AGL Energy Limited is an Australian energy company that operates one of the largest electricity generation portfolio in the country. Among companies Listed in the Australian stock exchange, AGL is the largest investor in renewable energy. Currently, the company has around 3.6 million customers having been in operation for more than 180 years (Agl, 2018). The energy sector is a major industry that faces the risk of negative externalities. Negative externalities are defined as costs incurred by third parties as a result of production activities .Companies should therefore work towards achieving sustainability in their operations. Sustainability can be defined as the practice of ensuring continuity by focusing on long term objectives (Kozlowski, Searcy, & Bardecki, 2015). Focusing on sustainability ensures that organizations do not sacrifice the long term impact of their operation for short term goals (Uyar, 2017). This research discusses corporate social responsibility reporting practices of AGL Energy Company. The paper also goes ahead to present descriptive analysis of sustainability practice in the organization and critique its level of adherence to Global Initiative Reporting.
The world today is witnessing a paradigm shift in corporate strategies as competition becomes tighter in business. Organizations are becoming customer-oriented and hence the need to adopt a sustainability reporting culture that would promote society awareness on the social, economic, and environmental impacts of companies (Maas, Schaltegger, & Crutzen, 2016). The orientation of companies towards corporate social responsibility promotes management of organizations’ social and environmental duties hence improving efficiency of operations and conservation of natural resources. Firm stakeholders that include; employees, shareholders, and local communities are interested in sustainability of organizations. Reporting makes information available for them and as a result builds stronger stakeholder relations. The world today is more concerned with environmental sustainability than ever before. The duty to maintain low levels of carbon emission is no longer the role of the government only, but also firms who are the primary source of carbon emissions.
The corporate social responsibility (CSR) disclosures have attracted much attention and research among scholars and practitioners since mid-1970 (Matten & Moon, 2014). X (2014) argued that, the attention is triggered by expectations that the society today puts on companies. Also, companies recognize the need to contribute to social and environmental initiatives in the communities in which they operate from. It is because of this recognition that companies voluntarily put their sustainability information in the public domain.AGL limited releases a sustainability report annually and also makes it available to the public on its website. Sustainability data that is interactive and comprehensible is also available on the website for relevant stakeholders to view and download. In its 2018 sustainability report, the company noted that the sustainability report presents the company’s performance in relation to social, economic, and environmental challenges and opportunities that impact its business, the industry in general, and the local community.
Environmental CSR: Greenhouse gas emission
AGL’s CSR disclosures indicate a slight decline in greenhouse gas intensity in 2018 as a result of increased generation of renewable energy. Market intensity also declined following increased generation of renewable sources of energy and decline in coal fired generation. This implies that the company is making positive progress in reducing its greenhouse gas emissions.
People CSR: Employee turnover analysis
Figure 2
CSR focused on improving employee engagement and satisfaction led to a reduction in employee turnover indicating internal growth and increased transformation of the firm’s organizational structure.
Community CSR: Charity fundraising contributions
Figure 3
AGL in its community CSR makes contributions to many community and national causes. The company has contributed most towards arts and culture through sponsorship opportunities in the Western region of Australia.
AGL’s Accounting Policies
Accounting policies are principles, procedures, and measurement systems that form the basis for preparation of financial statements. AGL prepares its financial statements in accordance with the Australian Accounting Standards and the Australian corporation act 2001. The consolidated financial statements that comprise of financial information of both the parent company and subsidiaries all comply with the provisions of the International Financial Reporting Standards (IFRS) which are issued by the International Accounting Standards Board. AGL’s financial statements are prepared based on historical cost. Derivative instruments and assets that are available for sale are however not presented based on historical cost. Historical cost values assets by considering the fair value. AGL measures inventories at the lower of cost and net value basis. The inventories are valued using the first-in first-out method. Although the weighted average basis is used in some instances. The selling price for inventories is based on the net realizable value. AGL operates on a going concern basis and thus applies the going concern principle while making its financial statements.
Reporting Format and Framework
International Financial Reporting Standards requires companies to release annual financial reports. The reports contains essential company financial data including their financial statements. The financial statements are audited by independent auditors who seek to verify whether the reported financial statements reflect the true state of affairs of the organization. The financial reports are released for use by management, shareholders, investors, and the general public. Some companies combine their sustainability report with their financial reports while others prefer to release independently. AGL releases its sustainability report independent from the annual report.
AGL’s sustainability report follows the Global Reporting Initiative Framework (GRI). GRI has become the most adopted sustainability reporting framework since its inception in 1997 by the GRI organization. Around 93% of the biggest companies in the world use the framework in reporting its sustainability issues (AGL, 2018). GRI reporting enables readers AGL’s sustainability report to understand social environmental, and economic advantages. In the 2018 sustainability report, the company appreciates that sustainability in its simple term means thinking about business stakeholders such as shareholders, investors, and the community at large. The firm publishes the report so as to offer an account of organizational performance based on social, environmental, and economic measures.
AGL energy limited provides an annual report of its performance with respect to social, economic, and economic problems and opportunities impacting its business, the energy industry, and local communities. Global initiative reporting requires organizations to make available to the public, periodic reports stating how they are contributing to social, economic, and environmental good (Global reporting Initiative, 2016). AGL operates in the energy sector which can release huge amounts of greenhouse gases in to the atmosphere. However, the same energy companies can be relied on to provide environmentally friendly sources of energy. In its 2018 annual financial report, AGL reported that it is committed towards creating sustainable energy sources in Australia. The company it aims to create sustainable, affordable, and cheaper energy sources. AGL plans to help Australia exist from the relying on coal by developing better innovative solutions for its customers.
Global Initiative Reporting emphasizes reporting of material information and disregarding those that are immaterial. AGL also concurs with GRI in the use of materiality concept and thus reports majorly material information and transactions. Materiality concept ensures that information that is critical to the business are highlighted. In a sustainability report, materiality would mean reporting of events that have an economic impact and whose omission might mislead the users. GRI was started with the aim of promoting quality of sustainability reporting. The initiative received considerable support from private businesses, government corporations, accounting bodies, and investors.
Global initiative reporting guidelines require organizations to categorize key sustainability issues under the subjects of customers, environment, economic performance, and stakeholders (Global Reporting, 2016). This subjects would enhance a wide coverage of sustainability reporting and ensure comparability between organizations sustainability reports. AGL energy Limited conforms to this guideline by presenting its CSR reports according to this format. The 2018 AGL sustainability report highlighted AGL’s objective of providing customers with solutions that would enable them overcome the challenges of the energy sector. This would be possible through the adoption of innovative practices in delivery of goods and services. AGL aims at enhancing affordability of their energy products, promoting customer experience and promoting customer information security. The stakeholder section of the AGL sustainably reports outline that the company engages in dialogue with customers, investors, suppliers among other stakeholders with the objective of building strong business ties. Economic performance is the key reason why firms do business. AGL provides a summary of its economic performance on the sustainability report. It mentions the issues of proper financial management, capital growth, reliable energy, taxation, and transparency. All these are essential components that underlie CSR guidelines especially under the global initiative reporting.
The main objective of CSR is to conserve and manage the environment, promote corporate social responsibility and promote coexistence between local communities and organizations. AGL sustainability reporting recognizes the need for environmental conservation through reduction of greenhouse emissions and provision of secure clean energy. The impacts of the company’s operations on the environment are of great concern to AGL. The firm’s environmental policy is focused towards protection and reduction of negative environmental consequences. In the medium term, the company aims at transitioning to energy with low carbo emission, renewable energy among other environmental impacts (Agl Energy, 2018). AGL has a centralized data depository center where CSR and performance data are available. For viewing and downloading. Interested parties can visit the website and view them at their convenience. This transparency conforms to GRI guidelines of easy access to CSR information. AGL energy subjects its CSR reports to independent auditing to enhance legitimacy and promote acceptance among shareholders and the general public.
AGL energy is among 93% of large companies listed on the Australian stock exchange that undertake sustainability reporting (Tim & Fiona, 2018). This implies that there are significant motivation that influence these companies to invest in corporate social responsibility reporting. Sustainability reporting communicates with stakeholders concerning the achievements of the management in promoting long-run benefits such as shareholder wealth maximization and building competitive advantage (Kim, Kim, & Qian, 2018). CSR also enables the company to co-exist peacefully with local community because its practices are of benefit to the community. Local communities prefer companies that get involved in solving challenges of local communities. AGL’s people focused CSR is important in making the work place a desirable place. It builds a sustainable and focused workplace culture characterized by ethical practice and desirable corporate governance.
Stakeholder Theory
The stakeholder theory of CSR reporting offers a widely accepted explanation of why companies undertake CSR reporting. The theory argues that the firm consists of many parties who contribute differently to the success of the firm. The decisions made by managers of the company affects relationships between these parties. The firm is therefore not only accountable to shareholders but also takes care of the conflicting interests of other parties including employees (Du Plessis, Hargovan, & Harris, 2018). This implies that satisfying shareholder interest while disregarding the interests of other parties such as might negatively affect performance of the company. The theory states that the corporation should be operated for the benefit of those parties that have interest in the firm. Shareholders interest is tied to the money they pump in to the enterprise while employees contribute their time, skill, and intellect. Customers trade with the company because of the trust they have with the company. The local communities are also interested parties in the firm having accepted to share the natural resources available locally with the firm. The company should therefore appreciate the local communities through corporate social responsibility initiatives.
Legitimacy theory
Legitimacy theory argues that there exists a “social contract” between the company and the local community. AGL energy might thus be practicing CSR reporting to legitimize its actions so as to obtain approval from the community. Society approval would then ensure that the company continue existing within its locality. The “social contract” represents many expectations that community expects from the organization. (Maroun, 2017) argues that legitimacy theory is based on the idea that for the organization to operate successfully and continually, it should conduct itself as per the norms and bounds of activities that the local community believes contribute socially responsible behavior. AGL’s corporate responsibility reporting promises customers and Australia at large a sustainable transition to lower-carbon electricity. The community would appreciate the company’s role in finding solutions to the society’s global warming problem.
AGL energy Limited is one of the largest energy and electricity generating companies in Australia. The company releases yearly sustainability reports that contain comprehensive information and discussions on the organization’s corporate responsibility practices. The sustainability report is then made available on the company’s website together with a database containing sustainability data and analysis. The company’s CSR reports conform to the Global initiative reporting format. The GIR format presents the company’s performance in relation to social, economic, and environmental challenges and opportunities that impact its business, the industry in general, and the local community. Global warming is a world major environmental problem and therefore, companies should minimize their carbon emissions. According to sustainability report (2018), the company made significant improvement in reducing emission of greenhouse gases through increased renewable energy generation. Through improving people focused CSR, AGL managed to reduce employee turnover hence leading to growth of talent within the company.
Comparing AGL’s sustainability reporting practices, it strictly adheres to global initiative reporting. In addition to adhering to the reporting format, the company reports only material information. The report is audited by an independent auditor in accordance to global initiative reporting guidelines. Auditing ensures that the report reflects the true state of the company’s state of affairs. Theories have been advanced to explain CSR reporting motivation. The legitimacy theory argues that, there is a social contract between firms and the society established by the society’s expectation that the company has a role to play. Since companies globally have consented to the presence of the “social contract”, they carry out CSR reporting to win legitimacy from the local community. The stakeholder theory argues that the firm is made up of relationships between different stakeholders whose optimum cooperation promotes company performance. Customers, local communities, and the general public being part of the shareholders have vested interest in the company in different ways. Therefore, AGL performs CSR activities such as sponsoring art and talent events, supporting fund raising in communities and reports them appropriately.
Conclusion
Sustainability reporting enables firms to manage their environmental and social impacts. It boosts operating efficiency and management of natural resources. CSR is recognized as a major component of the relationship between shareholders, employees, managers, and the society at large. AGL energy limited gets involved in several CSR activities that enable it to improve its performance, build its reputation, and win the trust of shareholders and other stakeholders. It engages in CSR issues such as fund raising and charity activities. The company is also working on minimizing carbon emission by producing renewable energy sources.
AGL’s sustainability reporting guidelines conform to Global Initiative Reporting guidelines. The GRI format report has social, environmental, and economic sections of reporting. Full disclosure of material CSR information under these themes would enable different stakeholders to make their judgements concerning the company.
References
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