Importance of Corporate Social Responsibilities - Essay Example

? Corporate Social Responsibilities Introduction In the present scenario, a large number of companies all over the world are voluntarily performing corporate social responsibilities. The corporate social responsibility (CSR) reporting has become very important with the increase of the public interest in the CSR activities performed by the organizations. It is a known fact that the companies create various social problems such as, resource depletion and pollution, which negatively impacts the society as well as the environment (Moir, 2001). The increasing concerns and attention of the general public have reached this sphere which has made it almost mandatory for the organizations to count the CSR activities among their responsibilities. Similarly, disclosure of the information related to these CSR activities have become an important part of the CSR activities of the organizations. Importance of CSR Reports This trend has made its mark due to the lack of reliance on the information which is voluntarily given out by the companies as compared to the real contribution to the society. From the perspectives of academics, there is an accepted theory which widely discusses the reasons which motivates the companies to disclose their CSR information. Majority of the information provided in the CSR reports were previously considered to be the decisions or activities belonging to the private domain of these organizations. The theoretical explanation states that the organizations provide CSR performance related information to general public for satisfying their primary needs and portraying themselves as very responsible members of the society. This legitimacy enables the organizations in pursuing the primary purpose of attaining sustainable profitability which is the most important goal of all the business activities. Although the corporate sector provides huge economic benefits to the society, yet there is an increasing concern regarding the abuse or wastage in terms of utilization of the resources of the society. The society provides higher benefits to the corporate sector. It is due to this reason that it possesses the right to seek information related to the return that these organizations are providing to the society. In brief, the increasing public awareness of the public resources decides the legitimacy of the companies, thereby increasing the requirement of disclosure of CSR information in the community. CSR Reports: Providing Useful Information to the Stakeholders The term ‘corporate social responsibility’ revolves around a number of issues concerning the organizations and their interactions with the society. These issues cover governance, ethics and various other social activities like, community development, philanthropy, product safety, human rights, equal opportunities to all employees and other environmental activities. Consideration of the CSR activities, from the aspect of accounting, has necessary linkages with the social reporting (Brennan and Merkl-Davies, 2013). The disclosure related to social and environmental responsibilities of the organizations increase the importance of CSR reports. The social and environmental accounting forms an important part of the CSR reports (Mahoney, et al., 2013; Merkl-Davies and Brennan, 2011). The communication of the environmental and social effects of the organizational activities to the stakeholders increases their reliability towards the transparency of their operational activities (Hooghiemstra, 2000). This extends the requirement as well as performance of accountability of all the organizations. Maintenance and presentation of CSR reports have become one of the global initiatives of the governments where they have recognized it to be the standard for sustainability reporting. It has provided a framework which disclosed much substantial and contextual information, rather than just presenting their financial performances. This framework has also ensured the fact that the organizations provide meaningful and appropriate information to the stakeholders for them to have a clear idea about the on-going CSR activities. While providing CSR reports, it is very essential for the organizations to focus on the topics which require higher attention from the perspective of the stakeholders as well as the industry. The initial step in assessment as well as reporting of the CSR activities includes identification of the internal as well as external stakeholders by means of materiality analysis. The stakeholders are very important to the organizations as they can affect as well as be affected by the organizational activities. It is due to this reason that it becomes highly essential to disclose the issues related to the social, economic and environmental impact of the organizational activities. Use of materiality matrices helps the organizations with a clear vision about the corporation in order to improve the transparency in communication with all the stakeholders. For satisfying the information needs of the internal and the external stakeholders, most of the organizations assess and report their environmental or social performances. Thus, CSR reporting plays a significant role in offering all the required information in these aspects and helping them in the verification of accuracy. CSR reporting includes reporting of the non financial and the financial information to the stakeholders based on the social, economic and environmental activities of the organization. Due to immense pressure from the external and the internal stakeholders, more and more companies are assessing and reporting their performance in terms of the environmental and social activities along with the financial reporting. The stakeholders pressurize the companies to report this information publicly by means of annual financial report or in the corporate performance reports. This trend is increasing with the growing role of the auditors or the accountants. The CSR reports will play an important role by offering as well as assessing the environmental and social information about the utilization of the skills and improvement in quality, thereby facilitating sound business in various areas such as, the investment appraisal, strategic planning and budgeting. The auditors also have a significant role in verification of the accuracy in the reported information along with the practices and systems used for its derivation. The organizations know that to meet the expectations of the stakeholders is one of the important conditions for sustainability, where achieving the strategic business objectives is the primary goal of the businesses. Maximisation of the shareholders value is seen to be an increasing concern as the organizations cannot fulfil this objective in long term perspectives. The companies create these reports as they provide clarity by means of reliable and appropriate data and a fair picture of the overall performance of the organization in terms of the environmental, economic and social performance. The CSR reporting includes reporting of financial as well as non-financial information to a wide range of stakeholders (Deegan, 2002). It increases their ability of managing the key risks. It provides information about the capability of the organization to fulfil the economic, social, philanthropic, operational and environmental objectives. In the present scenario, the financial statements of the organizations are not sufficient to answer the question regarding the actual value of an organization. CSR reporting involves reporting of the financial as well as non-financial performance of the organizations along with the associated risks. It becomes impossible to provide all the information related to an organization by means of financial reporting as it covers only the financial performance and its associated risks. In order to provide information to the stakeholders on other aspects, it is important to provide and assess the CSR report. The framework of Social accounting and its guidelines assist the organizations in producing and providing environmental and social information (Mathews, 1997; Reynolds, 2007). Accountability is the set of standards focussing on the performance indicators, the reporting systems and the targets (Deegan and Rankin, 1996). The fundamental principle in this theory of accounting includes engagement of the stakeholders (P. A. Stanwick and S. D. Stanwick, 2006; Tilt, 1997; 2007). Global Reporting Initiative has been established for providing global guideline associated with the reporting of the environmental and social information. Conclusion As already stated above, a large number of companies perform CSR activities voluntarily in order to satisfy the stakeholders. Along with the increasing public interest related to the CSR activities of the organization, it has become very significant to perform CSR reporting. Reduced reliance of the stakeholders upon the information which are voluntarily presented by the organizations has resulted in the gradual increase in the trend of preparation of CSR reports. The accounting theory widely discusses the reasons responsible for motivating the organizations for disclosure of the CSR information. The environmental and social accounting states that the importance of CSR reporting lies in the maximisation of the stakeholders’ value. The communication of the environmental and social effects of the organizational activities to the stakeholders increases their reliability towards the transparency of their operational activities. It increases the necessity of accountability of all the organizations in terms of social, economic and environmental perspectives. Financial reporting does not provide all necessary information related to an organization. It only covers information related to the financial performance of the organization and its associated risks. It is due to this reason that providing CSR report to the stakeholders is very important for presenting them with all necessary information. The framework of Social accounting and its guidelines assist the organizations in producing and providing environmental and social information. Thus, it can be inferred that the most significant role of assessing and providing CSR reports is to provide meaningful information to the stakeholders and assist their decision making. Reference List Brennan, N. M. and Merkl-Davies, D. M., 2013. Accounting narratives and impression management. In: L. Jackson, J. Davison and R. Craig, ed. 2013. Routledge companion to communication in accounting. London: Routledge. pp. 109-132. Deegan, C. and Rankin, M., 1996. An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority. Accounting, Auditing, and Accountability Journal, 9(2), pp. 50-67. Deegan, C., 2002. The legitimising effect of social and environmental disclosures – A theoretical foundation. Accounting, Auditing and Accountability Journal, 15(3), pp. 282–311. Hooghiemstra, R., 2000. Corporate communication and impression management – New perspectives why companies engage in corporate social reporting. 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