Importance of CSR Reports - Essay Example

? Corporate Social Reporting of the of the Introduction In today’s world, most companies take active participation in the performance of corporate social responsibilities. The corporate social responsibility reporting has become highly significant with increasing public interest of participation in the CSR activities. It is known to everyone that organizations are responsible for creating various social problems such as, pollution or resource depletion, which has a negative impact on society and environment (Moir, 2001). The increasing attention or concern of public in this sphere has resulted in mandating the performance of corporate social responsibility activities of organizations. In a similar manner, disclosing the information associated with the corporate social responsibility activities is an important part of the daily functioning of organizations. Importance of CSR Reports The importance of CSR reporting has emerged because of the lack of dependence on the information provided by organizations, as opposed to their actual contribution towards the society. From the academic point of view, there is an accepted theory that discusses the factors responsible for motivating companies in disclosing their CSR information. Most of the information disclosed in the CSR reports was previously considered as the activities or decisions belonging to the private domain of corporations. The theoretical evidences suggest that companies disclose information associated with CSR activities to the public, in order to satisfy their prime needs and reflect an extremely responsible image towards the society. The legitimacy helps organizations in achieving the main purpose of attainment of sustainable profitability as an important goal of the business. The corporate sector gives huge economic profit to the environment and society. However, in spite of the advantages, there remains an increasing concern related to the wastage or abuse of resources in the society. The society offers huge benefits to the corporate sector, which is why, it has the right of seeking information associated with what the organization returns to the society. The increasing awareness concerning the natural resources is responsible for the decision of legitimacy of companies, which in turn increase the necessity of disclosing CSR information. Stakeholder’s theory According to P.A. Stanwick & S. D. Stanwick (2006), the business relationship must be occupied with a large number of managerial researches (Tilt, 1997; 2007). The stakeholder’s theory addresses to questions where stakeholders require special attention. Approaches to this kind of question are determined by the relationship between organizations and the stakeholders. It is done on the basis of exchange transactions, legitimacy claims, power dependencies and various other claims. The researchers have integrated the stakeholder’s theory with the help of various managerial perspectives, mainly the theories belonging to governance and agency. The stakeholders theory have been an useful frame, being both normative and instrumental, for measuring the role of NGOs in developing and adopting environmental standards. The stakeholder management offers theoretical base for proper understanding of the necessities of the stakeholders and function accordingly. Legitimacy Theory According to Brennan & Merkl-Davies (2013), Legitimacy theory can be explained in the following manner: Every organization seeks legitimacy from the public by ensuring the fact that their value system is congruent with the value of the community, within which it is performing its business operations Deegan & Rankin (1996) have identified four different strategies with the help of which the organizations improve their self-image, thereby gaining legitimacy. They can seek legitimacy from the public by informing them about the real changes in the behaviour, followed by bringing a change on the perception of general public, without causing any change in the actual behaviour, manipulating the perception by deviation of attention from one particular issue of concern to another and finally, changing the expectations associated with their behaviour. Deegan (2002) has stated that disclosure method is used for implementing these strategies. The legitimacy theory suggests that the companies should disclose the CSR information in order to manage their self-image while facing any legitimacy crisis or negative change in the perception of general public towards the organizations. Hooghiemstra (2000) has investigated the changes in the annual report associated with environmental disclosures made by the petroleum companies, after the Alaskan oil spill resulted in increasing environmental concern from the year 1989. It was found that there has been a significant increase in the environmental disclosure since then, thereby providing evidence to support the legitimacy theory. The threat to any organization’s legitimacy prompts it towards providing more information in the annual report. Similarly, Mahoney, Thorne, Cecil & LaGore (2013) examined the relationship between environmental disclosures in annual report and the environment performance measured by the use of toxic release data for the companies in US, for the year 1988. There are further evidences of the relationship between social or environmental performance and the reporting of any public released shocking news. Mathews (1997) found in their investigation that companies with bad news in their report were provided in the year of prosecution with higher positive environmental disclosures. However, this investigation was based on the research conducted on a sample of twenty Australian Companies subjected to successful prosecution by Victorian EPS (i.e. Environmental Protection Agency) and New South Wales, in between 1990 to 1993. Most companies hide the information because it is harmful to their images and possess the fear of losing the support of general public by disclosing this information. Merkl-Davies & Brennan (2011) found the evidences of this theory during the assessment of environmental or social disclosures in response to the unfavourable attention of media. An assumption is made that companies should release their environmental or social information associated with the negative events leading to the legitimacy crisis. This practise is adapted by the organizations for managing their images and appeasing stakeholders by providing immediate responses to their concerns, related to their social and environmental performance. The original type of legitimacy theory that had been proposed by Moir (2001) has been divided into reactive theory and proactive theory. He has categorised corporate behaviour in respect of the social responsibility as well as social responsiveness. The author defines corporate behaviour, in respect of the social responsibility, to be prescriptive and terms it as a reactive adaptation, whereas he describes corporate social responsiveness to be anticipatory and terms it as proactive adaptation. According to Reynolds (2007), corporate decision towards undertaking a legitimating strategy can either be reactive or proactive. The proactive approach aims at preventing the legitimacy gap. Institutional Theory Various institutions are analysed for determining the role they would have in the future growth of CSR reporting. The institutions mainly refer to CSR reporting organizations, governments and the accounting standard board. The Government generally refers to the regulatory body within the country which governs corporate disclosure. There are some specific institutions that have played significant role such as, the World Trade Organization, free trade agreements, academia, intergovernmental organizations, industry organization and media. These institutions provide opportunities for further research work. The institutions play an important role in the promotion as well as diffusion of CSR reporting practises, where they also determine how the role would perform in the near future. The next step is identification of the roles of these institutions in promoting the financial accounting standards and determining how their roles can also be reflected on CSR reporting. Government The Government plays a significant role in the Corporate Social Responsibilities as established by means of the public policies. The Government has the ability to allocate assets and set an agenda which promotes the CSR initiatives. The researchers argue in favour of the institutional pressure created by the government where they state that organizations are supposed to behave in socially responsible manner. This should require the existence of well-enforced and strong regulation for ensuring such activities, more particularly if the procedure of developing these enforcement capacities and regulations were based on consensus building among the government, corporations and various other stakeholders. Although most of the CSR initiatives are voluntary in nature, yet the Government can always play a significant role in the promotion of these actions in the market. Although the forces from the market create pressure on organizations to behave in a responsible manner, the markets would not be successful in influencing the companies to rightly behave, if the government had not created regulations to mandate such operations. The government controls these activities by monitoring the regulatory controls and legal system. In developing countries, there remains no compliance associated with the culture and as a result, the government lacks resources for enforcing social and environmental regulations. For describing the institutional role of the Government, the paper would reflect on five main government roles, reflecting their supportive activities towards CSR initiatives. They facilitate the CSR initiatives in more than one form, where they create access to the markets by improving the regulatory enforcement and compliance and attaining social and environmental goals. They promote the CSR report quality by providing government assurance and other verification services. Mandating The government also serves as the driver of CSR reporting by means of declaring the reporting requirements compulsory, through stock listing rules, laws, pension fund rules and various environmental regulations or national agreements (O’Rourke, 2004). In the year 1995, the first country which was mandated with the adaptation of CSR reporting was Denmark, with the imposition of laws on Green Accounts. The law needed companies to give a quantitative analysis of the environmental performance. Most of the countries have made it mandatory to report such practises in order to maintain the transparency in their functioning. In the year 1998, the Accounting Act in Norway needed its companies to mention all the social and environmental issues in the annual reports. Similarly, in the year 1999, Sweden necessitated the environmental impact report for various companies in the Financial Accounts law that would be related to various environmental issues. In the year 2003, France was recorded as the first country to have CSR reporting activities being conducted by the publicly traded companies. Various countries outside Europe have made it mandatory to comply with the CSR reporting requirement to some extent, including the Indonesian and South African countries. Facilitating The facilitation of the CSR reporting, as mandated by the Government, might be of various forms. The Government must serve as a facilitator of the CSR initiatives because of the following purposes: 1) Creating access to the market, 2) planning for the improvement of the regulatory compliance, 3) helping in the achievement of environmental as well as social goals of the organization, 4) stepping towards establishment of best practises in a consistent manner. All the aforementioned reasons can be applied individually to the CSR reporting activities. The Government requires promoting quality of the reports by means of providing assurance and various types of verification services. It also determines the regulation standard for the auditors who offer third party assurance standards. Let us take an example, in the year 2002; the Sarbanes Oxley Act addressed several CSR subjects like, disclosure, corporate ethics and other accountability issues. The government must attach voluntary CSR reporting to the tax incentives, various types of export promotion practises or the production subsidies (O’Rourke, 2004). It also indicates that the companies, without enough resources for adapting CSR initiatives, should go to the government for seeking help. The governments in various developing countries must offer additional resources to companies for incorporating CSR initiatives. Conclusion As discussed above, a large number of organizations are performing CSR activities for satisfying the stakeholders. Along with the rising public interest associated with CSR activities of every organization, it has become highly essential to perform CSR reporting. Decreased dependence of the stakeholders on such information, voluntarily shown by organizations, has increased the actual trend of CSR reporting. The accounting theory represents those reasons which are responsible for creating motivation for organizations related to the disclosure of CSR information. The social and environmental accounting reflects the significance of CSR reporting which exists in maximizing the shareholder’s value. The way that the social and environmental effects of organizations are communicated to their stakeholders, helps in increasing their dependence on the maintenance of transparency in the operational activities. It also increases the significance of accountability for all the organizations socially, economically and environmentally. Financial reporting cannot give all the required information of an organization. At this point of time, it becomes important to perform CSR reporting that is capable of providing significant information to all the stakeholders. Different kinds of theories have been presented by several researchers in order to strengthen the significance of CSR reporting. The stakeholder’s theory addresses to the questions where the stakeholders are positioned with special attention. The stakeholder’s theory has been integrated with the help of various managerial perspectives, mainly the theories belonging to governance and agency. The stakeholders’ theory has been useful, as it is both normative and instrumental, in order to measure the role of the NGOs in developing and adopting environmental standards. Approaches to this kind of question are determined by the relationship shared by the organizations and their stakeholders. It is done on the basis of exchange transactions, legitimacy claims, power dependencies and various other claims. Every organization seeks legitimacy from the public by ensuring the fact that their value system is congruent with the value of the respective community within which it performs its business operations. It is round about this time that the legitimacy theory is applied. Various institutions are analysed for determining the role that they would play in the growth of CSR reporting in the future. The institutions mainly refer to CSR reporting organization, governments and the accounting standard board. The government definitely plays a significant role in the efficient CSR reporting. Thus, it can be deduced that the most essential function of measuring, as well as conducting CSR reporting, is to provide meaningful information to all the stakeholders, thereby assisting them in their decision making. References Brennan, N. M., & Merkl-Davies, D. M. (2013). Accounting narratives and impression management. In: L. Jackson, J. Davison and R. Craig, ed. 2013. 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