Is Corporate Social Responsibility Converging? A Comparison of CSR Reporting

My research interests’ focus on Social and Environmental Reporting (SER) , to examine the current Social and Environmental reporting (SER) practices in Australia and its comparison to the Social and Environmental reporting in Indonesia, to also elaborate on the challenges faced by both countries. This writing will also discuss the importance in implementing social and environmental reporting from organizations’ perspectives.

Chen, S., & Bouvain, P. (2009). Is Corporate Responsibility Converging? A Comparison of Corporate Responsibility Reporting in the USA, UK, Australia, and Germany. Journal of Business Ethics, 87, 299-317. Retrieved from http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/40294970

RESEARCH TITLE:

IS CORPORATE RESPONSIBILITY CONVERGING? A COMPARISON OF CORPORATE RESPONSIBILITY REPORTING IN THE USA, UK, AUSTRALIA AND GERMANY

Current Social and Environmental Reporting (SER) in Australia and Indonesia

Social reporting or accounting is defined as the process of measuring, monitoring and reporting the impacts of an organization’s action in the social and environmental perspective.

Environmental reporting is the communication of environmental performance information by an organization to its stakeholder. It focuses on the environmental impacts, performance in managing those impacts, and the organization’s contributions to ecological and sustainable development.

It is not a mandatory requirement in Australia to provide sustainability reporting, however, many companies voluntarily include their social and environmental performance on their annual disclosure. This is merely driven by the public pressure, although there is still a lack of disclosure in climate-related disclosure. The organizations’ objectives are to engage with the stakeholders and to demonstrate their commitment to corporate social responsibility. ACCSR or Australia Centre for Corporate Social Responsibility conducted a survey that shows more than 50% of the Australian respondents support the mandatory sustainability reporting to be adopted by all organizations. Over the past ten years, the number of organizations that provided the sustainability disclosure in a more detailed-level has increased significantly. However, that increase was not accompanied by the increase of climate-related disclosure. There were 70 companies in the ASX200 did not measure their greenhouse gas emissions or having a policy in place, although all companies operating in Australia are obliged to provide such transparency in regards to their environmental performance under the National Greenhouse and Energy Reporting Act 2007 (Cth), the National Pollutant Inventory, and the Corporations Act 2001 (Cth). However, there is no single framework governing the organizations in Australia in relation to carbon risk disclosure. Carbon risk refers to the laws and policies designed to reduce the emissions of greenhouse gas and mitigating the climate change such as carbon taxes and emissions trading scheme.

This issue is particularly affecting organizations whose business relates to the exploitation of fossil fuels. Other developed countries such as Denmark, Norway, the US and the Netherlands have also made it mandatory for the organizations to report to the public in relation to their environmental performance. (KPMG, 1999). Additional reporting requirements apply to companies listed in the Australian Securities Exchange (ASX). This is to exercise the shareholders’ rights for protection and to assist the shareholder in making their investment decision. A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks (ASX Corporate Governance Council, recommendation 7.4). Further legislation has been introduced in Australia in response to the UK Pensions Act (1995) which requires pension plans to mention to which extent of ethical, social and environmental considerations are taken into the account before deciding on which companies to invest. A report compiled by the Australian Council of Superannuation Investors (ACSI) shows that most of ASX200 companies believe in the value of applying transparent reporting. So there is an increase of sustainability reporting that applies the Global Reporting Initiative (GSI) standards.

With no doubt, sustainability is now considered to be an integral aspects of company performance. This is not only emphasised by the developed countries such as Australia, the US, UK, and Germany but many of the developing countries are following and has begun practising this belief. Given the considerable differences in cultural and economic environment between Australia and Indonesia, the government of Indonesia plays an integral part in enforcing the social and environmental practices. In Indonesia, there has been a growing interest of the link between corporate governance and the concept of sustainability reporting. Environmental, social and corporate governance are believed to be interrelated to the success of the organizations.  Increasing stakeholders concerned about those elements is demonstrated by the increasing number of guidelines provided by government and industry bodies. Indonesia is the market for multi-national companies to practice in socially and environmentally sensitive areas or resources industry such as oil, gas, mining or logging. It is the biggest country in the South East Asia region with a complex and varied in both social and geographical. Located centrally on the world’s trade routes, Indonesia faces a number of factors exposing it to corporate social disclosure practices. These include the issues of poverty alleviation, human rights, health and safety environmental concerns, pollution and waste, social and political insecurity, and the need for direct foreign investment (Goyal, 2006; Raynard & Forstater,2002).

In response to the growing concerns in relation to the environmental management, the government of Indonesia issued parliamentary decree No. 23 in 1997. This allows the Ministry of Environmental to demand the organizations to report their social and environmental activities. This decree also means that the organizations are required to conduct environmental and social audits. However, that decree doesn’t contribute to more information being disclosed by Indonesian companies. Article 74 of the Limited Company Liability Act, Environmental Management and Protection Act, Coal and Mineral Mining Act, Forestry Act are several of sectoral acts to govern the social and environmental reporting. Since the enactment of Act No.40 0f 2007 in relation to Company Act, the social and environmental reporting has been made as mandatory reporting. This is opposed to Australia, where sustainability reporting is a voluntary action.  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). As it is mandatory, organizations that do not perform the social and environmental reporting will be given the sanction, however, the Company Act and regulations do not regulate the kind of sanctions or penalties for organizations that fail to meet the legal requirements. Without clear penalties in place, it would be difficult to enforce such mandatory reporting. Moreover, the proposal to add such penalties was dismissed based on the arguments that the stipulations of social and environment reporting is beyond legal compliance, attracting higher operational costs and also the high level of corruption within the authority that are likely to contribute to the unsuccessful implementation.

The importance of Social and Environmental Reporting

Social and environmental reporting is an important area of research to determine how much the reporting affects the businesses. The aim is to examine the existing challenges, conduct the research to provide the possibility on how to tackle its issues. Social and environmental reporting is used to cover attempts at accounting for issues within the environment, social and sustainable development. At the broader level, it is the concern on how the social and environmental affects the activities and decision-making within organizations. It is believed that organizations play crucial roles in a sustainable world. Reporting is a communication tool which is believed could lead to a greater corporate transparency and accountability to enable a better engagement with the stakeholders that will also lead to achieving its economic goal. Social and Environmental Reporting is to be defined as a meaningful process of communicating the social and environmental impacts driven by the economic actions of an organization. Social and Environmental Reporting (SER) is a form of Corporate Social Responsibility (CSR), where the organization is expected to be committed to behave in ethical ways and to contribute to the economy as a whole and to also take part in improving the quality of their employees, community and society at large.

Over the past thirty years, there has been a growing recognition by corporate managers of the need for a greater emphasis on corporate social responsibility (Gray et al, 1987). Social and Environmental Reporting is monitored by the organization itself to ensure the compliance within the ethical and legal acceptable International standard. The increasing pressures from stakeholders such as from media, activists group, governments, investors and society indirectly create a greater push for the emphasis on Social and Environmental Reporting. By being a socially responsible organization, it helps the company to build its image and brand in the public. The public perception of organizations lead to the higher expectations which is critical to shareholder confidence in the organizations. A positive image means the organizations is not only care about the financial profitability but also are socially conscious. The role of a business is no longer limited to produce, provide, and distribute goods and services to satisfy the public need and demand. Organizations hold more of an important role within the community. Another indirect benefit of being an organization that engages in sustainable social and environmental reporting is the opportunity to attract top talent. Recent survey of millennials show that they want to be a part of something bigger, not just a standard nine to five job.  Organizations that are involved in contributing positive impacts to the community have the advantages to stand out from their competitors. For example, Elon Musk, CEO of Tesla Inc. stands out from his vision to empower environmentally friendly automotive products by producing electric-powered cars.

Furthermore, organizations are expected to consider the effects to the society and environment when they make an economic decision. Hence, the goal of the enterprise changes from a focus solely on increasing profits to a focus on a triple bottom line involving profit, people and the planet (Cooper and Owen, 2007). The organizations are expected to be transparent as success is no longer only measured by financial accounting and profit report, they are required to put social and environmental impacts into consideration. Without doubt, the organizations might lose the consumers when the consumers believe that the businesses have consciously behaved in an unethical way. According to the Global Reporting Initiative (GRI), which was firstly developed in 1997, Social and Environmental Reporting represents the organizations’ commitments. It can also help the organizations to measure, understand, decide and communicate their performance in aspects such as economy, environment, social and governance. By understanding their businesses and their impacts as a whole, the organizations are then able to set their goals and manage the change in this emerging market in a more efficient way. This type of reporting is also seen as a tool for better risk management, as the majority of risks are out of the control of the organizations, it can affect the businesses on the long run. However, as the organizations monitor the social and environment reporting by itself, it is based on their own decisions to decide what are to be included on the report. Despite its growing popularity, evidence suggests that information contained in the social and environmental reporting is rarely used by stakeholders and management to make business decisions (CSR Europe and Accountability 2002). It is widely believed that such disclosure can have a negative impacts on the organization’s economic performance. 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 ( Gray 2006(b) and Erusalimsky et al. 2006). To be able to execute its social and economic performance, there is a monetary sacrifice that is required from the organization. While the goal of organizations are supposedly should just focus on creating profit and reducing the expenses at the same time to achieve profit maximization. This means social and environmental reporting is not without challenges. Despite the challenges, one can conclude that the benefits of social and environmental reporting outweigh its disadvantages.

Many prior research studies have proven that companies that adopted this strategy have yielded many competitive advantages over their competitors such as increase in market share and enhancement in reputation and brand value (Schaltegger & Burritt, 2006), reduced operating costs and improvement in financial performance (Adams & Zutshi, 2004) and increased sales and customer loyalty (Creyer, 1997; Mohr & Webb, 2005).

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