The current business environment, competition is evidenced to be growing for the modern organizations because of which they are persuaded to develop their business plan with low carbon strategies. An increasing number of businesses recent are making attempts to increase sustainability by means of reducing their carbon emission impact (Andrew and Cortese 2011). Such decision is taken by the organizations in reducing the impact of carbon emissions on business surrounding that further effects business environment of organizations. This further is deemed to have negative effects on sustainability and financial position of organizations. For this reason, decreasing carbon emissions is observed to be easier through taking up approaches in decreasing their carbon footprints and effective carbon disclosure.
From evaluating the current carbon disclosure indexes of the modern organizations, it has been evidenced that carbon footprint has increased by 50% all over the world because of increased greenhouse gas emissions (Boesso and Kumar 2016). This is resulting in increasing global warning all over the world with increasing rate of carbon dioxide. Considering the same, innovative carbon emissions along with green finance is considered being efficient for organizations sustainable projects which consider environmental protection and energy efficiency. Considering the same, the prior researches revealed that for the modern businesses to attain effective carbon reduction, carbon emission trading can lead to increased organizational expenses that further affects their competitive edge. Innovation in technology can facilitate the companies in reducing carbon emissions which leads to emission decrease along with attaining profit from emissions trading (Clarkson 1995). It has also been evidenced from the previous reasechers that local businesses these days are centered on developing strict policies in decreasing carbon and energy emissions for the SME’s and established organizations. In addition, carbon emission disclosure is focused on implementing tough needs regarding timelines and reliability of the carbon disclosure reports. This is in order to deal with compliance requirements that supports the management’s decision making.
Stakeholder theory is related with explanations of environmental and social disclosures. A gap in the prior researches was identified that existed in elaborating the stakeholder management process (Depoers, Jeanjean and Jérôme 2016). This gap is present because of the difference among social performance of companies and societal expectations which can be anticipated not to be measured or perceived suitably. Although the stakeholder theory is under-development, it is deemed to be justified to implement this theory within the social disclosure research. In elaborating corporate disclosure, the stakeholder theory is focused on two major ideas which consider companies needs efficient stakeholder management within the businesses.
Stakeholder theory also incorporates another idea of social disclosure that is related with social pressure. It is also revealed by previous reasechers that that the stakeholder theory provides a detailed structure in explaining the determinants and outcomes of social disclosure. An elaboration on the extent of carbon disclosure signifies an initiative to bridge the identified stakeholder gap. Moreover, it has also been revealed by Donaldson and Preston (1995) that for the stakeholder focused businesses it is considers that stakeholder management can be obtained in alignment with few constituencies. In this condition, the carbon disclosure objective is simply focused on reducing damage or for convincing the society that such disclosure is for the sustainability benefit of organization and consumers. It is also observed that companies repairing or sustaining stakeholder management needs to consider corporate disclosure differently from ones those have to implement it. Additionally, information regarding public disclosure can be extracted from financial reports for implementing reliable strategies on stakeholder management. Certain strategies implemented by the modern businesses on stakeholder theory are focused on purpose and characteristics related to few purposes.
Stakeholder Theory
As indicated by Fernando and Lawrence (2014), stakeholder theory is a concept associated with business ethics and company management in order to deal with morals and values for handling the business organizations. Several contributions have been made in relation to this theory, which need proper recognition (Hahn, Reimsbach and Schiemann 2015). The researchers have further stated that the stakeholder theory provides a suitable technique by disclosing the voluntary social as well as environmental disclosures made from the end of the organizations. Along with this, this kind of understanding might provide a platform in order to involve in crucial private debate. Another idea is inherent within the stakeholder theory and this is about the relationship between social disclosures and social pressure. According to the stakeholder theory, the objective of a business entity is to create the maximum value possible to ensure the benefits of the stakeholders. As pointed out by Jensen (2017), with reference to the accounting research, the stakeholder theory functions as a process from which it becomes possible for the organizations to obtain approval from the various groups of the society.
Depending on this perspective, in order to ensure sustainability and success with the passage of time, it is necessary for the business executives to fulfill the needs of the different stakeholder groups. There are a wide variety of stakeholders’ present in the business entities, which constitute of the following:
According to the viewpoint of Liao, Luo and Tang (2015), the stakeholders sometimes take into consideration competitors as well and their status is gathered from the ability in affecting the organizations and their related stakeholders. The business organizations are often indulged in undertaking certain actions and it is likely that those actions might exert direct influence on the stakeholders, which would have negative effects on the organizations.
Figure 1: Stakeholder theory
(Source: Mitchell, Agle and Wood 1997)
Drawbacks of Stakeholder Theory
It has been observed that the shareholders are given maximum priority from the end of the business entities and they are making efforts continuously for maximizing the wealth of the shareholders. In order to deal with this issue, it is necessary for the entities to think beyond their shareholders and increase their wealth and in this scenario; there is evolution of the stakeholder theory in the international market (Tang and Tang 2012). However, this theory has a number of limitations. For those organizations where there is application of fiduciary obligations, the theory is difficult for implementation. As a result, objections have been raised against this theory, which contradicts that it is not ethical in involving those affecting or affected by the business organizations. The reason is that the managers would not be able to carry out their fiduciary duties to the shareholders and this is considered in the form of stakeholder paradox.
Variables/ Theoretical Constructs
In this research paper, the target revealed within CDP would be the dependent variable and the stakeholder issue confronted by the organizations would be considered as the independent variable. The organizations establish the CDP index, which could be analyzed with the help of the below-stated questions:
The research would describe by assessing the CDP index that the previous carbon risk management when gauged by the carbon emission intensity could not be related with the quality of disclosure about accounting standards and actual emissions (Weber, Schiemann, Guenther and Guenther 2016). The organizations primarily make efforts to obtain effective stakeholder management, as adhered on the part of the society based on the social contract. The corporate disclosures concentrated on climate change information, which has emerged as a significant area of research. The following investigations would be conducted in the research:
The CDP index associated with the level of disclosure has relationship with the stringent environment regulations of the government, the response of the private sector towards maintaining environmental sustainability and the market structure of the nation (Tang and Tang 2012). The environmental disclosures have certain drivers that take into consideration carbon disclosure data and risk management. At the time control is exercised on carbon risk management, the stakeholder theory is rejected due to the absence of adequate disclosures.
Link between Proxies
The dependent variable would be influenced directly by the independent variable. In case, the organizations deal with their stakeholder issues while maintain positive performance, it is necessary for them to make CDP disclosures (Tang and Tang 2012). The CDP involvement could assist in improving business performance, which enables them in raising speed with which the strategic changes could be enforced. It is possible for CDP in diversifying its programs and the voluntary disclosure has considered as significant institutional governance. The disclosures related to CDP raise awareness about the change in climate, efficiency in clean energy and generating stakeholder management dependent on principles and outside accountability. When there is rise in voluntary carbon disclosures, this is an indication of business viability and benefits related to carbon measurement and reporting including reputation and management of energy costs (Tang and Tang 2012). This has further lead to the provision of political benefits related to carbon measurement and reporting. As a result, it increases the need for disclosures and standards related to such disclosures.
Hypotheses
The hypothesis that is to be tested in accomplishing the current research is:
The business operations of the modern businesses in managing the stakeholder issues are associated with performance of these businesses.
References
Andrew, J. and Cortese, C. L. 2011. Carbon disclosures: comparability, the Carbon Disclosure Project and the Greenhouse Gas Protocol, Australian Accounting Business and Finance Journal, Vol 5(4) pp. 5-18.
Boesso, G. and Kumar, K. 2016. Examining the association between stakeholder culture, stakeholder salience and stakeholder engagement activities: An empirical study, Management Decision, 54(4), pp. 815-831.
Clarkson, M. B. E. 1995. A stakeholder framework for analysing and evaluating corporate social performance, The Academy of Management Review, 20(1) pp. 92-117.
Depoers, F., Jeanjean, T. and Jérôme, T., 2016. Voluntary disclosure of greenhouse gas emissions: Contrasting the carbon disclosure project and corporate reports. Journal of Business Ethics, 134(3), pp.445-461.
Donaldson, T. and Preston, L. E. 1995. The stakeholder theory of the corporation: concepts, evidence , The Academy of Management Review, 20 (1): pp. 65-91.
Fernando, S. and Lawrence, S. 2014. A theoretical framework for CSR practices: Integrating legitimacy theory, stakeholder theory and institutional theory. The Journal of Theoretical Accounting Research Vol 10(1), pp. 149-178.
Hahn, R., Reimsbach, D. and Schiemann, F., 2015. Organizations, climate change, and transparency: Reviewing the literature on carbon disclosure. Organization & Environment, 28(1), pp.80-102.
Jensen, M.C., 2017. Value maximisation, stakeholder theory and the corporate objective function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.
Liao, L., Luo, L. and Tang, Q., 2015. Gender diversity, board independence, environmental committee and greenhouse gas disclosure. The British Accounting Review, 47(4), pp.409-424.
Mitchell, R. K., Agle, B. R., and Wood, D.J 1997. Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts, The Academy of Management Review, Vol. 22, Iss. 4, pp. 853-886.
Tang, Z. and Tang J., 2012. Stakeholder-firm power difference, stakeholders’ CSR orientation, and SMEs’ environmental performance in China, Journal of Business Venturing 27 (4) pp. 436-
Weber, G., Schiemann, F., Guenther, T. and Guenther, E., 2016. Stakeholder Relevance for Reporting: Explanatory Factors of Carbon Disclosure.
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