Questions:
Task 1. Provide a report summarising the purpose of Corporate Sustainability Reporting (CSR) by referring to the Global Reporting Initiatives’ (GRI) Sustainability Framework (G3.1).
Task 2. Identify two ASX Top-500 companies multinational companies and compare their reporting on economic, environmental and social aspects in their annual reports and standalone sustainability reports for the reporting year ending 2014. [Note: Download their annual report for the reporting period ending 2014.
Task 3. Discuss how the two companies (discussed in Task 2 above) managed ‘legitimacy’ through reporting (i.e. CSR information disclosure) from the perspectives of systems oriented theories.
This report is focused on the subject area of environmental and sustainability reporting of the companies. The report has mainly divided in to three tasks. In the first task, the report has discussed about the purpose of corporate sustainability reporting done by the business organizations. At the time of discussion on this topic, the steps of Global Reporting Initiatives are also discussed in respect to the sustainability Framework. In the second task of the report, comparison is made on the reporting techniques of Woolworths and New Zealand and Australian Bank or NAB in respect to the economic, environmental and social context. The third task is concern about the discussion on the management of legitimacy done by the management of two companies from the system oriented theories perspectives
The purpose of sustainability reporting can be better understood by understanding the meaning of sustainability reporting. Barkemeyer et al. (2015) stated that the report through which the corporate or business organizations provides or discloses the information related to their economic, social, environmental and corporate governance performance. According to Kjaergaard et al. (2016), with the help of sustainability reporting, the business firms can identify and disclose the impacts of their business operations on the different sustainability issues.
In the other words, it can be said that sustainability reporting helps the organizations to become more transparent about the opportunities and risks that they face. On the other side, de Villiers et al. (2016) mentioned that the sustainability reporting not only discloses the information related to the different social, environmental and economic aspects but also it helps in improving the sustainable development strategies of the companies.
In general, there are different purposes due to which the organizations in the international market use to do sustainability reporting in each financial year. These purposes are stated as below:
The first and foremost purpose of sustainability reporting of the companies is to fulfill the commitments done by the business organizations to the society, environment and economy of the country. At the same time, maintaining the proper transparency level is another main reason or purpose of sustainability reporting (Patel and Rayner 2015). As per the part 2 of GRI standards, the company must disclose the strategy and profile along with the corporate governance structure in the sustainability report.
The next purpose of sustainability reporting is to plan for different activities related to the future sustainability of the companies. As per the principles of sustainability reporting stated by GRI, the companies must include the performance indicators in their sustainability reporting. These performance indicators of the companies help in identifying in which area how much the company has improved its performance (Siew 2015). This disclosure helps the management to set the strategies for the improvement of future sustainability of the company.
There are many companies where the preparation of the sustainability report is the tool that helps them in understanding the extent to which they are successful in solving the issues in the society. The sustainability report of the company shows what are the strategies taken by the company in a particular financial year and what are the benefits that the stakeholders of the company gained from those strategies (Cho et al. 2015). Therefore, the sustainability report of the company indicates the areas in which the company is lacking behind in fulfilling the needs of its stakeholders and by this identification the company can take better strategies for improvement (De Klerk et al. 2015). The standards provided by GRI also stated that the sustainability reports of the companies must represent the needs of both the report users and report maker.
Another reason of preparing the sustainability report is to maintain the regulations. At present scenario, the preparation of sustainability report has become mandatory for all the listed companies in Australia as well as in other parts of the world (van Staden 2015). There are few countries like Denmark, Netherlands and Sweden etc where the companies are bound to provide the sustainability reports along with their annual reports. It shows how much the company is careful about the society or about the stakeholders of them.
As per the current report, the number of companies in international market those are publishing the sustainability report in each year is increasing day by day. For example, as per KPMG report, 70% of the top 500 companies in ASX (Australian Securities Exchange) are producing the sustainability report in each year regularly. On the other side, in case of UK, the government’s regulations like, Climate Change Act, 2008 and Carbon Reduction Commitment, 2010 influence the companies to prepare the sustainability reports (Murakami and Kimbara 2015).
There is another purpose of preparing the sustainable report by the companies and that is to survive in this competitive market (Siew 2015). As the sustainability report of the company shows the transparency level of the company, the popularity of the company depends on this. In the international market, the customers, suppliers, government and other stakeholders are very much curious about the business operations and activities done by the companies (de Villiers et al. 2016). Therefore, if a company does not provide the sustainability report, then the stakeholders of it will not know what the steps or activities done by the companies. This will affect the trust of the stakeholders on that company. Hence, in long run it will affect the competitive position of the company in the market.
The understanding of the risks and the externalities is another reason of preparing the sustainable report. According to Cho et al. (2015), by preparing the sustainable report, the management of the company can clearly understand what ate the risks and externalities that they may face in future. As per the G4 guidelines of GRI, the companies must do sustainability reporting in order to minimize their risks.
Therefore, from the above discussion, it can be said that there are many reasons or purposes for which the companies in the modern business world prepare the sustainability report or do sustainability reporting. However, in this context, the steps taken by GRI for sustainability reporting can be stated. The steps of GRI are as under:
GRI has arranged for several events and programs in order to make the companies aware about the importance of sustainability reporting (De Klerk et al. 2015). Recently, GRI has arranged for 5th GRI global conference, where 1500 leading companies took part and shared their knowledge regarding the benefits that they have achieved due to sustainable reporting.
GRI has taken the agenda of “together for a better tomorrow”. With the help of this particular agenda, GRI has tried to influence the companies towards the non-financial reporting (van Staden 2015).
GRI has tried to influence the companies towards the disclosure of all the positive and negative impacts of their operations on the society, environment and economy. The part 1 and part 2 of G4 guidelines of GRI has indicated the importance of disclosure of non-financial aspects by applying the reporting principles.
GRI has initiated the Certified Training Program in order to make the people aware regarding the guideline as well as the reporting of non-financial aspects. This program has included number of topics and the training is being provided by the specialized training organizations in the local languages of different places (De Klerk et al. 2015). During this training program, the people not only get the knowledge about the GRI guidelines but also they become aware of the process of GRI sustainability reporting including 5 different phases.
GRI has also prepared the support suite. The main purpose of providing this support suite is to give the people the knowledge of each tool and the services that are offered by each phase of GRI. This support suite is actually like cycle that includes each phase of GRI sustainability reporting process.
Therefore, from the above discussion, it can be said that GRI has taken several steps in order to make the people aware regarding sustainable reporting. The benefits of sustainable reporting are also mentioned by GRI. However, if the analysis is made on the success of the efforts made by the GRI, then it can be seen that in many countries, the activities of GRI has achieved success. In this regards, the example of Australia can be mentioned (Globalreporting.org. 2016).
It has been stated above that presently, 70% of the top 500 companies listed on Australian Security Exchange are regularly providing the sustainability reports. On the other side, GRI has achieved much success in Denmark and France. As per KPMG report, in the year 2013, there are many companies those joined in sustainability reporting for the first time. Few of these countries are – Brazil, Chile, Colombia, Mexico, US, India, China, Indonesia, Japan, Singapore, South Korea, Belgium, Finland, Italy, Greece, Norway, Russia, Taiwan, Poland, Nigeria, UAE etc. The KPMG reporting has also disclosed that GRI has also achieved tremendous success in Asia Pacific region. There are more or less 71% of the companies in Asia Pacific region has provided sustainability reports in the year 2013. The percentage is also high in case of America and Europe. In case of America, the percentage of sustainability reporting is 76% and in Europe it is 73% (Globalreporting.org. 2016).
However, in this context, de Villiers et al. (2016) mentioned that the success of GRI is mostly seen in the developed countries. In case of the developing countries, the success rate is not so high. For example, in China, the rate of sustainability reporting increased by only 16%, which is much lower. The rate is also poor in Taiwan that is 19%. However, in the words of Kjaergaard et al. (2016), GRI has brought new phase in sustainable development. GRI became successful in achieving several developments in communities also. Therefore, from these points of views, it can be said that the efforts made of GRI are successful in overall context. However, it needs to make more focus on the developing countries.
New Zealand and Australian Bank and Woolworths Australia are the two companies in the top 500 multinational companies, having a worldwide operation. The Annual Reports of both the companies are studied and analyzed to find the Corporate Social Responsibility (CSR) of the companies are compared on the basis of social, environmental and economic parameters. CSR is an important part of the Annual Report, which shows the different actions of the company, which impacts the stakeholders and the community at large (Annual Report 2016).
NAB, is a financial institution and is a market leader in their own field. At the same time, this company is well known for their CSR activities. The CSR of this company can be divided into social cause, economic factors and the environmental parameters. This company is well for the social benefit welfare programs like the reduction in the carbon emissions across the operations of the company. The activities of the concern revolve around cutting the emission of the carbon and make the world a better place to live (www.woolworths.com.au 2016).
The financial services industry has to take care of the different environment issues as the impact of this sector on the overall economy is huge and this company makes enough contribution to the economy. The issues of the customer satisfaction and security are of prime importance to the company (Shin 2014). The safety measures include the checking and re-checking of the products so that the products delivered do not harm the safety measures of the customers and they are safe and are not harmed by the use of the different products of the company.
There is a transparency and disclosure measures of the company, which takes care of the clarity of the performance of the company. Clarity helps in conducting the business with a flawless ability and makes the performance of the business smooth and flawless. Moreover, the business conducted by the company in the wake of the clarity makes it easier for the company to conduct business. This affects the overall image of the business and makes it worthwhile to do business. The strategy and the vision of the company revolves around the strong culture base of the company and at the same time effective and successful execution of the strategies of the company. Understanding the values of the different cultures are an integral part of this company and this helps in building a strong bond in the company and at the same time helps the company in positively affecting the society (Takkar 2015).
The economic factors that lead to the contribution in the economic factors include the risk mitigation and the risk management of the company. Managing risk is an important consideration in the economic factors. Risk appetite of the company, strategic planning of the company and the operational planning process help the economy in achieving the true potential of the company and make the company more competitive. The risk culture of the company helps the company in achieving the goals and the objectives of the firm thereby making the company achieve the targets and objectives of the company (Kobzar et al 2015).
Analyzing the annual report of this company, it can be analyzed that the company focuses on the overall aspects of the concerns and all the details are looked into. The cutting of the carbon emissions, providing health care facilities to the needy, mitigating and managing the risks of the concern is few of the instances, which focuses on the complete nature of the CSR activities of the company. Internal Audit done by the company brings about clarity in the overall activities of the concern (Greening et al 2012).
The next company whose Annual Report is analyzed is Woolworth Australia. This company is active in the retail space and is one of the leading retailing concerns. In terms of turnover, the company comes among the top 100 global companies. This company is concerned about the different regulations of the regulatory bodies like the Commonwealth of Australia. This sort of the regulations help the company in obliging to the different rules and regulations. On the other Annual Report states that the company has not incurred any sort of significant amount of liabilities in their portfolio. This highlights the fact that the company is serious about the workings of their and they achieve the performance of the company (Nab.com.au 2016).
This company has a strong governance framework, which makes the achievement of the social responsibilities of the company all the more important. Moreover, this company has to achieve the governance standards and achieve those objectives. The Board of Directors governs the committee and the governance committee has different committee inside it. Few of the examples of the committee are audit and risk committee, nomination committee and the people policy committee. With the advent of such committee, the company has to deliver the social responsibility program and meet the requirements of the clients (Pedersen 2015).
Moreover, this company aims to reduce the wastages of water by 200m litres within a specific period, as to meet the water scarcity levels and make sustainable efforts to reduce the wastage of the water. As this company is involved in the retailing sector and deals with food products, this company aims to waste zero food products by 2016. Apart from this, the sustainable and the ethical sourcing of the products is an important factor in the corporate social responsibility of the company. Different policies regards to the Animal products, paper, timber and pulp and other labor policies of the company (Luc 2016).
The activities of the company serve millions of the customers and make the life of the people fulfilling. This company employs about 200,000 peoples and at the same time, providing safety and security is a top priority to the company. Mutual benefit is the main priority of the company and they provide a focused and collaborative nature of work to deal with the different stakeholders, particularly the employees. On the other hand, the long-term value creation of the shareholders is an important criterion of the company. They aim to build a long lasting relationship with the shareholders and continue that relation for a long period (Schneider and Schmidpeter 2012).
In times of crisis, this company tries to be the light at the end of the tunnel in matters of different critical issues. They want to drive changes in the social community, business and in the society through their different endeavors. The customers, stakeholders and the community members are listened closely and the critical issues are worked upon to reach to a solution. Moreover, the creation of the long lasting relationships with the different business partners makes the value creation an effective tool for the company and does different social responsibility (Preuss 2013).
This company tries not to conduct any sort of corruption or immoral behaviour, breaching the law, conflict of the interest. This sort of behaviour on the part of this company provides for a greater opportunity in the social responsibility space and at the same time, helps the company to achieve greater heights in the corporate space. This company has a good reputation in the social responsibility space and they try to hold on to the performance and reach the pinnacle of success. If the company holds on to the current performance then it will be esier for the company to retain the customers, achieve different milestones (Kumar 2015).
On analyzing the Annual Reports of the two companies, there is found to be many similarities between the two companies regarding the different social, environmental and economic initiatives. Both the companies are active in a social scale and they try to contribute at a sustainable level. The main target of the companies is to reduce the negative impact of the company on the society. The common activity of the companies is to use a sustainable method in the approaches like reducing the carbon emissions, taking care of the safety regulations of the customers and implementing the risk management practices in place. Proper management of the risks helps the company to properly mitigate the risks and make proper changes as per the needs. The use of such methods and models reflects on the responsibility of the company in protecting the interests of the different stakeholders and both the companies are sincere in protecting the interests of the stakeholders.
The strategies of both the companies revolve around setting a complete strategy that helps the company in delivering fair and transparent results, thus making strong impacts on the different stakeholders of the company. Moreover, they try to make long lasting relationships with the business partners so that the business of the company can run for a long time and the sustainability factors of the company are met. At the same time, both the companies focuses on the economic benefit factors of the company so that the economic conditions are improved and the social responsibility factors of the company are also met (Servaes and Tamayo 2013).
In today’s business context, the disclosure of all the information related to the corporate social responsibility activities of the company is very important in order to manage the legitimacy in the business. Presently, the activities related to the corporate social responsibilities are becoming one of the most important parts of each company (Murakami and Kimbara 2015). The CSR disclosure not only discloses the activities done by the company but also shows how much the company is responsible towards the society. However, in order to understand the techniques applied by Woolworths Limited and New Zealand and Australia Bank to manage the legitimacy through reporting from the system oriented theory perspectives, it is very important to know about the system oriented theories at first. The system oriented theories are stated below:
Legitimacy theory: In the words of Luger et al. (2015), the Legitimacy theory explains the attitudes of the companies in respect to the implementing and improving the voluntary information disclosure related to the environmental and social context. The theory also states that the disclosure of environmental and social information is made by the companies in order to meet the objectives of the companies towards the society and in order to ensure the sustainability in the problematic situation (Nurhayati et al. 2016). According to this particular theory, the organizations report about their corporate responsibilities as per the expectations or needs of the society. At the same time, the theory also indicates that the organizations discloses or reports about their corporate responsibility activities in order to maintain the legitimacy in a better manner. Dagiliene (2015) believed that legitimacy theory provides better knowledge about the corporate social and environmental disclosures of the companies.
Stakeholder theory: Mitchell and Cohen (2015) suggested that stakeholder theory states about the relationship between the companies and their external as well as internal environments. In the other words, it can also be said that the stakeholder theory indicates the responsibilities of the business organizations towards their internal and external stakeholders. Miles (2015) mentioned that this theory talks about the business ethics. According to Freeman (2015), the business organizations are responsible towards the society and the environment or its stakeholders and the company needs to balance the interest of each stakeholder. However, on the contrary, Mitchell and Cohen (2015) argued that the interests of the stakeholders of the company are balanced against each other. In oppose to this argument, Miles (2015) commented that it is not possible to balance between the interests of the managers and shareholders if there is no steps taken or policy made by the company. Therefore, from this point of view, it cannot be said that the interests of the stakeholders are balanced against each other. However, the Stakeholder theory suggests that the company must maintain or operate its business by satisfying the interests of each stakeholder.
Institutional theory: This particular theory suggests that the formal structure of a business organization largely dependent on the institutional environment. In this respect, Cornelissen et al. (2015) stated that the Institutional theory emphasizes on the policy-making of the organization by considering the legal as well as formal aspects provided by government. At the same time Hoffman (2016) opined that the Institutional theory shows how the rules, policies, norms and internal structure of the business organizations are established as per the social behavior guidelines. On the other side, the Institutional theory also suggests that there is no particular concept that can define the structure of an institute. It is the social structure that helps to achieve higher level of resilience and this social structure includes the normative, regulative and cultural-cognitive elements of social life. Therefore, in respect to the Institutional theory, it can be said that it is very important for the business organizations to formulate their structure or business structure as per the social regulations and these social regulations can be maintained by fulfilling the needs of all the stakeholders of them.
However, from the above discussion on three different theories, it can be understood that all these system oriented theories mainly provides a common suggestion and that is fulfill the needs of society. This suggestion is also applicable in case of the two ASX Top 500 companies that are Woolworths Australia and New Zealand and Australian Bank (NAB). However, in order to check how these two organizations manage legitimacy through reporting, it is important to understand how far their business operations consider the social needs.
The New Zealand and Australian Bank or NAB manages the legitimacy by disclosing its financial and market position along with its Corporate Social Responsibility activities in each year’s annual report. If the annual report, 2015 of the company is considered then it can be seen that the management of the organization has disclosed that the capital management of the company is mainly focused on the efficiency, adequacy and flexibility. Along with this, the annual report 2015 of the company also disclosed that as the company maintains the adequacy for its capital, the risks involved in this company is lower (Nab.com.au. 2016).
On the other side, the company has also disclosed that the business activities of the company have followed the ASX Corporate Governance Principles and Recommendations, third edition. At the same time, the company has also mentioned that the business activities of the company have maintained the Greenhouse and Energy Reporting Act 2007 and in the financial year 2015, the company has used 60% of the energy that is permitted by the NGER Act of the country. It is also mentioned that the company has implemented and followed some energy efficiency programs in 2015. On the other side, the company has introduced the Energy Savings Opportunity schemes in United Kingdom during 2015 (Nab.com.au. 2016).
Therefore, from the above it can be said that the company that is New Zealand and Australian Bank has disclosed all the possible information related to the social context. By disclosing the risk factors and the information related to the financial information, the company has helped the stakeholders like, shareholders, government, investors and suppliers etc to understand the actual level of sustainability of it. On the other side, by disclosing the percentage of energy usage, it has made clear how much the company is responsible to the environment and society. Therefore, by disclosing all the facts and figures the company has tried to fulfill the interests of all the stakeholders and by this, the company has also maintained the legitimacy and stakeholder theories. On the other side, the different types of disclosures have also represented that the decisions taken by the board of directors of the company were influenced by the social needs. In this respect, it can also be said that the company has also followed the institutional theory.
On the other side, if the annual report of Woolworths Limited can be seen, then it can be identified that the management of the company has taken several steps in order to fulfill the needs of all the stakeholders or society. This particular company has also followed the three above mentioned theories to manage the legitimacy. The 2015’s annual report of the company disclosed that the company has followed the Corporation Act 2001 in order to manage the business risks and the company has followed the ASCI Regulatory Guide 247 for the effective disclosure of the business risks. The company has also agreed that it is responsible towards the environmental liabilities due to the petrol and meat processing plants as well as the winemaking operations of it (Woolworths Online. 2016).
At the same time, the company has also disclosed that their winemaking operations and meat processing plants have affected the environment negatively and due to that the company has faced adverse effects on its operations. The company has also disclosed that few of its brands may not get that much success in the future and involvement in joint venture and strategic alliances have created high uncertainties. On the other side, the company has mentioned that it has appointed talented people and has planned for several performances development activities in order to manage the performances of the employees. The company has also taken care of the workplace environment (Woolworths Online. 2016).
Therefore, from the above it can be said that the company has made full disclosure of each information that is relevant for managing the legitimacy. Along with this, the steps taken by the company for disclosing the information relevant to the society and stakeholders denote that the company has followed the theories like legitimacy, stakeholder and institutional.
Conclusion
The above discussions under the three tasks of this assignment have disclosed that corporate sustainability reporting is very important in order to maintain the transparence of the business operations. At the same time, it is also important for identifying the future risks of the business. GRI has taken several steps in order to make the organizations understand the importance of corporate sustainability reporting. On the other side, the annual reports of NAB and Woolworths have disclosed that both the companies have maintained transparence and good relationship with the stakeholders. At the same time, both the companies have disclosed all the importance information in order to manage the legitimacy and for that the companies has followed the system oriented theories.
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