Comparing the Environmental Disclosures of Annual Reports from Fosters Group - Case Study Example

Introduction This paper will compare and contrast the environmental disclosures of annual reports from Foster’s Group, which is headquartered in Australia (a common law country) and Volkswagen Group which is headquartered in Germany (a code law country). Sustainability disclosures will show whether similarities and differences of the environmental disclosures for the two companies conform to expectations. The framework for Global Reporting Initiative (GRI) sustainability reporting discloses the results which happened in the current period in the context of the commitments, strategy and management approach of the business. These reports are used for the purposes of benchmarking, demonstrating and comparing. This kind of reporting entails social and environmental reporting that is a type of financial reporting whereby businesses report their social and environmental performance in addition to their financial performance. Sustainability reporting refers to the practice where businesses measure, disclose and show accountability to all stakeholders for business performance towards sustainable development goal (Dyllick and Hockerts, 2002). A sustainability report provides a balanced and fair representation of the sustainability performance of the business reporting and includes both negative and positive contributions. There are several advantages of reporting social and environmental performance which include; Reporting social and environmental performance is important for the following reasons: It helps to increase financial returns for the shareholders and also reduce their risk exposure since it creates confidence to investors to commit their funds in the organization. Fess and Warren (2004) observes that though profits are important, the key issue is how to use them in setting the goals of the organization. The ultimate measure of performance is not what the organization earns but how the earnings are valued by investors. The wealth maximization goals of the shareholders must be in line with its social responsibility. Investors, when analyzing the organization will consider the risk inherent in the organization’s operations, the time pattern over which the earning increases or decreases, the quality and reliability of reported earning among other factors. By adopting a policy that maximizes value of the market, the organization can attract capital, provide employment and offer social benefits to its community. It helps to attract and retain employees since it maximizes their welfare through reporting the aspect of employment in labour practices performance indicators. A contended body of employees will boost the organization’s production hence sales and profits increases. It improves customer sales and loyalty because of its enhanced reputation. Organization need to be mindful of the customers and seek ways of retaining them through offering goods that the customers view to have a value. For this reason then, the organization should provide quality product and customers should get a good value for their money. It helps to ensure continued commitment by suppliers. This requires that the organization assure the suppliers not only on paying for the supplies but also being able to raise internal equity to back their finance and show their continued operations in the long run. The suppliers will be committed as they see the organization being transparent and accountable for its operations. It helps to strengthen community relations through involvement in corporate social responsibility. This is because it shows the sense of responsibility and accountability to the society from which it operates. Reporting social and environmental performance contributes to environmental sustainability. The positive relationship with the community helps the organization to identify opportunities for waste reduction and thereby cut down on its costs. Foster’s Group Ltd is an Australian based company and its headquarter is in Australia which is a common law country. The main activities of the company are the production and marketing of alcoholic products. Its profit margin for the year 2011 stood at 21.8% and had a debt-equity ratio of 82.1%. Volkswagen Group is a German based company and its headquarter is in Germany which is a code law country. The main activities of the company are the production and marketing of motor vehicles. Its profit margin for the year 2011 stood at 5.7%. The objectives of financial reporting and financial statements are derived from the needs of the external users of accounting information. The conceptual framework for financial accounting and reporting is a constitution, which contains a logical system of unified objectives and fundamentals, which leads to consistent standards that prescribe the nature, functions and limits of financial accounting and sustainability reporting. The fundamentals are the underlined concepts of accounting that guides the choice of events to be accounted for, the measurement of those events (transactions) and the means of summarizing and communicating them to concerned parties. In addition, new and emerging issues should be quickly solved by reference to an existing framework of sustainability reporting guidelines. Over the years, numerous organizations, committees and interested individuals have developed and published their own conceptual framework, but no single framework has been universally accepted and relied on in practice. Due to these differences in practice there is need to harmonize the financial reports. Otherwise, the investors and creditors to the company may question the truth and lose trust in the financial reports of the company. The report from an external auditor indicates whether the business being audited has prepared its financial statements in an acceptable manner so that they can be compared with the previous years’ statement and to some extent with the statements of other enterprises. The accounting principle must be developed in relation to the stated objective of financial reporting and financial statements. GRI attempts to restore truth and trust in sustainability reporting by ensuring that the conceptual framework for sustainability reporting guidelines is adhered to. It ensures that the objective of financial reporting and financial statements are met. The GRI recommends the following aspects for disclosure: materials; energy; water; biodiversity; compliance; emissions, and waste. Throughout the sustainability report several environmental performance will indicate the disclosure for the various aspects recommended by GRI. Environmental performance indicators Aspect for disclosure Environmental performance indicator Materials Materials usage Energy Energy consumption Water Water withdrawal Biodiversity Stewardship of ecosystems Compliance Fines imposed and non-monetary sanctions for not complying with laws and regulations relating to environment. Emissions Weight of greenhouse gas emissions Effluents Weight of ozone-depleting substances emitted Waste Waste minimization As noted in Global Reporting Initiative (2002), sustainability reporting guidelines have principles that define the content of report and ensure that information reported is qualified. The environmental aspect of sustainability reporting concerns the impact of a company on natural systems (both living and non-living). Environmental indicators show performance associated with inputs, for instance, material, water and energy and outputs, for example, waste, emissions and effluents. Apart from these environmental indicators cover performance associated with environmental compliance, biodiversity and other relevant information like expenditure on environment and the impacts that products and services have. Both companies use materials that are sourced from the country of production. Volkswagen uses waste materials that do not impact on food crops and does not necessitate any change in the use of land. The environmental indicators of waste in Foster Group is disclosed in terms of waste minimization while in Volkswagen Group it is indicated by waste production. Energy consumption of foster Group is indicated by the energy consumed in the production of beverages while for Volkswagen Group it is indicated by the energy produced by the automotive. Water is used in the manufacturing processes of the two companies and the environmental performance indicator for both companies is the recycling of water. Both companies emit waste products; however, emissions in Foster’s Group is mainly in waters downstream while for Volkswagen is air pollution. The main air pollutants in this company are nitrogen oxides, particulates, sulphur dioxide, ammonia and volatile organic compounds. These emissions have been greatly reduced through the use of efficient separator systems. The main areas of non-disclosure are management policies and systems. Indicators from this category include top executive statements, environmental management systems and corporate context. Gilkison (1997) argues that the performance of a company is positively related to the degree of sustainability disclosure. This is the case because it shows that the company addresses the welfare of all stakeholders which by extension enhances its performance. The similarities and differences conform to expectations because at the level of countries Geman companies disclose at the highest level hence the high level of disclosure by Volkswagen Group than Foster Group. In addition, Volkswagen Group has adopted GRI guidelines for longer period than Foster Group. Furthermore, stakeholders in code law countries such as Germany have their concerns addressed by managers unlike sustainability stockholders in common law countries like Australia. This being the case companies in code law countries are anticipated to show more sustainability disclosure. Conclusion The primary objective of sustainability reporting is to provide useful information for decision makers. Users of sustainability information do not have similar needs and interests; therefore, since these reports serve a variety of users, the needs of some of the users receive more emphasis than the need of others. The ultimate measure of the performance of the company is not the company’s earnings but how investors value the earnings. A low return on investment will discourage existing investors and scare potential investors. If a decision maintains or increases the firm’s overall value, it is acceptable from a financial view point. Many organizations in the world are showing willingness to adopt sustainability reporting. This is influenced by the fact that stakeholders are now demanding increased transparency and accountability from organizations. However, international comparisons show that even the leading international reporters are doing badly in some reporting sections when subjected to complete benchmark. References Dyllick, T. and Hockerts, K., 2002. Beyond the business case for corporate sustainability. Business strategy and the environment, 11:130-141. Gilkison, B., 1997. Environmental accountability: award winners show the way – others need a push. Chartered accountants journal of New Zealand, August: 57-61. Global Reporting Initiative, 2002. Draft 2002 sustainability reporting guidelines, April, GRI. Read More