Group 1 Assignment 3 Group Report PDF

Preview

Summary

Research Report...

Description

Assessing the Quality of Corporate Sustainability Reports as a Useful Tool in Improving Environmental Performance Amanda Kelleher, Sophie Willsher, Anna - Kathi Galeani, Cindy Joli, Stacy Homer & Lauren Matrenza

Murdoch University 2020

Murdoch University 2020

Contents Abstract.................................................................................................................................... 3 . 1. Introduction.......................................................................................................................... 3 2. Method.................................................................................................................................

4

3. Results...................................................................................................................................

5

4. 7 Discussion.............................................................................................................................. 5. Conclusion............................................................................................................................. 10 6. References.............................................................................................................................

12

7. Appendices............................................................................................................................

14

2

Murdoch University 2020

Assessing the Quality of Corporate Sustainability Reports as a Useful Tool in Improving Environmental Performance Amanda Kelleher, Sophie Willsher, Anna -Kathi Galeani, Cindy Joli, Stacy Homer & Lauren Matrenza

ABSTRACT There is wide debate in the literature about the usefulness of Corporate Sustainability Reports (CSR) in assisting companies to improve their environmental performance. The Global Reporting Initiative (GRI) provides a framework for corporations to refer to when creating reports about environmental performance but whether the indicators are being used correctly is also debated as CSRs may produce symbolic measures. We use the GRI principles Timeliness, Reliability, Balance, Materiality, Comparability and Accuracy and Clarity, which we combined, to assess the quality of 10 sample CSRs across a range of multinational companies, differing business domains and geographical locations as a useful tool in improving environmental performance. The results show that while a CSR can improve a company’s image, the quality of the information provided in the report indicates that the low scores in Balance, Comparability and Reliability can negatively affect stakeholder perceptions and overall environmental performance leading to the conclusion that CSRs are not a useful tool in improving environmental performance.

1. Introduction The further we progress into the 21st century, sustainability issues in business are becoming more prominent. For companies to be considered as contributing to sustainability they need to report non-financial information about the companies’ approach to sustainable business practices (Habek & Wolniak, 2016). Companies have many benefits to gain by increasing transparency about sustainability practices, such as enhancing brand value and reputation, benchmarking themselves against competitors and encouraging employees (Herzig and Shaltegger, 2006). Despite the benefits, corporate sustainability reporting is still considered voluntary in many places (Badia, Bracci &Tallaki, 2020). Some literature suggests that sustainability reports can improve corporate environmental performance through the collection, analysis, and review of data, as well as the setting and achieving of new environmental goals (GRI, 2020; Park & Brorson, 2005). While many companies now opt to release corporate sustainability reports (CSR), difficulties occur surrounding the quality of information they impart (Habek & Wolniak, 2016) and the reliability of the report itself (Badia et al., 2020). Now that corporate sustainability reporting is almost mainstream, much research has been done to analyse the subject matter included in these reports (Roca & Searcy, 2012). Indicators that have been assessed for their usefulness in CSRs are generally guided by “the triple bottom line”, which consists of economic, environmental, and social performance (Elkington, 1998). There are many guidelines available to direct companies on what they

3

Murdoch University 2020

should include (Roca & Searcy, 2012), with the Global Reporting Initiative remaining the most common (GRI, 2006). Despite the wealth of literature now available on CSRs, most published studies focus more on whether indicators are utilised in the reports, rather than what the specific indicators are (Roca & Searcy, 2012) and whether they are useful. The purpose of this study is to assess the quality of corporate sustainability reports (CSR) from a range of report types, businesses, and geographic coverages. Each will be assessed against a set of six specific quality criteria, like those defined by the GRI. The qualitative results will be used to determine whether CSRs provide enough information to stakeholders to make judgements about, and additionally be used as tools by corporations to improve environmental performance. 2. Method

The aim of this study was to evaluate the quality of a sample of 10 CSRs, each report representing facets of a vast array of multinational corporations, differing business domains (clothing, technology, entertainment) and far spread geographical distribution. The reports were analysed with each being assessed with a score by using the Likert’s Scale. Likert’s scale is a response scale, generally used to assess respondents’ level of agreement (ordinarily from 1-5) with a provided statement, 1 for poorest performance and 5 for most achieved (Bertram 2007). The respondents have created their own criteria score based on the Likert model to fit each of the following criteria, analysing each of the corporate reports on a scale 0 to 4. A more detailed scoring table on each criterion can be seen in appendix A. Six criteria (Table 1) have been chosen to measure the corporate reports, Timing, Reliability, Balance, Materiality, Clarity and Accuracy, and Comparability, similar those of the GRI model. The reason for settling on GRI criteria for the evaluation of the reports is due to the fact that this framework is regarded by a wide audience as a global standard for sustainability reporting (KPMG, 2011 as cited in Hahn & Kuehnen, 2013). All the GRI reporting principles for defining report quality were used (Accuracy, Balance, Clarity, Comparability, Reliability & Timeliness), respondents in this study agreed to combine Accuracy and Clarity to form one assessment criteria. Additionally, the list was augmented by the Materiality criteria, which is listed under the reporting principles for defining report content in the GRI framework. The decision to include Materiality in the list of criteria to assess report quality was based on the argument that the quality of a CSR is highly dependent on the reported content. Furthermore, the results of the quality assessment are then used in a second step to guide the discussion on the usefulness of CSR as a tool for corporations to improve their environmental performance.

Table 1: List of the criteria adopted from the respondents to be the most suitable in assessing the corporate reports. Timeliness

Reports must be made available both regularly and at appropriate times, so that stakeholders can make informed decisions that are relevant to given events in time. (GRI 2016, Badia, Bracci & Tallake 2020) 4

Murdoch University 2020

Reliability

Balance

Materiality

Clarity and Accuracy

Comparability

Reports must be able to prove the authenticity of its contents and extent to which reporting principles have been applied through external reassurance (GRI 2016). This criterion pertains to the unbiased approach that necessitates corporate reporting. Therefore, reports are expected to include “both favourable and unfavourable results (GRI. 2016). GRI101 defines materiality as topics that reflect significant environment issues OR substantively influence the assessment and decisions of stakeholders. Eccles and Krzus (2014) state that materiality is firm-defined and will mean different things to different firms. It is so loosely defined that the firm is entirely responsible for what is and is not material. Because of this, the materiality assessment of the 10 CSRs will be reviewed based on their 1) relevancy to environment 2) ability to base substantive decisions off of 3) content in the broader aspect of the company, not just the topic at hand. Reporting must show information clearly, so to be easily understood, accessed, and used. Further, as information can be expressed and interpreted in many ways, the way in which it must be portrayed to stakeholders must be accurately expressed (GRI 2016). The reported information is presented in a way that allows stakeholders to analyse changes in the organisation’s performance over time, and hence can support comparison with other organisations (GSSB, 2016). This is done through the presentation of results over time, as well as the comparison of results obtained with previously stated objectives (Badiak, Bracci & Tallaki, 2020).

Each of the assessed criteria had an adapted Likert scale, that allowed this report to holistically analyse the reporting performance of each CSR while maintaining comparability when interpreting the results. Complete data and analysis were calculated and generated using analysis functions in Excel. 3. Results Table 2: Average scores and performance rates for each company assessed against the criteria using a 0-4 point scale. Company Adidas Broken Hill Proprietary (BHP) Bosch Disney Fortescue Metals Group (FMG) Microsof Nike Miele Sony Lego

Average Score 2.3 2.7 2.5 1.3 1.8 2.0 3.5 1.7 1.7 2.0

Performance Rate (%) 58 67 62.5 33 46 50 87.5 42 42 50

5

Murdoch University 2020

Figure 1 represents the average scores of the 10 CSRs sampled in this study. Nike received the highest score 3.5 (87.5%) and Disney received the lowest score 1.3 (33%). 3.5

Average Score

3 2.5 2 1.5 1 0.5 0

Adidas

BHP

Bosch Disney

FMG Microsof Nike

Miele

Sony

Lego

Corporate Reports Figure 1: The mean and standard deviation ( ± SD) score used from the criterion to measure the corporate reports (n=10).

Table 3: Mean scores and percentages of the six criteria used to assess the 10 sample CSRs in this study. Criteria Comparability Reliability Timeliness Accuracy & Clarity Balance Materiality

Mean score 2.3 1.7 2.5 2.5 1.4 2.5

Percentage (%) 57.5 42.5 62.5 62.5 35 62.5

Figure 2 reflects the results from each of the respondents in assessing the corporate reports. Materiality, and Clarity & Accuracy achieved the highest average score (2.5), Balance achieved the lowest score (1.4). Our highest and lowest criterion scores reflect a range between 3 & 1 on the adapted Likert scales, with no CSR averaging a score of 0 or 4 (Best and worst performance). Standard error of 0.17 indicates small variation across the means, under an acceptable level.

6

Murdoch University 2020

3 2.5

Average Score

2 1.5 1 0.5 0

m Ti

el

e

n ss

es

s Re

bi lia

y lit

la Ba

e nc M

y lit ia r e at Cl

a

an ir ty

d

A

cy ra u cc Co

m

p

i ab r a

y lit

CSR Criteria

Figure 2. Bar chart displaying Corporate Sustainability Reporting criteria's average scores across 10 CSR's based on a 0-4 Likert scale. SE = 0.17

4. Discussion The findings of the analysis, regarding the criteria used, resulted in Materiality, Timeliness, and Clarity & Accuracy scoring above average with a score of 2.5 (62.5%). The second lowest score was given to Reliability being 1.7 (42.5%), which can be described as unsatisfactory and the lowest score was given to Balance with value of 1.4 (35%), which could be regarded unacceptable. In interpreting the quality of the CSRs, the average score of the sample of 10 reports is 2.1 (54%), ranging from the highest score for Nike of 3.5 (87.5%) to the lowest score for Disney with 1.3 (33%). These scores indicate average quality of the sample sustainability reports, an unsatisfactory result. Results of concern are the low scores for Reliability and Balance. Reliability influences the credibility of a report and hence makes the quality of the reports seem questionable (Badia, Bracci & Tallaki, 2020). This in turn will have a negative effect on the reports’ as plausible documents to gain information and understanding of a company’s non-financial performance (Ibid.). Additionally, an unbalanced report suggests the preferential representation of favourable practices, this infers that negative aspects regarding social and environmental activities of a company are not reported accurately. Unbalanced reporting obscures reality and sheds a negative light on the quality of CSRs (Diouf, & Boiral, 2017). On a global scale, the practice of sustainability reporting is mostly voluntary (Doane & Abasta-Vilaplana, 2005) and this raises questions about the incentives behind the publishing of a CSR. The literature provides a comprehensive list of reasons for corporations to adopt 7

Murdoch University 2020

sustainability reporting, examples of these are accountability, transparency, adaptation to external pressure and stakeholder expectations, legitimacy, enhancement of brand value, reputation, competitiveness or motivation of employees (Badia, Bracci & Tallaki, 2020; Michelon, Pilonato & Ricceri, 2014; Hahn & Kuehnen, 2013). Generally, the reasons for reporting can be grouped in either of two opposing perspectives, the substantive approach, or the symbolic approach, as described by Michelon, Pilonato & Ricceri (2014). Under the substantive approach the corporations are implementing actual changes in their operations, procedures, and structures to ensure substantial improvements in environmental and social performance (Ibid.). The symbolic approach has many different names in the literature such as impression management (Cho et al., 2012) or greenwashing (e.g. Adams and Frost, 2006; Owen, 2006; Tregidga and Milne, 2006 as cited in Diouf, & Boiral, 2017) and points toward practices that misguide stakeholder perceptions of a corporation’s performance (Ibid.). The second approach is presented by companies with criticisable practices regarding their social and environmental activities, who consequently encounter greater stakeholder pressure (Hahn & Kuehnen, 2013). As the popularity of CSR adoption by corporations raises steadily, the quality of these reports is being increasingly investigated by the scientific community with questions arising as to whether the quality of a CSR is a valid tool to measure a corporation’s environmental performance (Michelon, Pilonato & Ricceri, 2014). To be able to answer this question, the positive and negative aspects of reporting practices are being investigated and the literature provides the following insights into the most pressing aspects that can affect the quality of a CSR. It is being argued that the completeness and credibility of the reports is diminishing (Badia, Bracci & Tallaki, 2020), performance is not presented in a balanced manner and the focus is predominantly on positive aspects, leaving out the aberrations of a performance history. Frequently, information presented is not externally audited and reports are too long with a high density of irrelevant information which loses focus of the materiality aspects leading to the assumption that CSRs are used for impression management (Badia, Bracci & Tallaki, 2020). It is argued that templates for reporting structure, such as the GRI, could even enhance the symbolic performance as these guidelines are being misused to demonstrate seemingly best practice (Milne & Gray, 2013). This is done through the adoption of the framework, which enhances a company’s image of legitimacy but obscures their accurate environmental performance (Michelon, Pilonato & Ricceri, 2014). Conversely, sustainability reporting can be linked to a range of positive outcomes. Primarily it raises awareness of social and environmental practices and shows the influence of the market as being a strong tool to push changes in companies’ performances (Doane & Abasta-Vilaplana, 2005). Sustainability reporting can also improve reputation, as it signals transparency which builds trust around the company (Badia, Bracci & Tallaki, 2020). In regards to a company’s performance this could mean that reporting practice could strengthen a company’s capacity to realize long term goals, develop more profound nonfinancial values, manage risks, motivate communication within the organisation or improve management activities and decision making (Badia, Bracci & Tallaki, 2020). 8

Murdoch University 2020

Currently, the negative aspects of CSRs outweigh the positive outcomes and there is still a lot of doubt around CSRs being a useful tool to improve a company’s environmental performance (Milne & Gray, 2013). To improve the quality and usefulness of CSRs, there needs to be a reduction in impression management and stronger reporting guidelines for achieving positive performance outcomes, particularly in reliability and balance. Defining criteria for quality reporting, such as those in the GRI framework, is an attempt to improve the beneficial aspects of reporting (Diouf, & Boiral, 2017), but a closer look at some of these criteria highlights both positive values and weak spots. Reliability, Balance and Comparability received the lowest scores in this study and so have been chosen to be examined for their positive and negative values. The Balance criterion is used to assess the quality of a sustainability report based on bias, quality reports will present both favourable and unfavourable results (GSSB, 2016). Non compliancy with this criterion is evident when companies are overemphasizing positive results and mention misconduct only as a side note (Diouf, & Boiral, 2017). A study by Diouf & Boiral (2017) reveals that stakeholders are well aware of this practice, which raises questions about the validity of the information and could enhance the inference that frameworks such as GRI are being misused and that a CSR is not an effective tool to improve a corporation’s environmental performance. As a result, the present model of reporting is described as unsustainable (Milne et al., 2009 as cited in Milne & Gray, 2013) and it is being suggested that rather than reporting on a company’s sustainable practices, these reports should focus on the status of unsustainability and procedures and actions a company has planned to move to more sustainable procedures (Milne & Gray, 2013). The Comparability criterion aims to ensure that the reported information is presented in a way that allows stakeholders to analyse changes in the organisations performance over time and can support comparisons with other organisations (GSSB, 2016). This should be done through the presentation of results over time and the comparison of results obtained with previously stated objectives (Badiak, Bracci & Tallaki, 2020). Difficulties with this criterion arise due to companies not being able to present data on their performances or choosing which aspects of their performance they present data on. Hence data presented is being individually chosen, altered and transformed to meet the needs and circumstanced of t...