Beruflich Dokumente
Kultur Dokumente
1
Topic Outcome
• Corporate Social Responsibilities
• Brief overview of history of social and environmental reporting
• Provide theoretical perspectives (political economy theory) that explain why organisations elect
to make certain voluntary disclosures e.g. social responsibility disclosures
• Legitimacy theory
• Stakeholder theory
• Institutional theory
• Developing notions of Sustainability
• Objectives of the social and environmental reporting process
• Some possible limitations of traditional financial accounting in capturing and reporting social and
environmental performance
• Triple bottom line reporting
• The GRI – A conceptual framework for social and environmental reporting?
• Accounting for externalities
• Social audit
• Describe current reporting practices of corporate and social environmental reporting in Malaysia
• The value creation and benefits of CSR 2
PY: January 2018; Q2
3
PYQ: December 2016,Q2 (a)
4
Other PYQs
Exam Session Topic Coverage
June 2018, Q2 a) MPERS
b) Sustainability reporting
Special Feb 2018;Q2 a) Stakeholder theory
b) MPERS
August 2017 a) MPERS
b) Sustainability reporting
June 2016; Q2 a) Mandatory approach to reporting
b) MPERS
June 2017; Q2 a) CSR reporting
b) MPERS
December 2016 a) Theories – Legitimacy, stakeholder, Institutional
b) MPERS 5
INTRODUCTION
6
Social and Environmental Reporting
Gray, Owen and Adams (1996)* described social accounting as a combination
of:
a) accounting for different things (i.e. other than accounting strictly for
economic events)
b) accounting in different media (i.e. other than accounting in strictly
financial terms)
c) accounting to different individuals or groups (i.e. not necessarily
accounting to only the providers of finance)
d) accounting for different purposes (i.e. not necessarily accounting which
enables decision making with success judged only in financial or cash flow
terms).
* Gray R. H., Owen D. L. and Adams C. (1996). Accounting and accountability, changes and challenges in corporate social and
environmental reporting. Prentice Hall, Hemel Hempstead 7
Corporate Social Responsibility
8
Few broad categories of CSR
1. Environmental efforts: Businesses regardless of size have a large carbon
footprint. Any steps they can take to reduce those footprints are
considered both good for the company and society.
2. Philanthropy: Businesses can also practice social responsibility by
donating money, products or services to social causes. Larger companies
tend to have a lot of resources that can benefit charities and local
community programs.
3. Ethical labor practices: By treating employees fairly and ethically,
companies can also demonstrate their corporate social responsibility.
This is especially true of businesses that operate in international
locations with labor laws that different.
4. Volunteering: Attending volunteer events says a lot about a company's
sincerity. By doing good deeds without expecting anything in return,
companies can express their concern for specific issues and support for
certain organizations.
9
CSR and Shareholders’ Wealth
• Various researchers are of the view that shareholder wealth maximization is consistent with social responsibility.
• More focus on the societal issues and also on the issue that what organizations say and do with regard to their
stakeholders.
• Main function of enterprise is to create value through producing goods and services that society demands, making
profits for its owners and shareholders and also caring for the welfare of society.
• In addition, a business should be viewed ‘‘as a citizen in society’’ which has responsibilities to other citizens.
• It recognizes that various stakeholders have different interests and expectations, including customers, employees,
suppliers, specific communities, shareholders, and the environment.
• A business has a social contract with society. Under this contract, it enjoys rights such as to be able to carry on a
business uninterrupted, make profits, and enforce commercial contracts and be defended by the rule of law.
• Thus, imposing on a business a duty to behave reasonably towards the action of society and to be socially
responsible in its decisions and actions.
• The two- fold purpose: benefit society and benefit to the firm, clearly suggest that social responsibility in business
will improve shareholder wealth.
• Undertaking social responsibility is essential to being a sustainable enterprise, and that a business that is doing the
opposite has no long-term future in the society.
• It is therefore in the interests of shareholders that business firms become sustainable if earnings are to continue in
the future.
• Consumers could be willing to pay a premium price for the products of companies who are perceived to be socially
responsible.
10
History of CSR and Environmental Reporting
• In 1970s, there was a fairly widespread interest in issues of corporate social
responsibility
• Social accounting has made its influence in France, and influenced the corporate
disclosure requirements in the UK and was seriously as a potential addition to
company law in the UK.
• Reasons for non-adoption of social accounting at that time was that it was not a
part of "accounting" and it was not coherent - either theoretically or practically.
For e.g. it threatened capital with costs and with accountability
• However, in the late 1980’s social accounting and auditing were subject to
dispossession and dissatisfaction.
• By 1990, everybody was suddenly "green" and the environmental agenda has
steadily developed.
• By the mid 1990s social accounting was in the non-profit sector and then, in the
corporate sector. re-emerging
• By the early 21st Century, social and environmental accounting are almost
mainstream.
11
Theoretical Perspectives
12
Systems-Oriented theories
• Include Legitimacy Theory, Stakeholder Theory and Institutional
Theory
13
The organisation is viewed as part of a broader social system
14
Political Economy Theory
• Legitimacy Theory, Stakeholder Theory and Institutional Theory are
derived from Political Economy Theory
• The political economy is ‘the social, political and economic framework
within which human life takes place’ (Gray, Owen & Adams 1996, p.47)
• The argument is that economic issues cannot be investigated in the
absence of considering the political, social and institutional framework
within which economic activity takes place – must all be considered within
‘context’
• Corporate reports are not considered neutral and unbiased, but are a
product of the interchange between the corporation and its environment
• Two streams of Political Economy Theory
• Classical
• Bourgeois 15
Classical Political Economy Theory
• Related to the works of Marx
• Considers class interests, structural conflict, inequity
and the role of the state
• Accounting reports and disclosures are a means of
maintaining the favoured position of those who
control scarce resources
• Focuses on the structural conflicts within society
16
Bourgeois Political Economy Theory
• Does not explicitly consider structural conflicts and class
struggles
• Concerned with interactions between groups in an essentially
pluralistic world
• Legitimacy Theory and Stakeholder Theory are generally
derived from this branch
• Does not question or study the various class structures within
society
17
Legitimacy Theory
• Legitimacy Theory is a widely used theory
• Organisations seek to ensure they operate within the bounds and norms of their
respective societies, that is, they want their activities to be perceived as ‘legitimate’
• Bounds and norms are not static so this requires organisation to be responsive
• Legitimacy Theory (and Stakeholder Theory and Institutional Theory) can be used to help
explain why an entity might elect to make particular voluntary disclosures
• Accounting disclosures are a strategy used by the firm to manipulate the firm’s
relationships within the social system
• Legitimacy theorists often rely upon the notion that there is a ‘social contract’ between
the organisation and the society in which it operates
• To be considered legitimate it is not the actual conduct of the organisation that is
important, it is what society collectively knows or perceives about the organisation’s
conduct that shapes perceived legitimacy
• Information disclosure is vital to establishing corporate legitimacy
18
Cont’d
19
Social Contract
Mathews (1993, p.26) states:
The social contract would exist between corporations (usually limited
companies) and individual members of society. Society (as a
collection of individuals) provides corporations with their legal
standing and attributes and the authority to own and use natural
resources and to hire employees. Organisations draw on community
resources and output both goods and services and waste products to
the general environment. The organisation has no inherent rights to
these benefits, and in order to allow their existence, society would
expect the benefits to exceed the costs to society.
20
Cont’d
• The social contract aims to explain the boundaries of acceptable interaction between participants within society.
• Social contract represents the implicit and explicit expectations that society has about how the organisation
should conduct its operations
• Legal requirements might provide the explicit terms of the contract
• Other non-legislated societal expectations might provide the implicit terms
• Traditionally the optimal measure of performance was profit maximisation
• Public expectations have changed so organisations are now required to address human, environmental and other
social issues
• Society allows the organisation to continue operations to the extent that it meets their expectations – which is
often considered as being the same as being ‘legitimate’
• The concept of social contract was initially based upon the idea of ‘justice’ for individuals within society. Because
of the implicit nature of the social contract, some may disregard the boundaries of socially acceptable desirable
behaviour.
• Corporate management, via its social contract with other stakeholders within the community, aims to perform
socially desirable actions in return for acceptance of their entity’s objectives.
• Management actions are guided by social expectations of their performance. However, failure to remain within
the ‘implicit’ boundaries may result in the introduction of ‘explicit’ regulatory requirements for environmental
management and performance
• Governments can penalise individuals or the social structure within which they operate using penalties that are
either financial, and/or restrict the individual’s activities or personal liberty (sanctions such as legal
restrictions on operations, limited resources provided or reduced demand for products.
21
Role of public disclosure
22
Examples of empirical studies
• Patten (1992):
• examined the change in the extent of environmental disclosures of US oil firms around
the Exxon Valdez oil spill in Alaska
• Legitimacy Theory suggested that they would increase disclosure in the annual report
after the spill
• found the increase in disclosure occurred across the industry
• Deegan and Rankin (1996):
• used Legitimacy Theory to explain changes in annual report, environmental disclosure
policies around proven environmental prosecutions
• prosecuted firms disclosed significantly more environmental information in the year of
prosecution than any other year
• prosecuted firms disclosed more ‘positive’ environmental information than a matched
sample of non-prosecuted firms
• Gray, Kouhy and Lavers (1995):
• performed longitudinal study of UK social and environmental disclosures from 1979 to
1991
• related trends to Legitimacy Theory, with specific reference to Lindblom’s strategies
23
Cont’d
• Deegan and Gordon (1996):
• investigated the objectivity of environmental disclosure practices and trends over time, as well
as whether environmental disclosures related to environmental group concerns
• found increased disclosure over time associated with increased environmental group
membership
• disclosures mostly positive
• positive relation between environmental sensitivity of industry and disclosure
• Brown and Deegan (1998) emphasised the role of the media in shaping community
expectations and showed that corporate disclosures responded to media attention
• More organisation-centred
• stakeholders identified by the organisation
• extent to which organisation believes relationship needs to be managed in interests of the
organisation
• Research undertaken under the managerial branch of Stakeholder Theory can be tested
with empirical observation
• unlike normative ethical branch
• Specifically considers the different stakeholder groups within society, and how they
should best be managed
31
Ethical view vs. managerial view
32
Differences between the ethical and managerial branches of Stakeholder Theory
33
Institutional Theory
• Provides an explanation about why organisations tend to take on similar
characteristics, form and processes (including similar reporting practices)
• Particular organisational forms might be adopted in order to bring
legitimacy to the organisation
• ‘Organisations conform because they are rewarded for doing so through increased
legitimacy, resources and survival capabilities’ (Scott 1987, p.498)
• Provides a complimentary perspective to both Legitimacy Theory and
Stakeholder Theory
• The theory links organisation practices to societal values
• Organisational form tends towards some form of homogeneity
• ‘deviants’ will have problems gaining or maintaining legitimacy
• Certain ways ‘of doing things’ are seen as legitimate – they become ‘institutionalised’
• Once process become institutionalised they effectively become ‘beyond the discretion of
individuals and organisations’
34
Cont’d
• Formal organisational structures and practices might be considered by
society as legitimate
• However, this does not necessarily mean they are the most efficient
choice in terms of technical efficiency
• The formal structures and procedures of an organisation – which are
the structures and procedures projected to others – reflect the
rationalised institutional rules of the wider institutional environments
in which organisations operate
• The status of an organisation’s legitimacy reflects the ‘social fit’ of the
organisation within its environments
• Two main dimensions of Institutional Theory are isomorphism and
decoupling
35
Isomorphism
• Isomorphism refers to ‘a constraining process that forces one unit in a
population to resemble other units that face the same set of
environmental conditions’ (DiMaggio & Powell 1983, p.149)
36
Coercive isomorphism
• Arises where organisations change their institutional practices because
of pressure from those stakeholders upon which the organisation is
dependent
• Related to the managerial branch of Stakeholder Theory
• Because powerful stakeholders might have similar expectations of
other organisations, there will tend to be conformity in practices across
organisations, including their reporting practices
• Consider how the World Bank has been able to influence reporting
practices in developing countries (Neu and Ocampo 2007)
37
Mimetic isomorphism
• Organisations often copy other organisation’s practices for competitive
advantage and to reduce uncertainty
39
Outcomes of isomorphism
40
Decoupling
41
The Meaning of “Sustainability”
42
The Sustainable Entity
The term sustainability has been interpreted in different ways.
• One definition is that sustainability refers to a nation, region or economy, whose development
‘meets the needs of the present without compromising the ability of future generations to meet
their own needs’.
• Sustainability is about environmental protection (eco-efficiency) and justice between peoples and
generations (eco-justice).
• Eco-efficiency is environment oriented and aims to improve performance while reducing the
overall impact on the environment.
• Eco-justice is concerned with social equality, and is a function of the following:
• intra-generational equity – recognition that we share the Earth and its resources; it concerns
issues of global wealth distribution.
• inter-generational equity – recognition that future generations deserve the right to utilize the
Earth’s resources; hence there is a need to preserve natural resources.
• Stakeholders of the entity may include:
• Shareholders; financiers; employees; unions; consumers; all levels of government; regulators
and other government bodies; environmental organizations; the local community to the global
community; future generations. 43
Corporate Social Responsibility (CSR)
• The general view of CSR is that an organisation that embraces CSR is considering the interests of a
broader group of stakeholders rather than just shareholders alone
Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance
and investing more into human capital, the environment and the relations with stakeholders.
44
CSR reporting
45
CSR reporting and sustainability reporting
46
Social reporting
• Is a component of CSR/sustainability reporting that provides
information about such things as:
• labour practices and decent work performance (e.g. occupational health and
safety, training and education, diversity and opportunity);
• human rights performance (e.g. non-discrimination, freedom of association
and collective bargaining, child labour and indigenous rights); and
• product responsibility performance (e.g. customer health and safety).
47
What Motivate Corporate Social Responsibility?
1) Legal Regulations and Management Accountability
• Government intervention on environmental issues is usually aimed at those who are directly
responsible for the production of environmental ‘externalities’ (i.e. the ‘polluters’), to force these
entities tointernalize their impact.
• Examples of intervention:
• Taxation deductions made available to businesses that spend money on environmental
programs.
• Governments may impose strict regulations upon the procedures of these ‘externalities’,
forcing them to internalize or take ‘ownership’ of their impact on the natural environment
(for example, regulations on the preparation of environmental impact statements and mine
restoration).
• Recently, there has been a trend identifying the corporate manager as having a ‘duty of care’
towards the environment, and therefore being personally liable for the company’s breaches of
regulations.
48
2) Shareholder Activism
• Individual investors have become more proactive in highlighting corporate
social responsibility.
• This may be observed, for example, in questions to the board of directors at a
company’s AGM, or
• by shareholders requesting an EGM where management is asked to respond
on specific issues.
• Examples of questions asked during AGM:
• the role of women in the organization and in particular to take significant action to try an
increase the number of women on the Board,
• the importance that the company places on training its staff.
49
Objectives of Social and Environmental
Reporting
• In recent years there has been increasing focus upon sustainable development and sustainability
reporting
• Sustainability reporting (and CSR reporting) represents a departure from the economic focus that
was traditional in external reporting
• Guthrie and Parker suggested that social reporting could serve 3 major purposes; that is:
1. provide a comprehensive view of the organization and its resources
2. provide a constraint upon socially irresponsible corporate behavior
3. provide positive motivation for the corporation to act in a socially responsible manner.
• A broad interpretation of social and environmental reporting should be adopted that recognizes the firm’s interaction
withthebroadercommunityanditsstakeholders.
• Issuesdefinedasfallingwithinthecriteria ofsocialandenvironmentalreportingincludeactionsimpactingon:
• Employees; occupational health and safety; minority and equity issues; community; indigenous peoples; environment; energy use; and
products
Firmsthatoperatewithinthe socialsettingmust thereforebeconsiderateof thedemandsplaceduponthem,and the
needtoremainaviable,‘sustainable’entity.
50
Cont’d
51
Limitations of Traditional Financial Accounting in
Social and Environmental Reporting
52
Triple Bottom Line Reporting
(TBL)
53
TBL Reporting
• Reporting on the economic, environmental and social performance of an entity. This
approach is directly tied to the concept of sustainable development.
• Triple bottom-line reporting aims to move away from the traditional method of
reporting that focuses on financial performance and the adoption of the annual
report as the primary means of communication.
• Financial considerations remain a primary concern for business (unprofitable
business do not survive in the long term), but triple bottom-line reporting requires
the entity to consider the ‘cost’ of operations on the environment and society.
54
The Global Reporting Initiative
(GRI)
55
The Global Reporting Initiative
• Whilst there is no regulation requiring organisations to produce a
stand-alone sustainability (or CSR) report, many organisations do.
• The most commonly used framework adopted on an international
basis is the Sustainability Reporting Guidelines released by the
Global Reporting Initiative (GRI).
• The Global Reporting Initiative (GRI) was established in 1997
• The GRI Sustainability Reporting Guidelines is the most
comprehensive framework for ‘how to report’ that is currently
available
56
The GRI Sustainability Reporting Guidelines
• Version 4 (referred to as G4) was released in 2013.
• The Sustainability Reporting Guidelines are supplemented by Sector Supplements, which contain
indicators for individual industry sectors.
• The GRI Guidelines are presented in two parts, these being:
• Reporting Principles and Standard Disclosures
• Implementation Manual
• Reporting Principles and Standard Disclosures
• contains Reporting Principles, Standard Disclosures, and the criteria to be applied by an organisation to
prepare its sustainability report ‘in accordance’ with the Guidelines.
• Implementation Manual
• contains explanations of how to apply the ‘Reporting Principles’, how to prepare the information to be
disclosed, and how to interpret the various concepts in the Guidelines. References to other sources, a
glossary and general reporting notes are also included
57
Cont’d
• Organisations that apply the guidelines, and that make a specific claim to be ‘in accordance’ with the
Guidelines, are required to select one of two ‘in accordance options’.
• This represents a significant change from the previous version of the Guidelines. Previously the GRI had
established a self-assessment system wherein organisations could rank themselves from A to C on the basis of
the extent to which the guidelines have been adopted.
• Reflecting the new approach, page 8 of the G4 Sustainability Reporting Guidelines states:
• The Guidelines offer two options for an organization to prepare its sustainability report ‘in accordance’ with the
Guidelines. The two options are Core and Comprehensive. These options designate the content to be included for the
report to be prepared ‘in accordance’ with the Guidelines. Both options can apply for an organization of any type,
size, sector or location
• Organisations that are applying the GRI Guidelines are required to produce what are referred to as ‘standard disclosures’ –
which are divided into general standard disclosures and specific standard disclosures. They are also and are required to
disclose information relating to various performance indicators.
• The general standard disclosures relate to:
• Strategy and Analysis;
• Organizational Profile;
• Identified Material Aspects and Boundaries;
• Stakeholder Engagement;
• Report Profile;
• Governance; and
• Ethics and Integrity.
58
Cont’d
• The specific standard disclosures relate to:
• Disclosures on Management Approach; and
• Sustainability Performance Indicators.
• Disclosures on Management Approach (under the specific standard disclosures) is intended to give the
organisation an opportunity to explain how the economic, environmental and social impacts related to
material aspects are managed
• The Sustainability Performance Indicators which are required to be disclosed pursuant to the guidelines
are organised under the categories of:
• economic performance,
• environmental performance and
• social performance
• (with the social indicators being further subdivided into labour practices and decent work performance indicators,
human rights indicators, society indicators, and product responsibility performance indicators)
59
Mandatory Reporting of Social and Environmental Information
61
Voluntary Reporting
• Observations of Voluntary Practices in Australia
• Because of limited social and environmental reporting regulations, the decision to
disclose is primarily voluntary. There is considerable evidence that many Australian
companies voluntarily disclose social and environmental information, and that the
level of such disclosure is increasing.
• Observations of Voluntary Reporting: Findings of International Studies
• A survey by the UK Institution of Chartered Accountants found that environmental
disclosure within annual reports of companies:
• …(tended) to provide only ‘good news; and
• … more environmental reporting can be seen among companies with either
vested interests in the natural environment or which are subject to pressures from
public or regulatory authorities (chemicals, petroleum, water and power
companies, for example).
62
Accounting for Externalities
63
Externalities
• A ‘true’ sustainability report would disclose information about various social and
environmental ‘costs’ including those relating to externalities
• An externality can be defined as an impact that an entity has on parties that are external to
the organisation where such external parties did not agree or take part in the actions
causing, or the decisions leading to, the cost or benefit
• Externalities can be positive or negative
• Prices paid for goods and services typically do not reflect externalities, meaning that the cost
of many products is ‘understated’
• Government intervention can occur so as to place a cost on externalities—for example,
carbon taxes. This acts to internalise some costs that were previously unrecognised
64
Accounting for externalities:
Monetising environmental costs and benefits
• Financial accounting typically ignores social and environmental impacts,
therefore experimental approaches to full-cost profit calculation are being
developed
• Market prices do not reflect the scarcity of resources involved or harm
resources cause
• Perception that all costs associated with the production of goods or services
(including use of ‘the environment’) should be reflected in the price of the
goods or services – the practice of ‘under-pricing’ the environment leads to
over use and damage to the environment
• If done comprehensively this would involve some life-cycle analysis
• consideration of the inputs and outputs from raw material acquisition to disposal
• Often referred to as ‘true prices’ 65
Social Audit
66
Social auditing
• Organisations need to be aware of, and to comply with, community
expectations
• A Social Audit involves stakeholder-based engagement with the aim of
determining whether the organisation is perceived to be operating in
accordance with stakeholder expectations and where improvements in
performance are considered necessary
• The results of a social audit will often form the basis for information
presented in a Social Report, or in the social reporting component of a
Sustainability Report
• Organisations can do social audits to try to ensure that they are maintaining
high ethical standards (for example, consider The Body Shop’s use of social
audits), or they can be used after social problems have already become
known (e.g. consider Nike’s early use of social audits) 67
Examples of social auditing standards
• Released in 1998 by Social Accountability International
• SA8000
• focuses on issues associated with human rights, health and safety, and equal
opportunities
• In 1999 the Institute for Social and Ethical Accountability launched the
standard AA1000
• concerned with the processes of setting up and operating social and ethical
accounting and auditing systems
• currently, the AA1000 series consists of:
• The AA1000 Accountability Standard (AA1000APS) provides a framework for an organisation to
identify, prioritise and respond to its sustainability challenges.
• The AA1000 Assurance Standard (AA1000AS) provides a methodology for assurance practitioners to
evaluate the nature and extent to which an organisation adheres to the Accountability Principles.
• The AA1000 Stakeholder Engagement Standard (AA1000SES) provides a framework to help
organisations ensure stakeholder engagement processes are purpose driven, robust and deliver
results. 68
Corporate and Social Environmental
Reporting in Malaysia
69
Value Creating and Benefits of CSR
70
MPERS for SMEs
(Based on
71