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Does sustainability reporting improve corporate behaviour

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Title: Does sustainability reporting improve corporate behaviour


1
Does sustainability reporting improve corporate
behaviour?
  • Wrong question? Right time?
  • Rob Gray
  • The Centre for Social and Environmental
    Accounting Research
  • University of St Andrews School of Management
  • Based on a paper commissioned by the ICAEW and
    forthcoming in Accounting and Business Research

2
Does sustainability reporting improve corporate
behaviour?
3
What is the problem?
  • The performance of companies implementing
    sustainability principles is superior because
    sustainability is a catalyst for enlightened and
    disciplined management...
  • Dow Jones Sustainability Group Indexes Report
    Quarterly 3/9
  • Sustainability pays off..Companies favouring
    the concept of sustainability outperform the
    broad market
  • Oberndorfer (WBCSD), 2004 cover and p3
  • all CSR activities are linked to improving a
    company's bottom line.
  • MHCi MONTHLY FEATURE (pdf/e-journal) April 2004
    (p. 2)
  • By working sustainably, we can increase
    financial capital. Sustainable development aims
    to improve the quality of life for everyone.
  • United Utilities, 2004, pp 1 3

4
(No Transcript)
5
Structure of the Paper
  • What do we know about sustainability?
  • And is it anything to do with companies?
  • What does sustainability reporting actually
    look like?
  • Evidence?
  • What do we learn from the relationships between
    social disclosure, social performance and
    financial performance?
  • Conclusions? Future research?

6
What is sustainability?
  • If we could shrink the world to a village of 100
    people, pro-rata there would be 57 Asians, 21
    Europeans, 14 from the Western hemisphere, north
    and south, and eight Africans. Eighty would live
    in sub-standard housing, 70 would be unable to
    read, 50 would suffer malnutrition. Six would
    possess 59 of the worlds wealth and all of them
    would be from the US. Only one would own a
    computer.
  • Reported in EcoSoundings, Guardian Society,
    Wednesday February 14 2001, p8
  • Sustainability or more usually sustainable
    development is typically defined as development
    which meets the needs of the present without
    compromising the ability of future generations to
    meet their own needs (United Nations WCED, 1987,
    p8).

7
Is the Planet earth currently sustainable?
  • The United Nations Environment Programme (UNEP)
    Global Environmental Outlook (GEO) 2002 (UNEP,
    2000)
  • The WWF Living Planet Report 2004 (WWF, 2004)
  • Limits to Growth The 30 Year Update (Meadows et
    al, 2004)
  • The United Nations Millennium Ecosystem
    Assessment (Millennium Ecosystem Assessment,
    2005)
  • .. Make very unpleasant reading
  • Human activity is putting such strain on the
    natural functions of Earth that the ability of
    the planets ecosystems to sustain future
    generations can no longer be taken for granted
    (UN 2005, p2)

8
WORLD ECOLOGICAL FOOTPRINT 1961- 01
BUILT- UP LAND
ENERGY
FISHING GROUNDS
FOREST
GRAZING LAND
CROPLAND
9
WWF 2004 ASSESSMENT OF A SUSTAINABLE EARTH
10
GDP AND WELLBEING, USA 1950 - 97
11
...but the sums dont work.
Sustainability?


?
12
Un-Sustainable So what?
13
Sustainability reporting
  • The number of companies reporting is
    insignificant. . Organisations general
    understanding of the nature of sustainable
    development is not well communicated by many of
    those reporting. Many reports fail to address the
    biggest sustainability issues (ACCA/Corporate
    Register, 2004, pp13 and 15)
  • Practice relatively new Voluntary
  • terminology a problem
  • E.g. Social Responsibility (e.g. KPMG)
  • stand alones
  • Steady growth
  • 2004 - 52 of Global Fortune 250
  • Numbers still insignificant
  • Quality is generally low
  • Dont directly address global sustainability?

14
Does sustainability reporting approximate
reporting on sustainability?
  • Most (96 of 60,000 MNCs) companies do not report
  • Best (of the 4) reporting approximates GRI
  • 149 companies in accordance with GRI (Jan 06)
  • GRI approximated Triple Bottom Line
  • TBL Reporting ? Sustainability

15
So what is sustainability reporting if it is
not about sustainability?
  • the capacity to endure as a group, by renewing
    assets, creating and delivering better products
    and service that meet the evolving needs of
    society, delivering returns to our shareholders,
    attracting successive generations of employees,
    contributing to a flourishing environment and
    retaining the trust and support of our customers
    and the communities in which we operate
  • (Making the right choices BP Sustainability
    Report 2004)

16
So what is sustainability reporting if it is
not about sustainability?
  • Thus sustainability is about
  • the foreseeable future of the business and
  • nothing to do with the state of planet
  • which is excluded from conception
  • Sustainability Reporting conveys an impression
    of connectivity with sustainability whilst having
    no discernible link with it

17
Does sustainability reporting improve corporate
behaviour?
18
Does such (non-sustainability) reporting improve
corporate behaviour?
  • Commentators widely draw from and use
  • Circumstantial evidence
  • FTSE4Good
  • Sustainability pays off
  • Dow Jones Sustainability Index
  • Field Work
  • Formal evidence from annual reports

19
It pays to be good but not too goodMintzberg
(1983, p10)
Financial Performance
Social Environmental Performance
Social Environmental Disclosure
20
Social Environmental Disclosure
Based on Annual Reports rarely stand
alones Measured by Content Analysis - volumes of
disclosure Mostly poor quality
Social Environmental Performance
Varied metrics Reputation ratings Fines
Disclosure SRI or CEP ratings Pollution
expenditure TRI Charitable giving
Financial Performance
Firm Characteristics profit, RoCE etc Market
characteristics Share returns, share prices etc
21
Are Social Responsibility and Profitability
Compatible?
Perhaps positive after all
Financial Performance
Social Environmental Performance
Inconclusive but looks unlikely - or even inverse
Mostly inconclusive but predisposition may be
positive
Social Environmental Disclosure
22
So what does the literature tell us?
  • Probably positive relationships between social
    disclosure, social performance and financial
    performance,
  • These probably only hold as long as
  • The quality of reporting is fairly low, patchy,
    selective and unconnected with sustainability
  • The proxies chosen for social and environmental
    performance are closely connected with good
    management and have pretty direct
    financial/risk/reputation effects in the markets.

23
So what does the literature tell us(2) ?
  • The relationships are thus based on tautologies
    (Orlitsky et al, 2003)
  • The evidence thus has no bearing on
  • Social and environmental accountability or
  • Substantive social and environmental performance
    leading towards sustainability
  • To infer that this literature can tell us
    anything about sustainability
  • is mischievous at best and
  • downright life-threatening at worst.

24
Does sustainability reporting improve corporate
behaviour?
  • Yes, but only so long as
  • Reporting is undertaken by a minority
  • Reporting has nothing to do with sustainability
    and
  • It remains inconceivable that there can be
    conflict between financial and social/environmenta
    l performance.
  • It might change corporate behaviour if
  • Reporting was mandatory
  • Reporting discharged accountability
  • Showed that companies cannot be sustainable
  • Showed that companies cannot be responsible.

25
Conclusions? 1
  • The sustainability of the planet is now very
    seriously in danger
  • The quality and range of this data cannot be
    ignored
  • Un-sustainability arises from
  • population and economic activity.
  • substantial proportion of which derives from
    astonishing success of modern company in
    capitalism.
  • Companies and representative bodies
    (successfully?) claim modern corporate activity
    is
  • (at best) sustainable or
  • (at worst) contributing towards a path of
    sustainable development

26
Conclusions? 2
  • There is no evidence which supports this so..
  • Either companies must be challenged to
    demonstrate that their claims about
    sustainability and wider social responsibility
    are substantiated
  • through substantial and complete sustainability
    reporting
  • Or companies must stop suggesting/claiming to be
    sustainable/on a journey to sustainability/contrib
    uting towards sustainable development etc
  • - BECAUSE THEY ARE NOT

27
Thank You
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