Introduction
The current global environment is very demanding, especially for organisations operating in the world market. The scenario is brought about by, among others, external pressures. Such issues as climate change, population growth, scarcity of resources, and the growth of the world economy impact how businesses operate. Entrepreneurs are prompted to focus not only on financial reporting but also on other aspects of their operations (Lynch, Lynch & Casten 2014). The diverse nature of these businesses facilitates the need and growth of corporate sustainability reporting. For instance, multinational corporations and other firms operating in the global market are spending large amounts of money and other resources on corporate social responsibility (CSR) initiatives. Issues addressed under CSR include the implementation of sustainability initiatives and reporting the results of these undertakings to stakeholders (Lynch et al., 2014).
According to Sen and Das (2013, p. 17), corporate sustainability can be defined by analysing the two concepts that are brought together to form it. The two are corporate social responsibility and sustainable development. The former, according to Sen and Das (2013), refers to the organisation’s awareness about the impacts of their operations on social, economic, environmental, as well as governance concerns (Hughen, Lulseged & Upton 2014). In addition, CSR is built on the steps these organisations take to address these concerns. Sustainable development, on the other hand, refers to the process of striking a balance between the need for economic growth, social equity, and environmental protection (Sen & Das 2013). As a result, a general viewpoint is developing to the effect that corporate sustainability requires regulating the activities undertaken by industries.
Corporate sustainability reporting is an elaborate process involving disseminating information to shareholders and other stakeholders. It refers to the practice of measuring, disclosing, as well as remaining accountable to external and internal stakeholders (Global Reporting Initiative [GRI] n.d). Accountability is in relation to organisational performance on sustainable development. As such, sustainability reporting is an essential communication tool. Managers and other executives charged with the responsibility of running the organisation disclose their sustainability plans and performance. Such disclosures boost the confidence of the stakeholders.
In the current paper, the author analyses the issue of corporate sustainability reporting in two multinationals. The organisations addressed in this report are Samsung Electronics and Royal Dutch Shell. The impacts of this reporting on the organisations, as well as the factors behind the procedures adopted, will be analysed. A review of various theories related to this issue will be provided. Recommendations will also be made in efforts to improve corporate sustainability reporting in Samsung Electronics and Royal Dutch Shell.
Purpose of Corporate Sustainability Reporting
Corporate sustainability reporting has a number of objectives. The major goal is to ensure that firms meet their existing desires (Lynch et al., 2014). What this implies is that all organisations must be responsible. They should be efficient and effective when addressing their prevailing needs. To this end, sustainability influences both the external and internal environments of organisations. All firms in society are expected to meet these requirements. The organisations are important factors behind the events taking place in society.
There is a wide range of reasons why sustainability reporting is gaining massive popularity in the world. According to Global Reporting Initiative’s reporting framework, this form of the disclosure involves providing information on both the positive and negative outcomes of given activities within a specified period (GRI n.d). The disclosures are in line with the organisation’s management approach, strategy, and commitments.
Other major objectives of sustainability reporting include benchmarking, demonstrating, and comparing (GRI n.d). Benchmarking entails assessing sustainability performance in line with norms, laws, and codes put in place. Sustainability performance is also benchmarked with respect to voluntary initiatives and performance standards (GRI n.d). Sustainability reporting demonstrates how the organisation is influenced by sustainable development expectations. It also analyses how the operations of the firm affect these developments (GRI n.d). Ultimately, the process forms the basis of comparing organisational sustainability performance between the firm and other entities in the industry (GRI n.d).
According to Sen and Das (2013), sustainability reports provide shareholders and other stakeholders with information on how companies act responsibly and beyond the laid down regulations. The responsible actions include, among others, fair business practices, environmental conservation, as well as distribution of goods and services with low impact on the natural environment. Such reporting is a representation of all areas of business operations. The areas addressed include economic viability, environmental awareness, and ethical culture. Corporate governance and social responsibility are also featured in sustainability reports (GRI n.d).
Hughen et al. (2014) postulate that many organisations have realised that financial reporting alone does not meet the needs of the shareholders, communities, customers, and other stakeholders. Such disclosure fails to provide comprehensive information in relation to organisational performance.
Systems Oriented Theories and Voluntary Corporate Sustainability Reporting
Corporate sustainability theories and practices have evolved over the years (Christofi, Christofi & Sisaye 2012). Sustainability theories involve three interrelated and distinct concepts. The concepts include social, economic, and environmental considerations. The three elements have shaped the paradigm of corporate sustainability over time (Deegan & Unerman 2011).
In spite of these developments, measuring and reporting sustainability performance has remained a voluntary undertaking (Christofi et al., 2012). The process is still evolving. The various accounting and standards boards have not fully endorsed sustainability reporting. In addition, operational definitions and measurements have changed significantly in the last decade (Deegan & Unerman 2011). Methods of sustainability reporting are yet to be standardised. There are no universal reporting standards, given the variations evidenced between different countries and accounting regimes.
There are several systems oriented theories that illustrate the concept of voluntary corporate sustainability reporting. Some of them are analysed below:
Political Economy Theory
According to Guthrie and Parker (1990), the theoretical advances that society, economics, and politics cannot be separated from each other. The stated factors provide a framework within which humans exist. Economic issues cannot be understood without considering the social and political-institutional frameworks under which they occur.
In relation to this theory, accounting reports are also political, social, and economic documents (Guthrie and Parker 1990). The disclosures serve as tools on which the private interests of corporations are built. They transmit economic, social, and political meaning to the recipients. Consequently, corporate reports should not be regarded as neutral and unbiased representations.
Stakeholder Theory
The theory advances the strong relationship between the corporate stakeholders and the success of the firm. According to Deegan and Unerman (2011), the theory highlights two branches. The two are the managerial and ethical branches—the ethical perspective advocates for fair treatment of all stakeholders regardless of their powers.
The managerial perspective, on the other hand, highlights the most powerful stakeholders in the firm. The stakeholders are identified based on the extent to which their interaction with the organisation can further the interests of the firm. The shareholders are accorded more attention than the rest in relation to management. Corporate sustainability is one of the requirements in managing the relationship with these stakeholders.
Legitimacy Theory
The theory illustrates that organisations strive to operate within the norms of the society they are in. The firms should be familiar with the social dynamics to maintain their legitimacy (Deegan & Unerman 2011). The theory advocates for voluntary corporate sustainability reporting to enhance legitimacy.
Institutional Theory
According to Deegan and Unerman (2011), the theory highlights an organisation’s response to the various social and institutional pressures and expectations. It highlights the need for corporate sustainability reporting in reacting to these pressures. The theory supports the stakeholder and legitimacy frameworks. All three theories outline the need for organisations to respond to their social and economic surroundings. They align the operations of the organisation, such as corporate sustainability reporting, with societal values and legitimacy.
In line with these theories, voluntary corporate sustainability has grown with investment opportunities (White 2005). According to Christofi et al. (2012), leading sustainability organisations operate at higher levels of management competence compared to other firms. The reality is made evident by the ability of these firms to address the various challenges encountered in the global market and in the industry. The challenges revolve around environmental and economic risks, as well as social opportunities. The hurdles can be screened and quantified for investment purposes (Deegan & Unerman 2011).
Corporate sustainability reporting is a voluntary instrument for Triple Bottom Line (TBL) disclosure. Socially responsible companies engaged in ecological and environmental initiatives are more likely to report enhanced economic performance compared to other organisations (Gray, Owen & Adams 1996; Unerman, Bebbington & O’Dwyer 2007; Wilson, 2003). Ecological reports are important in the operations of environmentally and socially sustainable organisations (Christofi et al., 2012). The organisations are able to reduce the costs attributed to waste, clean-ups, and other forms of liabilities. The reality is one of the reasons behind the increasing adoption of sustainability reporting by businesses.
Corporate Sustainability Reporting in Royal Dutch and Samsung Electronics
Royal Dutch Shell
The company is one of the leading multinationals in the world. It is involved in the production of petroleum and petroleum products. The organisation has invested heavily in oil and gas exploration, production, marketing, and transportation of electricity and natural gas.
Samsung Electronics
Just like Royal Dutch Shell, Samsung Electronics is a leading multinational corporation. It is involved in the manufacture and distribution of electronics products. The range of products includes phones, computers, and home appliances. The company is the global leader in digital media and hi-tech electronics (Samsung 2014).
Sustainability Reports in Shell and Samsung: A Comparative Analysis
The guidelines for sustainability reporting outline some of the principles that inform the content of the report. They enhance the quality of the information in these reports. The following comparative analysis highlights the requirements of GRI sustainability reporting. Reporting in relation to environmental, social, and economic aspects of these companies is analysed.
Both companies claim that they are engaged in sustainable development and corporate sustainability reporting. The commitments of the two organisations, which operate in different industries, are made apparent in their sustainability reports for 2012.
The main sustainability development objective at Royal Dutch Shell involves meeting the society’s energy needs. The demand for energy is addressed in a responsible manner with regards to environmental, economic, and social sustainability (Royal Dutch Shell 2012). Samsung Electronics sustainable development mission is to contribute to the building of a prosperous society (Samsung Electronics 2012). The company aims at attaining this objective by engaging in business activities that respect nature and people.
Environmental Sustainability Report
In relation to the environment, both companies disclose their long term goals to the stakeholders. They also report on existing initiatives in line with these objectives. Samsung Electronics has developed a green management strategy, which incorporates sustainable development from environmental, social, and economic perspectives (Samsung Electronics 2012). The company has embarked on a green manufacturing process. The undertaking involves manufacturing processes that minimise the emission of greenhouse gases. In addition, the activities reduce the emission of other pollutants by enhancing the management of energy and other resources. Samsung Electronics engages in responsible processes by reducing the environmental impacts of its activities. It also promotes the safety associated with its products (Samsung Electronics 2012).
Royal Dutch Shell also engages in various activities to reduce greenhouse gas emissions. The company has put in place specific measures to manage its use of freshwater resources. However, the organisation’s energy efficiency in 2012 was worse than in 2011.
Economic Sustainability Report
Royal Dutch Shell provided a more comprehensive economic sustainability report for 2012 compared to Samsung. Shell recorded an income of $27 billion in 2012. It is noted that 20% of this income was generated through sustainable development processes. Such a percentage is an indication of the company’s commitment to sustainable initiatives (Royal Dutch Shell 2012). The share was split between operational spills, usage of freshwater, and energy efficiency.
Samsung Electronics economic sustainability disclosures indicated the adoption of energy cost rate percentage (%). The aim was to assess the financial benefits derived from reductions in energy consumption (Samsung Electronics 2012). The company reported a targeted percentage of 0.878% by 2013. It also aimed at reducing consumption by 2.5% every year. In the report, the company also expressed the desire to reduce electronics wastes through recycling. For instance, the firm embarked on a product stewardship initiative by adhering to the individual producer responsibility policy. In addition, the organisation intends to set up more recycling systems in the world.
Social Sustainability Report
Samsung Electronics and Royal Dutch Shell disclosed their sustainability plans for the society in their 2012 reports. Socially, Royal Dutch provided information relating to personal and process safety, as well as to social investment. In addition, the company reported on diversity, inclusion, and social performance. For instance, in 2012, the organisation spent $149 million on voluntary investments in various communities around the world. The expenditure was a significant increase compared to the figure of $125 million reported in 2011 (Royal Dutch Shell 2012). In addition, the company spent $34 million on three global social themes. The three included energy access and road safety, and enterprise development. Others involved biodiversity, community development, and education.
However, Samsung Electronics focused more on sustainable development compared to Shell. It was interested in green management and development. For instance, the company developed several solar powered (mobile) classrooms, which were installed within needy communities in Africa (Samsung Electronics 2012). In addition, Samsung Electronics funded various biodiversity education and awareness programs around the world. The organisation also set out on the development of zero-accident green operation sites (Samsung Electronics 2012). Consequently, Samsung intends to promote safe working conditions through the implementation of accident prevention measures. The health of the employees was also made a priority.
The disclosures made by Samsung and Shell exhibit the major concepts of sustainability reporting. The concepts include economic, social, and environmental management. Both companies, although operating in different industries, illustrate their accountability in corporate sustainability reporting.
Legitimacy Management by Samsung Electronics and Royal Dutch Shell
According to Hopwood and Unerman (2010), legitimacy theories portray corporate reporting as a strategy adopted by organisations to justify their actions. The actions are perceived by the management as actually or potentially detrimental to the reputation of the company. In addition, the activities have possible implications on the organisation’s ultimate survival and profitability (Hopwood & Unerman 2010).
Deegan and Unerman (2011) suggest the possibility of organisations using annual sustainability reports to legitimise their ongoing operations. Samsung Electronics and Royal Dutch Shell can be regarded as such companies in relation to legitimacy theory. The reports by the two companies indicate extensive involvement in sustainable development. However, Royal Dutch Shell has faced several lawsuits with regard to environmental degradation and exploitation, especially in Nigeria (Lynch et al. 2014). As such, it is apparent that the company manages legitimacy through reporting.
Lynch et al. (2014) are of the view that organisations vary their social disclosures with time. The variation is in line with society’s changing expectations as far as responsible corporate behaviour is concerned. The strategy is instrumental in the operations of both Samsung and Royal Dutch. The reports by the two companies portray improvements in performance and additional expectations over time. The figures indicate legitimacy management in the two companies in relation to their expanding operations.
The stakeholders’ theory plays a vital role in legitimacy management in Samsung and Shell. The perspectives adopted by the two theories vary. However, the need to satisfy the needs of the stakeholders is common between them. Stakeholders’ theory shifts the focus of the company from the shareholder to the interests of all the other relevant stakeholders (Deegan & Unerman 2011). A firm takes into account the welfare of all the parties involved in its operations (Mitchell & Agle 1997; Sethi, 1975).
The disclosures by Samsung and Royal Dutch take into consideration all aspects of sustainable development and sustainability reporting. It is apparent that these corporations pay attention to all stakeholders. The impacts of the activities undertaken by these parties on the organisation cannot be ignored (Carroll 1999). For instance, negative publicity from human rights and environmental groups can lead to a boycott of products. Such developments can also lead to disruption of operations by local communities.
To avert the negative impacts that shareholders’ actions have on profitability, productivity, and share value, Samsung and Royal Dutch manage legitimacy through their sustainability reports. After reviewing the stakeholders’ theory from a managerial perspective, it is made clear that managers in the two companies use the information at their disposal to the advantage of their organisations. The information is used to manipulate the stakeholders to secure their support and approval. In addition, the information revealed through sustainability reports distracts the stakeholders’ disapproval and opposition.
Conclusion
Corporate sustainability reporting is gaining popularity among contemporary organisations. The concept is largely based on a voluntary reporting framework. However, based on the systems oriented theory, one can argue that sustainability reporting is important in enhancing corporate accountability. Financial reporting is not adequate since stakeholders are exhibiting increased interest in the operations of corporations. In addition, corporate sustainability reporting enhances the legitimacy of the organisation. Support from stakeholders increases the relevance of the company in society. As such, corporate sustainability reporting is an important aspect of financial and managerial accounting.
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