Corporate Sustainability Reporting - Literature review Example

Corporate Sustainability Reporting The processes like ‘reporting’ and ‘external corporate communication’ are of considerable significance in promoting corporate sustainability. In addition to economic reasons, the need for sustainable development also necessitates the practice of corporate sustainability reporting (CSR). Companies depend on a number of stakeholders to ensure uninterrupted supply of resources. Hence, organisational managements cannot ensure flawless supply of resources unless they secure social acceptance communicating with the society about the sustainability effects of their activities. In addition, organisations have to report sustainability related issues effectively so as to ensure stakeholder participation, which is a vital component of sustainable development. Introduction Sustainability reporting is a basic organisational report that provides stakeholders with extensive information about the firm’s economic, environmental, and social performance. “Corporate sustainability reporting is the process of measuring, managing, disclosing, organisation key triple bottom line economic, environmental, and social performances to achieve the sustainable development” (Worksafe Online, n.d). It is a non-financial reporting and a recent trend developed over the last two decades. It must be noted that the scope of corporate sustainability reporting is not restricted to environmental reporting. Today, many companies are producing sustainability report to convince their stakeholders about the sustainability effects of their value chain activities. It is observed that majority of the organisations do not produce a true and fair sustainability report as they tend to perform unethical activities in sustainability reporting. This paper will discuss various aspects of corporate sustainability reporting by giving specific focus to Stakeholder Theory and Legitimacy Theory. Purpose of corporate sustainability reporting According to the Global Reporting Initiative’s Sustainability Reporting Framework, CSR is identified to be the “practice of measuring, disclosing, and being accountable to internal and external stakeholders” for various aspects relating to organisational performance so as to enhance the goal of sustainable development (RG 2006). The major purposes of CSR include benchmarking, demonstrating, and comparing (ibid). Scholars identify benchmarking as one of the major goals of the sustainability reporting. The practice of sustainability reporting assists an organisation to assess the firm’s sustainability performance with respect to established laws and codes, social norms, performance standards, and voluntary initiatives (ibid). Such an assessment would aid the organisation to identify where it stands presently in term of corporate social responsibility. Hence, sustainability reporting is helpful for an organisation to improve its performance standards if it is found that the company’s sustainable development practices do not meet the established standards. In addition, demonstration is another major purpose of CSR. To illustrate, an effectively prepared sustainability report may benefit a company to demonstrate how it influences and is influenced by different sustainable development expectations (ibid). The concept of CSR greatly assists an organisation to compare its sustainable development activities within its own organisational environment and with different organisations over time. Possibly, such practices would enable the company to make its operations sustainable. According to Hezig and Schaltegger (2006), an organisation’s many of the products, services, and corporate activities are likely to create environmental and social issues; and in this situation, the sustainability report serves the organisation as a better tool to legitimise those products/services and activities. More precisely, a good sustainability report may aid the organisation to ensure acceptance by key stakeholder groups including government, employees, and media (ibid). Improvement of corporate reputation and brand value is another notable purpose of this concept. As scholars point out, systematic corporate sustainability reporting practices would assist an organisation to gain competitive advantages over its market rivals (ibid). The CSR practices can be considered as an indicator for the firm’s overall performance; hence, the organisation can conduct a better performance evaluation using a corporate sustainability report. Using this reporting practice, companies try to increase their transparency and accountability within the organisational environment. Enhancement of employee motivation and establishment of internal information and control process are other important goals of CSR (ibid). Many managers view this concept as a better way to enhance strategy planning and execution as it throws light on the organisation’s growing needs and requirements. Finally, sincere corporate sustainability reporting practices would benefit an organisation to add value to its professional ethics. Motivators for CSR A detailed evaluation of Stakeholder Theory and Legitimacy Theory would better explain the key motivators for corporate voluntary sustainability reporting practice. The stakeholder theory is greatly related to organisational management and business ethics and it gives specific focus to morals and values that have to be followed in organisational management practices. This concept was originally developed by R. Edward Freeman. This theory particularly identifies the stakeholders of a business and describes various approaches to serve the interests of those stakeholder groups effectively. The stakeholder theory states that an organisation has to operate on behalf of its stakeholders including shareholders, employees, customers, and local communities (as qtd in Armstrong 2012, p.126). It is obvious that primary goal of shareholders and employees is wealth maximisation. As discussed earlier, the practice of corporate sustainability reporting assists an organisation to improve its market stature and brand value, which in turn would increase the firm’s business volume and thereby profitability. In addition, this practice also benefits shareholders to assess the sustainability of their organisation. CSR is useful for investors to evaluate an organisation’s public acceptance and to make potential investment decisions. At the same time, customer and local communities pay particular attention to value creation activities of the firm. Hence, the CSR benefits customers and general public to evaluate the company in terms of its corporate responsibility practices. In short, stakeholder satisfaction is one of the major motivators promoting voluntary CSR practices. As Guthrie and Parker points out, legitimacy theory “posits that businesses are bound by the social contract in which the firms agree to perform various socially desired actions in return for approval of its objectives and other rewards, and this ultimately guarantees its continued existence” (as cited in FPO, n.d). In simple words, public acceptance by key stakeholders is necessary for an organisation to continue its business operations successfully for the long term. Researchers indicate that an attractive sustainability report would assist an organisation to keep its stakeholders’ interests in the company. Today, different governmental and other competent non-governmental bodies give great emphasis to setting specific standards on environmental matters like greenhouse gas emissions and the use of natural resources. As a result of rising concerns over environmental sustainability, modern communities would not accept businesses that do not go in line with accepted environmental standards. Hence, a corporate sustainability report can be a better tool for an organisation to convince its stakeholders that the company strictly complies with accepted social norms and environmental standards. Referring to the legitimacy theory, an organisation has the obligation to contribute the social welfare. In this regard, a sustainability report is of broad scope as this tool would assist the organisation to address its short term as well as long term sustainability impacts of supply chain operations. CSR practices of Walmart and Toyota According to Fortune Global 500 in 2012, Walmart Stores is ranked as the third top company in the world whereas the Toyota Motor Corporation achieved the 10th place (CNN Money, 2012). While analysing 2011 annual reports of Walmart and Toyota, it is clear that both the companies have reported a notable annual financial growth. The Walmart’s annual report indicates that the organisation’s top executives are giving specific attention to realising and setting financial priorities of growth (Walmart, 2011). The report also reflects that the firm enhances its market expansion and sustainable growth through establishing new stores (ibid). On the other hand, the Toyota’s 2011 annual report highlights the firm’s strong market position despite the various challenging circumstances including 2011 Tohoku Earthquake; it says that the company would aim to achieve continuous growth by emphasising its customer-first approach (Toyota Motor Corporation, 2011). From the Walmart’s annual report, it seems that the firm’s environmental policies are centred on three major goals including use of 100% renewable energy, elimination of waste, and development of sale of eco-friendly products (Walmart, 2011). The annual report also asserts that the organisation continues to play bigger leadership role in social issues affecting quality of people’s lives (ibid). The Toyota’s annual report (2011) indicates that the company has already launched some major initiatives to develop next generation environmentally-friendly vehicles. The report also declares that the Toyota will invest huge amounts in social development and drive this goal through corporate activities in social communities (ibid). In order to fulfil the social responsibilities in an effective way, the company has established a separate CSR Committee (ibid). The Walmart’s Global Responsibility Report (2011) addresses developmental programmes, global audit results, awards and recognition in addition to discussing social and environmental aspects. While addressing environmental aspects, the sustainability report has greatly focused on more use of renewable energy and reduction of greenhouse gas emissions. The company believes that a local approach is assistable to promote global efficiency. The report points out that the company has increasingly shifted its focus to renewable energies like hydrogen fuel cells, solar thermal systems, and wind power (ibid). From the sustainability report (2011), it is evident that integrity, individual respect, better customer services, and continuous improvement constitute the company’s social culture. The Toyota’s Sustainability Report 2011 particularly describes the company’s plans to rebuild the damaged Japan. The report indicates that the firm’s priority will be one the rebuilding of destroyed Japanese infrastructure. In addition, it describes the company’s policies to address resource depletion and toxic emission issues (ibid). Management of legitimacy through CSR Through the above described corporate sustainability disclosures, both Walmart and Toyota can manage the aspect of legitimacy effectively from the perspectives of stakeholder theory and legitimacy theory. As both the firms reported stable market growth, shareholders and investors are most likely to continue their business relationship with the company. In other words, by reporting a strong financial condition, the companies could fulfil their basic obligations to their key stakeholders. In addition, their sustainability reports indicate that both the companies are giving key focus to social as well as environmental aspects. Both Walmart and Toyota have prioritised the elimination of greenhouse gases for enhancing environmental sustainability. It is evident that greenhouse gases like CO2 constitute a prime cause of ozone layer depletion, which in turn leads to extreme environmental challenges such as global warming and climate change. Hence, societies across the globe are increasingly concerned about the growing rate of greenhouse gas emissions. In this context, Walmart’s and Toyota’s environmental initiatives described in their sustainability reports would greatly assist the companies to obtain better public acceptance. Undoubtedly, shareholders, investors, and employees are also likely to evaluate social and environmental contributions of a firm. To be more specific, greenhouse gas elimination plans developed by the firms reflect that the companies are committed in delivering high standard corporate services. The recent Tohoku Earthquake 2011 caused huge damages in Japan. Hence, Toyota’s plans to rebuild the country would be very appealing to its stakeholders. Through this reported initiative, the company can legitimise its supply chain activities and meet stakeholders’ interests effectively. Similarly, it is a known fact that world’s non-renewable energy sources are getting depleted. Therefore, Walmart’s plans to use 100% renewable energy sources can be in line with its stakeholder interests. This plan would benefit the company to demonstrate positive sustainability impacts of its operations on the society and thereby achieve greater acceptance among its stakeholders. Conclusion From the above discussion, it is clear that corporate sustainability reporting practice gives a clear view of the economic, social, and environmental performance of the organisation to its stakeholders. Benchmarking, demonstration, and comparison are the major purposes of a corporate sustainability report. The stakeholder theory and legitimacy theory throw light on the significance of publishing corporate sustainability reports. Walmart and Toyota have disclosed their economic, social, and environmental performance in detail in their CSR. This practice assists both the organisations to manage their legitimacy aspects and hence promote stakeholder values. In short, the concept of CSR is becoming increasingly important for multinational corporations to continue their market growth despite the various challenging circumstances in the global market. References Amstrong, M., 2012. Armstrongs Handbook of Management and Leadership: Developing Effective People Skills for Better Leadership and Management. India: Kogan Page Publishers. Herzig, C and Schaltegger, S., 2006. Corporate sustainability reporting: An overview, In: S. Schaltegger., M. Bennet and R. Burritt, Sustainability Accounting and Reporting. Netherlands: Springer. FPO., n.d. 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