Environmental And Social Reporting- Rolls Royce Group - Essay Example

? ENVIRONMENTAL AND SOCIAL REPORTING- ROLLS ROYCE GROUP. Environmental and Social Reporting- Rolls Royce Group INTRODUCTION: The paper discusses about different aspects and approaches of the accountability Rolls-Royce group have adopted to deal with its various stakeholders regarding its corporate environmental and social reporting, how the company has incorporated the issues in its long and short term strategy, what steps the company has taken to address environmental and social concerns and how effective their implementation have been. Rolls Royce Group is one of the largest engineering groups that operate in over 50 countries of the world. It provides power solutions to the customers around the global in civil and defense aerospace, marine and energy sectors. The company operates four segments of civil aerospace, defense aerospace, marine and energy. The company’s highest revenue generating segment is the civil aerospace which generates around 50% revenue of the group. The company has shown consistently progressive and strong performance over the years and is one of the market leaders in all sectors in which operates with an annual turnover of ?11,124 million and a profit of ? 848 million. (ROLLS-ROYCE) CORPORATE SOCIAL RESPONSIBILITY: Sustainability reporting provides a chance to the organizations to report information about economic, environmental, social and governance performance to its investors and stakeholders. GRI (Global Reporting Initiatives) provides a framework for the organizations to disclose this information in a much transparent and consistent manner. (GLOBAL REPORTING INITIATIVES) Strategy and Profile: Rolls Royce has committed to serve with new approaches and technologies for sustainable economic growth. It aims to invest for long term, promote innovation and focus on research and development. It sustainability programs are especially designed keeping in mind the environment, its people and the society and communities in which it operates. Its environmental strategy focuses on three areas of reducing the environmental impact of the business activities; further reducing the environmental impact of the products; and developing of new low emission and renewable energy products. Its strategy for its people includes creating a working environment that attracts the best people, enhancing their potential and encouraging them to be involved in the ongoing success of the Group. It intends to serve for the communities in which operates focusing on their development. (ROLLS-ROYCE) Management’s approach and Performance Indicators: Environmental Issues: The company has taken significant steps in reducing its greenhouse gas emissions. Targets have been made for the reduction and energy consumptions for top 25 energy consumption sites. As a result there has been 5-6% overall reduction in the total GHG emissions. Further the company even invested ?3.5 million for the maintenance and improving projects for sustainable development. It has further put special focus to reduce its environmental footprint in its aviations business by incorporating sustainability in products designs and processes. (ROLLS-ROYCE; LEE. 2000) The company has Environmental Advisory Board who contributes in business strategy and design process. The company is even striving to reduce its environmental footprint created by existing products. For this it has created targets to be achieved for the aviation business for the reduction in CO2 emissions, noise and nitrogen oxide. The company through his core capabilities and experience in nuclear energy also intends to give solutions and address the issues zero carbon power generation. (ROLLS-ROYCE) Rolls Royce continues to mark its performance through certifications and third party accreditations like ISO 14001 for its environmental management, its new facility at Seletar received the Green Mark (Platinum) award for having a reduced environmental footprint in construction, retains its Gold status with BitC Index for the extent to which corporate strategy is integrated into business practice and continues to be one of the leading companies in the Carbon Disclosure Project (CDP) Index. (ROLLS-ROYCE) People’s Development: Along with environmental and community support for sustainable development, RR has also maintained its focus internally by developing its people, promoting learning and training, complying to standards of business ethics and providing an environment to work which is safe and becoming an organization best to work with. RR employs 40,400 employees all over the world. It operates various programs to encourage diversity in its business, provide learning solutions to employees and invest in learning activities, ensures fair and recruitment of best people for their group through various selection and learning programs and provide a safe and healthy environment to work to its employees by complying to standards and regulations. (ROLLS-ROYCE) Corporate Social Responsibility: Since the RR group is globally operated it seeks to build strategic relationships with the government of the host country. The Government, being a very strong stakeholder, RR has established good terms with the regional governments and works together with them to align the business needs of RR with the political, social, economic, industrial and commercial requirements of the local government. RR further puts in extra focus in its community investment programs. It contributed ?7.1 million in 2011 in terms of CSR. As a part of its community investment the Group approved several charitable contributions and sponsorships in areas of education and skills, environment, social investment, arts and culture and employees development etc. (ROLLS-ROYCE) RR Group has emphasized on its CSR in its strategies and its reporting, being such a huge group it is its responsibility towards its stakeholders and the environment in which it operates to serve it. There are several theories of social and environmental reporting which support voluntary disclosures made regarding CSR by RR group. These include the stakeholder theory whose accountability model suggests that the greater the power and influence the stakeholder has the greater company shall put the efforts to manage its interests. The stakeholder theory basically sees the disclosure as a dialogue between the company and the stakeholder. Legitimacy theory on the other hand sees the CSR disclosure as an attempt to conceal the deviation in its performance from the standards set. The legitimacy theory argues that by such disclosures the company tries to influence its stakeholder’s perception when the company finds a legitimacy gap between itself and its stakeholders. The political-economy theory towards CSR reporting suggests that much of the disclosures about the CSR fail to take into account the conflicting interests within the society and doesn’t recognizes the structural inequalities and conflicts in the society. The risk-society theory is of the view that the social inequalities and conflicts emerge from the risks that are created by these large organizations and the inequality will continue to prevail in the society. RR Group is doing really well regarding its CSR towards its stakeholders and society at large. However more room of improvement is present in issues like contribution in survival of other biological lives, focus on improvement of lives in third world countries etc. (GRAY. KOUHY & LAVERS. 1994; FRIEDMAN & MILES. 2006; PICOU. 1999; COOPER. 2004) STAKEHOLDER ENGAGEMENT: Stakeholder engagement has gained increased importance over time and is an emerging topic. Stakeholder’s engagement basically refers to methods of gathering information from different stakeholders through, questionnaires, surveys, interviews, public gatherings meetings etc. The aim of such an engagement is to understand the expectations of the stakeholders and improve accountability and greater social responsibility. (SOLOMON. 2007) Rolls Royce Group emphasizes on stakeholder engagement and takes all the possible steps to involve in dialogue regarding the style, content and other factors that influence their approach with its prominent stakeholders on sustainability reporting. With the feedback received they shape up their approach to reporting and identify the areas of improvement. The group has employed and installed high standards and adheres to highest level of compliance towards environmental and social responsibility that it holds towards its shareholders, stakeholders and society. (ROLLS-ROYCE) Stakeholders Methods used for Stakeholder engagement Effectiveness Customers Rolls Royce engages with its customers through intensive market research, questionnaires, online surveys etc. to understand the needs of the customers and their demands and expectation from the group. The effectiveness of the engagement can be seen the successful market share, happy customers, repeated business and customer loyalty that RR Group holds in all its four business segments. The Group has reputed customers like American Airlines, Gulfstream, US Department of Defense etc. Investors It engages with its investors/ shareholders through AGM, investors briefing, annual report, period wise reporting and online interaction means. The effectiveness can be measured by shareholder’s and investor’s trust in the company. RR Group’s shares are highly priced and it has given successful financial returns to its investors. Community It engages with its communities by dialogue and negotiation. It aims to understand their concerns, problems and expectations from the group. The effectiveness of the engagement can be seen by RR Group’s reputation in the communities where it operates. In years there has been no scandal regarding its treatment with communities and neighbors. Government and Regulators It engages with national governments in dialogue, meetings and negotiation with the aim to align the business needs and the political, economic, legal requirements of the country. This engagement’s effectiveness can be measured by the effective compliance of the RR Group towards the local rules and regulations of the operating country, no amount of penalties imposed on the group by the local government regarding the non-compliance and the mutual initiatives taken the government and RR Group for e.g. the innovation and development research projects under EU. Employees It engages with its employees by interviews, meetings, seminars, dialogue and negotiation. It aims to understand their concerns, problems and expectations from the group. The company employs around 40,400 people in more than 50 countries of the world. It is termed as one of the best employers to work with and equal opportunity employer all around the world. The group’s ethical approach towards employees is conducted by Global Code of Business Ethics. It gives paramount importance to learning, training and employees development. Suppliers It engages with its suppliers through intensive market research, questionnaires, online surveys etc. to understand the needs of the suppliers and their demands and expectation from the group. The effectiveness of its engagement with its suppliers is evident from the strong global supply chain the group operates and the long term relations with its suppliers which enable it to offer competitive prices to its customers. (ROLLS-ROYCE) ASSURANCE ON CSR REPORTS: Sustainability reports are the reports a company issues usually for the general public provide them with the information regarding their sustainable development, environmental footprint and adherence to corporate social responsibility. There are non-financial reports, one that form a part of the annual report and the other separate voluntary report. Since there is no specific period for reporting of sustainability, these reports if published in the annual report along with the assurance report can cause confusion. Therefore usually these reports are published and assured separately. However it is to be emphasized that there is no requirement of these reports to be assured and it is done absolutely on a voluntary basis. (SIMNETT ET AL. 2009) Regarding the assurance procedures the guidelines are present in the GRI, which suggests that, the external group conducting the procedure should have sound knowledge and should be trained, the results and evidences should be documented, should include correctness and overall evaluation of data, assurer should be independent and the assurance report should include a conclusion detailing the level of compliance to the standards and the assurer’s independence. The standards against which this assurance is given are AA1000 Assurance Standards (AA1000AS) or International Standards on Assurance Engagements (ISAE) 3000. These assurances can be provided by professional firms including accountancy firms, stakeholder’s panels, certification bodies and technical expert firms etc. (WHITE. 2009; STRASSER. 2011) Assurance is important for any report as it increases the creditability of it. Third party assurance is now increasing and is expected to be a part of corporate sustainability reporting in order to make the company’s report more credible when compared to other organizations that are doing so. According to ACCA (2004) “organizations that fail to obtain assurance for their reports are likely to face issues of credibility.” (GRISERI & SEPPALA. 2010) Another factor that affects the choice and reason of providing assurance on such reports is that how company sees itself; whether as a shareholder oriented or a stakeholder oriented company. There is higher consideration given to assurance of such reports in the companies where stakeholder’s influence is high. The company also chooses to provide assurance on these reports for better corporate reputation. The quality of information in the reports is directly associated by the various factors like company’s size, reporting experience, experience of assurer etc. However the quality of the assurance report isn’t really affected by the assurer being an accountant firm or a consultant firm. (GRISERI & SEPPALA. 2010; STRASSER. 2011; SIMNETT ET AL. 2009) Many critics of the matter continued to see the reporting as biased documents that lacks coverage of key areas of concerns. To reduce the problem and increased the level of confidence assurance has been considered as a solution. It has been criticized on the grounds that the subject of assurance reports is new and the firms that provide the related services are learning by practicing it, which raises the questions about its standards. Such assurances on sustainability reports have been criticized on many other grounds like their use as a management tool rather than genuinely properly conducted audit of organization’s performance. Secondly, the reports published are merely a face of accountability as there is no standard of what accountability is. Thirdly, the external assurers are not in a position to give assurance regarding the sustainability reports as these contains substantial issues and risks because of the limited knowledge. Fourthly, it has also been argued in US firms where the audit firms have decreased to provide assurance on these reports because of the lack of suitable standards and inconsistencies apparent in terms of objectives, scope of the exercise, criteria and the process etc. (GRISERI & SEPPALA. 2010; SIMNETT ET AL. 2009; UNERMAN. BEBBINGTON & O'DWYER. 2007) The independent assurance report on the Sustainability Report of Rolls Royce Group has been made public in the annual report as well as on its website separately. The independent assurance statement has been issued by one of the Big-Four firms Deloitte LLP on the Health, Safety and Environmental performance indicators and reported progress. The assurance engagement has been carried out against International Standard on Assurance Engagements 3000 (ISAE 3000) and has given a negative assurance regarding the correctness of companies performance and reported targets. (ROLLS-ROYCE) CONCLUSION: Rolls Royce is one of the leading energy solution providers companies of the world. Being a global multinational the company has financial and non-financial responsibilities to fulfill towards its different stakeholders. The company has done well in addressing its responsibilities in both the areas. Particularly the non-financial- environmental and social responsibilities that its holds towards its stakeholders. Rolls Royce Group has embedded these responsibilities in its strategy and culture, which is shown in various steps taken by the company to reduce its environmental footprint, contribution it has made to the community and society in which it operates and the public at large. It adhere compliance to absolute ethical and sustainable standards and ensures its implementation through various reporting. Bibliography COOPER, S. (2004). Corporate social performance: a stakeholder approach. Burlington, VT, Ashgate. FRIEDMAN, A. L., & MILES, S. (2006). Stakeholders: theory and practice. Oxford, Oxford University Press. GLOBAL REPORTING INITIATIVES. [Online] Available at: https://www.globalreporting.org/resourcelibrary/EOSS-G3.1-SummaryGuide-QRS.pdf [Accessed 18 March 2012]. GRAY, R., KOUHY, R., & LAVERS, S. (1994). Corporate social reporting by UK companies: a longitudinal study, a tale of two samples, the construction of a research database and an exploration of the political economy thesis. [Dundee, Scotland], Centre for Social and Environmental Accounting Research, University of Dundee. GRISERI, P., & SEPPALA, N. (2010). Business ethics and corporate social responsibility. Australia, South-Western Cengage Learning. LEE, J. J. (2000). Sustainable Aviation - The way ahead. Derby : ICAS. http://icas-proceedings.net/ICAS2000/PAPERS/ICA0382.PDF PICOU, J. S. (1999). Theoretical Trends in Environmental Sociology: Implications for Resource Management in the Modern World. http://www.boemre.gov/itd/files/picou.pdf ROLLS-ROYCE. [Online] Available at. http://www.rolls-royce.com/ [Accessed 18 March 2012]. ROLLS-ROYCE. Annual Report 2011. [Online] Available at: http://www.rolls-royce.com/Images/RR_full_AR_2011_tcm92-34435.pdf [Accessed 18 March 2012]. SIMNETT, ROGER, VANSTRAELEN, ANN, & CHUA, WAI FONG. (2009). Assurance on sustainability reports: an international comparison. Sarasota, FL : American Accounting Association. http://arno.unimaas.nl/show.cgi?fid=19055. SOLOMON, J. (2007). Corporate governance and accountability: Texte imprime?. Hoboken, NJ, Wiley. STRASSER, K. A. (2011). Myths and realities of business environmentalism: good works, good business or greenwash? Cheltenham [England], Edward Elgar Pub. UNERMAN, J., BEBBINGTON, J., & O'DWYER, B. (2007). Sustainability accounting and accountability. London, Routledge. WHITE, G. B. (2009). Sustainability reporting: managing for wealth and corporate health. New York, Business Expert Press. Read More