting framework such as the Global Reporting Initiative mandatory, but the real question in whether sustainable development reporting should be made mandatory is what the desired outcome of such reporting should be. As Milne, Tregidga, and Walton (2009: 1234, 1254) conclude, reporting alone does not necessarily indicate real sustainable performance. The example given above of Unilever’s “self-esteem” illustrates the problem; unless a particular program and measure can be assessed in some objective way, it is difficult to determine what exactly it is achieving. So perhaps the best answer to the question, “Should sustainable development reporting be made mandatory for all businesses?” is yes, if some specific measures and guidelines are put into place to actually oblige businesses to adopt tangible sustainable practises. The parts of the sustainable development report, which may be similar to those in the Global Reporting Initiative, should be devised according to the information pyramid, with primary data at its base, serving as the foundation for analysed data, which provides specific indicators, from which indices, or target values of the indicators can be developed: The Information Pyramid (Source: Hammond, et al., 1995: 1). The major benefit of developing clear indices for sustainable development aims is that it would provide a consistent set of expectations for all stakeholders – the businesses, the market, and the public at large – according to the stakeholder theory concept of the intrinsic value in every stakeholder group (Donaldson & Preston, 1995: 67). That perspective is the best way to ensure that no one or nothing is being “left out” of sustainable development goals. In this report, the topic of sustainable development reporting has been considered in the context of applicable theories of the firm that address firm ethics and its relationships to concerned parties and its social and physical environment. The overall conclusion is that sustainable development reporting is beneficial, but in its current practise is not clearly defined in terms of expectations of actual performance. A mandatory sustainable development reporting regime that provides practical indices of performance in financial, social, and environmental areas would be the best way to ensure that sustainable development with the broadest possible positive impacts is actually taking place. References Carvalho, G.O. (2001). Sustainable Development: Is It Achievable within the Existing International Political Economy Context? Sustainable Development, 9(3): 61-73. Donaldson, T., and Preston, L. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. Academy of Management Review, 20(1): 65-91. Elkington, J. (1994). Towards the Sustainable Corporation: Win-Win-Win Business Strategies for Sustainable Development. California Management Review, Winter 1994: 90-100. Garriga, E., and Melé, D. (2004). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 53(1/2): 51-71. Hammond, A., Adriaanse, A., Rodenburg, E., Bryant, D., and Woodward, R. (1995). Environmental Indicators: A Systematic Approach to Measuring and Reporting on Environmental Policy Performance in the Context of Sustainable Development. Washington, D.C.: World Resources Institute. Hussey, D.M., Kirsop, P.L., and Meissen, R.E. (2001). Global Reporting Initiative Guidelines: An Evaluation of Sustainable Development Metrics for Industry. Environmental Quality Management, Autumn 2001: 143-162. Matten, D., and Crane, A. (2005). Corporate Citizenship: Toward an Extended Theoretical Conceptualization. Academy of Management Review, 30(1): 166-179. Milne, M. J. Tregidga, H. and Walton, S. (2004). Playing with Magic Lanterns: The New Zealand Business Council for Sustainable Development and Corporate Triple Bottom Line Reporting. Proceedings of Asia-Pacific Interdisciplinary Research in Accounting Conference, Singapore, 4-6 July 2004. . Milne, M.J., Tregidga, H., and Walton, S. (2009). Words not actions! The ideological role of sustainable development reporting. Accounting, Auditing & Accountability Journal, 22(8): 1211-1257. Ranganathan, J. (1998). Sustainability Rulers: Measuring Corporate Environmental & Social Performance. Sustainable Enterprise Perspectives, May 1998: 1-8. Steuer, R., Langer, M.E., Konrad, A., and Martinuzzi, A. (2005). Corporations, Stakeholders and Sustainable Development I: A Theoretical Exploration of Business–Society Relations. Journal of Business Ethics, 61: 263-281. Unilever Australia. (2012). Unilever Sustainable Living Plan. . Windsor, D. (2006). Corporate Social Responsibility: Three Key Approaches. Journal of Management Studies, 43(1): 93-114. Read More

Garriga and Melé (2004: 52) describe four perspectives or categories of theories to explain corporate social responsibility: Instrumental theories, which view the corporation solely as a wealth-creating enterprise; political theories, which consider the organisation’s role and influence in society; integrative theories, which go farther than political theories and view the organisation’s well-being as intimately connected to its relationship with society; and ethical theories, which place the organisation’s ethical behaviour above all other considerations.

Windsor (2006: 93-94) points out that ethical responsibility and economic responsibility are basically competing theoretical concepts, implying that theories that maximise ethical behaviour in organisations do not necessarily maximise economic performance, and vice versa; therefore, to be useful to the business organisation, a theoretical framework for corporate social responsibility must in some way combine ethical principles with maintaining competitive advantage. In that view, the integrative theories and ethical theories described by Garriga and Melé (2004) are the most applicable to corporate social responsibility, and to sustainable development reporting, which is a corporate social responsibility deliverable on the part of the organisation.

Both the integrative and ethical theoretical perspectives fit a view of corporations as “citizens,” in a very simple sense, members of a definable political community (Matten & Crane, 2005: 169), with rights and responsibilities in the same way that a person has rights and responsibilities as a member of his community or country. There are two ways to look at corporate citizenship. The more traditional view is that the corporation is a citizen of a particular state, where there is a political structure that fills the role of a government.

The second, more contemporary view is that corporations themselves play a governing role; in other words, their activities serve as guidance and support of the communities in which they operate (Matten & Crane, 2005: 171-173). This view is becoming increasingly important as the world becomes more globalised; companies are operating outside the control of a single government, or more properly, are operating in a larger, international political context wherein the perspectives of many different governments play a role, and in some places – particularly in developing economies – have responsibilities that cannot otherwise be met by under-developed local government systems (Carvalho, 2001: 387; Matten & Crane, 2005: 172-173).

Because the question considered by this essay is whether or not the government should make sustainable development reporting mandatory for all business enterprises, the traditional view of corporate citizenship is more appropriate; the context of corporate social responsibility in this case is the behaviour of the enterprise as a member of a well-defined community, specifically as a citizen of Australia. Thus, the business organisation has an impact on the state as a whole – the physical environment in which it operates, and the people who are in a sense the organisation’s fellow citizens and neighbours.

This perspective must be balanced against the needs of the enterprise, because as a ‘corporate citizen’ it also has rights to prosper and benefit those who have a financial interest in the company. Stakeholder Theory Stakeholder theory is a body of theoretical ideas that describe what corporations are in terms of the people or entities that have an interest in them: “Stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity.

Stakeholders are identified by their interests in the corporation, whether the corporation has any corresponding functional interest in them.” (Donaldson & Preston, 1995: 67) Persons or groups with interests in corporate activity are the company’s shareholders or owners, its managers and employees, customers, suppliers, and indirectly, the shareholders and workforces of those suppliers.

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