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RR98 - Social and environmental reporting and the business case
Dr Crawford Spence and Professor Rob Gray, 2007
Executive summary
The research set out to shed light on the diverse and complex reasons why organisations undertake voluntary social and environmental reporting and recommends a new approach to – or at least a new mindset in – reporting.
The ACCA Awards for Sustainability Reporting recognise and reward the continuing, substantial progress made by an increasingly large number of organisations in the field of social, environmental and (more contentiously perhaps) sustainability reporting.
Such reporting has developed alongside the greater adoption, by leading organisations, of mechanisms such as environmental management systems, coherent approaches to social responsibility and attempts to integrate corporate understanding of sustainability into the core business.
Guided by institutional structures like the ACCA Awards for Sustainability Reporting, the Global Reporting Initiative (GRI) and standards such as AA1000, the leading edge of voluntary stand-alone reporting continues to rise.
This steady incrementalism is an essential element in any response to the growing demands of sustainability. It may be necessary, but is it sufficient?
The research suggests that corporate social responsibility (CSR) and social and environmental reporting (SER) motivations are all tightly harnessed to a ‘business case’ and the authors use this conclusion to ask two further questions. First, can this incremental approach to addressing the interactions between business and social/environmental issues produce the required level of change sufficiently quickly? Second, are there essential elements in the social and environmental agenda which lie beyond the business case; beyond the capacity of business to deliver?
The authors call for more debate around the need for twin-track approaches to addressing sustainability and conclude that reporting can play a critical role in our understanding of what voluntary and business-led initiatives can – and cannot – achieve as society faces up to the immense challenges presented by the urgent need to achieve sustainable development.
The issues
The research set out with the objective of bringing clarity to the research literature which has increasingly suggested that the reasons why organisations undertake (voluntary) social and environmental reporting are diverse and complex.
SER is the predominantly voluntary, self-reporting of an organisation’s social and environmental interactions. Such reporting is increasingly undertaken in stand alone reports – some in hard copy, many on the organisation’s website – and represents an organisation’s understanding of what it is to be environmentally and/or socially responsible and (potentially at least) sustainable. Clarity concerning the motivations for such reporting is worthy of pursuit particularly due to the range of apparent conflicts and contradictions that seem to surround reporting and its discussion, especially in commercial, professional and political fora.
These tensions and contradictions – at least as we see them – provide an important backdrop to the research and are central to the way in which the issues are perceived and responded to. Some of these potential tensions and contradictions include:
- the very upbeat nature of the tone used in reporting, as opposed to the selectivity of the reporting and the relatively few organisations that adopt it (see, for example, ACCA 2006; Kolk 2003; KPMG 2005)
- the immense progress made by industry in adopting an incremental approach, versus the trends in the global/planetary data, which suggests a need for step changes (see, for example, Meadows et al. 2004)
- the progress and innovation in reporting (see, for example, ACCA 2006) versus the almost complete absence of evidence – as far as we can assess – of a discharge of strict accountability or that organisations are being held to account
- the voluntary nature of reporting and the constraints of a business case: in other words, whether corporations are capable of voluntarily discharging an accountability that could honestly expose their socio-environmental impacts (Tinker et al. 1991)
- the very positive claims that are made about the nature of (for example) sustainable development and the almost complete absence of any evidence to support such claims (see Box A and, for more detail, Gray 2006 and Erusalimsky et al. 2006)
- the apparent lack of any notion that there is any conflict between economic pursuits and social and environmental desiderata (see section 1.5, page 15 of the full report).
Box A: Potential tensions and contradictions: examples of quotations in stand-alone SER reports‘Our vision is that the principles of sustainable development will become an instinctive part of everyday business. We must deliver fair value to shareholders based on competence, vision, minimising risks and maximising opportunities.’ Anglo-American, Report to Society 2005: 7. ‘For BHP Billiton, sustainable development is about ensuring our business remains viable and contributes lasting benefits to society through the consideration of social, environmental, ethical and economic aspects in all that we do.’ BHP Billiton, Summary Report 2005: 3. ‘Sustainable development has increasingly come to represent a new kind of world, where economic growth delivers a more just and inclusive society, at the same time as preserving the natural environment and the world’s non-renewable resources for future generations.’ BT, Social and Environmental Report: Summary and Highlights 2005: 19. ‘Growth needs to be sustainable if we are to bring long-term value both to our shareholders and others… For our business to be sustainable, we must be profitable.’ National Grid Transco, Operating Responsibly 2004/05: 3. ‘Our approach: As an organisation, we believe that sustainable growth in shareholder value is best achieved through sustainable business practices.’ United Utilities plc, Our Company 05: Stakeholder Report 2005: 4. |
The results suggest, in line with prior research, that a variety of motivations underpin SER. These motivations (see Box B) vary across organisations. Notwithstanding this apparent diversity, the different motivations appear to converge around notions of conventional ‘business success’. In other words, the reasons to report social and environmental information are all tightly harnessed to a ‘business case’.
Box B: principle categories of motivations
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The research
Despite the very significant incremental changes in the interface between business and sustainability, the study questions whether the widely maintained view that business can deliver responsibility and sustainability unaided is, in fact, plausible. The research is based around interviews conducted with managers in 36 UK firms. The interviews were, initially, of a deliberately open nature through which the rationales and motivations underlying SER could be explored. This led to two distinct stages in the research process.
Firstly, the pilot study explored various reporting and reporting-related issues in an open-ended manner. The intention here was to allow the conversations between the researchers and the managers to determine the way in which issues unfolded while specifically recognising the diversity shown by previous studies on the subject. It was from this exploration that the apparently unifying theme of the ‘business case’ emerged.
The results from the pilot interviews all indicate a prevalence of commercial motivations for SER. A majority of interviewees described this commercial predominance as the ‘business case’ for SER. Also, significantly, the results of the pilot study show that it is often very difficult to separate SER from corporate social responsibility.
Secondly, the main study explored the pervasiveness of the business case; the diversity and nature of the rationales offered; and the limits and constraints that such rationales presented for the development of SER.
The findings
- Both SER and CSR were driven by a variety of different pressures and perceived benefits.
- Pressures included reputation risk management, stakeholder management, the need to satisfy pressures from the City and from peers.
- Benefits included reputational effects as well as socio-environmental and business efficiency gains.
- The role of key individuals in initiating and developing SER and CSR was often critical.
- Interviewees commonly treated CSR and SER as interchangeable and, despite there being opportunities to talk about each separately, seemed pre-disposed towards bundling the two concepts and/or activities together.
- Notwithstanding the variety of different motivations and the various ways in which they manifest themselves across firms, the overwhelming majority are driven by business reasons. The motivations form part of some overall business case – even if the way in which the business case manifests itself appears to vary across firms.
- Interviewees held views that characterised their organisation’s relationship with the natural environment as largely harmonious, or at least manageable.
- The business case, with its emphasis on win-win situations, seems to preclude consideration of situations where there may be conflict.
- The business case seems to limit what organisations can do in the first instance, and it appears to preclude discussion about the limits of the business case itself.
The implications: beyond the business case
The report concludes with an initial exploration of what this ‘limit to the business case’ might mean for industry, society, social responsibility and sustainability. Despite the very significant incremental changes that have been wrought in the interface between business and sustainability, the report suggests that there are important and unexplored areas ‘beyond the business case’. That is, in the face of widespread evidence (on matters as diverse as the low incidence of voluntary reporting, the quality of reporting and the increasing urgency of sustainable development), the study questions whether the widely maintained view that business can deliver responsibility and sustainability unaided is, in fact, plausible. This is not to suggest that businesses are necessarily irresponsible or that that they can or should seek to go beyond a business case. It is, rather, to request that more clarity be brought to the debate and that the limits to businesses’ contribution to society and the environment be explicitly and forcibly recognised. The report calls for further debate on this issue and, recognising explicitly that voluntarism must have its limits, recommends a new approach to (or at least a new mindset in) reporting and suggests that we might move towards a reporting on organisational ‘un-sustainability’.
Recommendations
In the light of the increasingly convincing data about the state of the planet and its inhabitants and the claims by a growing number of businesses to be ‘sustainable’, it is crucial that we develop a clear and reliable understanding of the relationship between organisational activity and sustainability.
Such understanding, as it currently exists, is scarce and where it does exist it is often contested, lacks clear data to support claims and relies upon poor communication.
The report therefore recommends four strands of action.
Reporting
- Organisational reporting should ultimately directly address sustainability through the production of ‘un-sustainability reports’ comprising: – ecologically, a mass balance (see Danish Steel Works 1991 and Ricoh Group 2005); and an estimated ecological footprint (see Best Foot Forward Ltd, 2004) – socially, a detailed and honestly addressed stakeholder map (see Traidcraft plc and Exchange and Cooperative Financial Services) and full reporting of the information relating to that map (ie descriptive; legal and quasi legal; company orientated; plus stakeholder requested; reporting for each relationship); and an explicit attempt to address issues of social justice – an honest confrontation of the organisation’s own un-sustainability.
- Attestation of sustainability and/or sustainability reports must challenge all claims to this state that are not supported by convincing and reliable evidence.
Regulation
- Voluntary initiatives are valuable but not sufficient. Government must either ensure that the business case aligns with full sustainability reporting and accountability or regulate to ensure this outcome.
- The accounting profession should actively support the government in this.
Debate
- The limits of the business case must be publicly, carefully and regularly, re-examined. There is no high moral ground here but an urgent need for understanding.
- Claims to win-win outcomes must be supported by data or fiercely challenged.
Further research
- Details of the business case, how it is developed and where its limits lie.
- An examination of the limits of the win-win.
- Developing further exemplars of how the un-sustainability report might be implemented.
- Examining the impediments to wider debate, wider accountability and wider acceptance of the necessities of sustainability.
- More specific examination of how reporting has developed that may provide guidance on what is not being reported: where the major failures are in completeness and why.
References
ACCA (2006), ACCA UK Awards for Sustainability Reporting 2005: The Report of the Judges (London).Erusalimsky A., Gray, R. and Spence C. (2006), ‘Towards a More Systematic Study of Standalone Corporate Social, Environmental and Sustainability Reporting: An Exploratory Pilot Study of UK Reporting’, Social and Environmental Accounting Journal, 26/1: 12–19.
Gray, R.H. (2006), ‘Does Sustainability Reporting Improve Corporate Behaviour? Wrong Question? Right Time?’, Accounting and Business Research (International Policy Forum), 65–88.
Kolk A. (2003), ‘Trends in Sustainability Reporting by the Fortune Global 250’, Business Strategy and the Environment, 12/5: 279–91.
KPMG (2005), International Survey of Corporate Responsibility Reporting 2005 (London: KPMG).
Meadows, D., Randers, J. and Meadows, D. (2004), Limits to Growth: The 30-Year Update (London: Earthscan).
Tinker, T., Lehman, C. and Neimark, M. (1991), ‘Falling Down the Hole in the Middle of the Road: Political Quietism in Corporate Social Reporting’, Accounting, Auditing and Accountability Journal, 4/2: 28–54.