The Main Reasons to Undertake Social and Environmental Reporting - Essay Example

? Social and Environmental Reporting by 6/12 (a)Identify the main reasons why companies undertake social and environmental reporting and evaluate the Rolls Royce Group plc Health, Safety and Environment Report 2010 ‘Powering a better world’, against these reasons. Social and Environmental reporting may be defined as the process of communicating social and environmental effects of the economic activities performed by an organisation to the various stakeholders of the company. Main reasons for social and environmental reporting – Stakeholder Theory SER provides information to the various stakeholders of the company regarding its operations. This support from the various stakeholders is essential for the company in order to ensure that business continues to exist. Stakeholders of the company are varied – they are investors, lenders, creditors, employees, managers, the environment in which the company operates, government, general public and local community. The co-operation between the multiple stakeholders is essential condition for any company to reach excellence. Stakeholders have a direct effect on the decision of the management. Even if all stakeholders are on board but the local community is against a particular project of the company; productivity is likely to be effected as local community will influence government and the employees. Companies can no longer function in isolation. Their activities are likely to have an impact on various stakeholders and it becomes their duty to keep them informed. (Idowu, 2010) Legitimacy Theory Any organisation operates in a social environment which has certain values which are acceptable and certain others which are not. Every company seeks to establish congruence between the accepted social norms and the social values associated with the company or implied by their activities. (Rizk, 2010) When there is a disparity between the two; protests are likely to take place and this will be a threat to the organisational legitimacy. Every company likes to gain legitimacy among its stakeholders by performing one of the following activities – Educate public about its activities and the change in them Change the perception of public about the company Manipulate the perception by deflecting attention on to something else Change expectations of performance among the stakeholders. Benefit to the Business of SER – Strengthens the relation of the company with stakeholders Self regulation by the company reduces litigations and government interventions Identifies the risk associated with a business move and reduces the risks Improves profitability of the company in long run Attracts positive PR for the company (Higgins, 2010) A company which is seen in positive light also attracts a lot of investment. Gives the company competitive advantage. Analysis of Rolls Royce according to Stakeholder Theory Rolls Royce operates in three basic areas – aviation, marine and energy. The main problem that various stakeholders can have in these areas is the pollution caused by the company. The company’s report recognises this problem and also states the various measures that they have taken or are proposing to take in order to mitigate the environmental concerns associated with the company’s operations. The company has mentioned three basic challenges in the sectors and has also come out with solution to the challenges – The Trent XWB engine which is being developed by the company will increase fuel efficiency in the aviation sector by about 16% and thus reduce the carbon foot print of the company. (Rolls-royce.com, 2010) The Bergen mean burn gas engine emits almost no sulphur and reduces the nitrogen and carbon content in the atmosphere by 90 % and 20% respectively. This step is aimed at telling the stakeholders about the environmental friendly operations of the company in the marine sector (Rolls-royce.com, 2010). In the energy sector ; the company has developed gas turbines which will operate on either dry or natural gas ; thus reducing the harmful emissions in the atmosphere. (Rolls-royce.com, 2010) Analysis of Rolls Royce according to Legitimacy theory In order to gain legitimacy among the various stakeholders the company has performed the following operations – Out of R&D investment of 684 pounds, two third of it has been invested on improving the environmental performance of its products by Rolls Royce. This gives the company legitimacy in the eyes of the public as well as environmental crusaders. The company is not seen as arrogant and exploiting the environment. Social values world over demand that the company should take adequate care of its employees and provide them a safe and hazard free environment. In order to gain legitimacy in this regard, Rolls Royce has come out with the Health and Safety report. In this report they have pointed out the various measures taken by them to reduce risk to the employees and the result obtained from it. Special attention has been given to occupational health and well being of the employees in order to gain legitimacy among the employees as well as local communities. (Rolls-royce.com, 2010) The report also talks about steps taken by the company to help the local community they have given an example that in 2009 Corporate HS&E function built fencing around oak trees in Derby, UK. These points in the report talk about giving back to the society and thus creates acceptance among local communities and government. Benefits to Business The company has proactively taken interest in developing environmental friendly engines and operations. This will give the company competitive advantage in the long run as strict environmental regulations regarding carbon footprints will soon be enforced around the world. Self regulation by the company will also reduce litigations and protests. The company at the end of its report has given targets for 2012 – these targets are to protect health of the employees, reduce injuries by 50% and reduce the environmental aspects. These targets create positive PR for the company among its employees, government authorities and investors. (a) What are the drawbacks of social and environmental reporting and to what extent do Rolls Royce’s Health, Safety and Environment Report 2010 suffer from or overcome them. Drawbacks of SER and how Rolls Royce report 2010 suffers from these drawbacks – Cost of preparation of the report is usually very high for companies. Rolls Royce also suffers from this problem. (M. Collier, 2003)In order to prepare the report and have an unbiased environmental reporting they have created the environmental council, HS&E board, nuclear propulsion assurance committee, major incident board as well the environmental advisory board. All these bodies are cost centres and consume a lot of money in order to prepare the SER report. SER report is also criticised for exposing commercially sensitive information of the company. (Sarkesp, 2002) Rolls Royce report is also suffering from this particular fallacy. Their plans of new turbines and engines which will reduce the carbon footprint of the company have been published in the SER. This makes the competitor aware about the moves of the company in the future. The SER reports are also accused of providing very limited amount of actual information and providing general statements. The Rolls Royce report does not suffer from this setback. (Villiers, 2006) The report is much focused and measures the performance of the company against set parameters. It also lays down objectives of the company that have to fulfill in the next financial year. Quantification of the SER activities is very difficult. Many environmentalists claim that SER reports carry activities which cannot be quantifies in terms of return on investment for the company. (Welford, 1996)This argument can be easily refuted as all benefits accrued to the company may not be tangible but some intangible benefits are also there which SER provides. The Rolls Royce report has tried to quantify activities performed in terms of benefits given to the company and thus refutes this disadvantage. The other drawback of the SER is that it highlights all the positive points of the company and pushes the negative aspects under the carpet. This makes SER of any company difficult to rely on. Many bodies have suggested that government audit to SER is the answer in order to prevent this. The SER of the Rolls Royce Company also suffers from this problem. The company has only focused on the positive things done by the company but have not mentioned their shortcomings or the harms done by the company in its report. This makes the report hard to believe. (C) Set out two recommendations to improve the Rolls Royce’s report from the perspective of users of the report. Base your recommendations on your previous analysis and remember to include explanations, evidence and examples. Based on the research and the case study of Rolls-Royce Group plc above, the two user recommendations that the company must expect to hear to be given as follows: 1) The company should bring about a section on ROI (Return on Investment) in its report. This section should analyse the various steps that the company has taken for the benefit of environment and society or is about to take and analyse the benefits to the company which will be accrued as a result of these steps. These benefits may not be immediate but will pacify many shareholders who might think that SER is a waste of time and want to reduce the budget allocation for the same. 2) The report of Rolls Royce looks like the report of any other competitor. The company has only highlighted the achievements accomplished. However there must be some failures of the company too regarding environmental front. The report will be much more reliable also take the ammunition out of the protests if the company is able to acknowledge the mistakes committed by the company and list down the steps being taken to rectify the mistakes committed if any. References Idowu, S. and Louche, C. (2010) Theory and Practice of Corporate Social Responsibility, Los Angeles: Springer, p.195 - 234. Rizk, R. (2010) Social and Environmental Reporting: Ethical Disclosure and Socio-Economic Factors, New York: Ashgate Publishing, p.45 - 57. Higgins, C. (2010) Social and Environmental Reporting, London: Lap Lambert Academic Publishing, p.28 - 40. M. Collier, P. (2003) Accounting for managers: interpreting accounting information for decision-making, London: John Wiley and Sons, p.95 - 106. Rolls-royce.com (2010) powering a better worldhealth safety and environmetal report 2010, [online] Available at: http://www.rolls-royce.com/Images/hsereport_2010_tcm92-23086.pdf [Accessed: 6/12/2011]. Sarkesp, R. (2002) Socially responsible investment: a global revolution, New York: John Wiley & Sons, p.236 - 257. Villiers, C. (2006) Corporate reporting and company law, Cambridge: Cambridge University Press, p... Welford, R. and Starkey, . (1996) Business and the environment: a reader,2nd ed. London: Taylor & Francis, p.200 - 245. Read More