McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter
Topics
Theories

to

Explain CSR Practices

Drivers

of

CSR Practices by Companies

Implication

s of Climate Change for CSR

Regulating

CSR Practices
Global

Reporting Initiative (GRI)

CSR

Practices by MNCs
15-2

Learning
Objectives
1.Explain

the

meaning of corporate social reporting (CSR).

2.Identify

theories used to explain the CSR practices of companies.

3.Describe

the

current international trend of external reporting.

4.Describe

the
steps taken at the international level to regulate CSR practices of companies.
5.Discuss the
factors that drive CSR practices of MNCs.
6.Identify the
organizations that promote CSR at the international level.
7.Discuss the
role played by Global Reporting Initiative (GRI).
8.Explain CSR
disclosures by companies at the international level with possible reasons for the
current trends in this area.
15-3

Also known as:

Ecological

footprint reporting.

Environmental
Triple

social governance (ESG) reporting.

bottom line (TBL) reporting.

The goal of sustainable development is to

meet the needs of the present without
compromising the ability of future generations
to meet their own needs.

15-4

Derived from notion of organizational

societal responsibility:
Which

comes from notion of stewardshipthe

accountability of management for the resources
entrusted to an organization.
Accountable to shareholders and other
stakeholders (employees, creditors, and society at
large).
Accountability is proactivenot reactive.
Examplemorally irresponsible for corporations to
profit by depleting natural resources or polluting the
environment.
Learning Objective 1
15-5

Stakeholder theory
Environmental

disclosures made in response to

stakeholder demand for environmental and social
information.
Major problem-- fails to explain different disclosures
by similar industries in same geographic areas.

Legitimacy theory
Social

reporting is means to deal with firms

exposure to political, economic and social pressures.
Behavior motivated by congruence with perceived
goals of society to legitimize their performance.
Learning Objective 2
15-6

Legitimacy theory

(continued)

Societys

perceived goals represented by various interest

groups such as environmental public interest groups (e.g.
motivation for disclosures by other petroleum firms after
Exxon Valdez oil spill and expected disclosures from firms
other than BP after 2010 Gulf of Mexico oil spill).
Has

also led to increased skepticism, such as in Ireland

who has no demand for CSR, so any attempt at CSR is
questioned.
Australian

managers, on the other hand, consider CSR

disclosures useful for maintaining or reestablishing
legitimacy.
Learning Objective 2
15-7

argely voluntary in most countries.

ide diversity based on different countries drivers.
ational culture affects CSR practices:
E.g. Spanish culture closer to Latin-European and LatinAmerican countries.
Remember Hofstede's four cultural dimensions:

Individualism vs. collectivism

Large vs. small power distance
Strong vs. weak uncertainty avoidance
Masculinity vs. femininity

Remember also Grays relationship between accounting values:

Secrecy vs. transparency (e.g. Spain secretive in CSR disclosures)

Conservatism vs. optimism
Uniformity vs. flexibility
Statutory control vs. professionalism

Learning Objective 3, 5
15-8

nfluenced by organizational culture:

Attitude of top management towards stakeholders.
Tone at the top identified in U.S. Treadway Commission
Report.
Managers determine relevant audience.
Foreign subs may disclose information in line with parent
not local culture.

ate of development of CSR internationally is slow

due to cultural factorseconomic, political,
capitalism, lethargy, inertia AND resistance to
change by accounting profession.
Learning Objective 3
15-9

Significant

shortcomings with voluntary CSR

practices.
Biased

and self-laudatory disclosuresminimal

disclosure of negative information.

Disclosures

insufficient and low in credibilitylack

independent verification of performance.

Difference

between accountability and forced

accountability, where spirit of the latter may not
exist.

Learning Objective 4
15-10

Problems of regulation through legislation

Lobbying

in favor of economic over social/environmental

interests may undermine regulatory enforcement.
If corporate legitimizing activities successfulpublic
pressure for governmental disclosure may be low leaving it
up to managers to control details of social reporting.
Needs to be stringent enforcement mechanism (e.g.
Thailands social and environmental legislation hasnt
promoted more management CSR disclosure).
Regulatory agencies weak due to dependency on expertise
and information of those they are trying to regulate.

Learning Objective 4
15-11

Regulation of CSR in the United States

Chicago

Climate Exchange is the only cap and trade system

for all six greenhouse gases (GHGs) in North America.
Emitting membersvoluntary but legally binding
commitments to meet annual GHG reduction targets:
If below targetcan sell or bank surplus allowances.
If above targetcan purchase CCX Carbon Financial Instrument
contractstradable commodities (each contract = 100 metric
tons of CO2 equivalent and comprised of exchange allowances
and offsets).
Some

efforts have failed since carbon offsets are nearly

impossible to verify as to legitimacy.
California and nine Eastern Seaboard states have formed
Regional Greenhouse Gas Initiative to introduce regs on GHG
emissions.
Learning Objective 4
15-12

Regulation of CSR in the United States

(continued)

SEC

has taken steps to introduce greater

regulatory scrutiny.
Superfund

legislation in the 80s required

corporations to actively remediate past problems
(even if not responsible for the contamination).
Superfund

reporting also helped more positive

environmental informational financial reporting.

Learning Objective 4
15-13

International Arrangements to Regulate

CSR
Dramatic

increase of environmental laws in

Australia, New Zealand, the U.K. and the E.U.
2005 Kyoto Protocol ratified by more than 165
countries but not the U.S.:
Says atmosphere is a shared resource and countries have
common but differentiated responsibilities to control
emissions.
Must reduce GHGs by 5% from 1990 level to 2011.
European

Union Emissions Trading Scheme (EU

ETS) launched in 2005 created EU-wide market for
emissions trading linked to Kyoto Protocol.
Learning Objective 4, 6
15-14

Climate change
International Panel on Climate Change (IPCC) has
found concentration of carbon dioxide in the
atmosphere has increased by 35% in the past 250
years (by far exceeding such variations over
preceding 10 million years).
1995-2006: rank among warmest years for global
surface temperature.
2007 Stern Report in the United Kingdom on the
Economics of Climate Change: our actions resulting in
climate change risk major disruption in economic
activity (e.g. could cost .5% to 1% of world GDP per
annum by mid-century and could be likened to
economic depression of first half of twentieth
century).
Learning Objective 5
15-15

Climate changekey concepts

Emissions

Tradingtradable carbon credits must be

purchased or pay a fine if certain emission limits exceeded.
Carbon Creditsreductions in greenhouse gases with
tradable financial value.
Carbon Funds and Emissions Brokeragesfunds set up to
purchase carbon credits and brokerages mediate between
buyers and sellers of the credits.
Clean Development Mechanism (CDM)promotes
reductions in emissions of developing countries.
Carbon Neutralemissions offset by removal of an equal
amount of gas from the atmosphere.
Carbon Taxtax on use of fuels causing carbon dioxide
and greenhouse gas emissionsbased on type and
quantity---promotes fuel efficiency.

Learning Objective 5
15-16

 Several

international bodiesWorld Bank, IFAC, Kyoto

Protocol.
World Bank set up Prototype Carbon Fund (PCF) to
stimulate development of emissions trading market:
Assists companies and governments to invest in carbon
credits generated by Kyoto Protocol.
Investors receive pro-rata share of the carbon credits.
London

has Alternative Investments Market (AIM) with

funds set up by large banks and private entities for
carbon credit trading on behalf of companies or for
speculation.

International

Finance Corporation (IFC), together with

GRI, has Good Practices Note to help businesses
achieve better value through sustainability reporting.

Learning Objective 7
15-17

 IFAC

developed Sustainability Framework using Web to

target professional accountants who can influence
organizations integrate sustainability into objectives,
strategies, etc.
IAASB expected to develop an assurance standard on GHG
statements by firms.
2005 Asia-Pacific Partnership on Clean Development and
Climate signed by Australia, Canada, China, India, Japan,
Korea and the U.S.
GRI is independent with Secretariat in Amsterdam, but
remains collaborating center of United Nations
Environmental Program and works with U.N. Global
Compact.
GRI produces one of worlds most prevalent standards for
sustainability reporting.
Learning Objective 7
15-18

As

of January 2009 more than 1,500 organizations

from 60 countries use guidelines to produce
sustainability reports.

Part I
Defines

report content, quality and boundary.

Ensures

quality of reported information.

Learning Objective 7
15-19

Part II
Standards

for disclosure.
Base content.
Three types of disclosure:
Strategy and profile (overall context for understanding
organizational performance).
Management approach (how an organization addresses
given set of topics).
Performance indicators (economic, environment and social
performance).

Learning Objective 7
15-20

In

October 2006 GRI launched G3third

generation of guidelines consisting of principles
and disclosure items:
Principles include materiality, stakeholder inclusiveness,
comparability, and timeliness.
Disclosures include management of issues and
performance indicators (e.g. total water withdrawal by
source).

GRI

is a network-based organizationhas
developed worlds most widely-used sustainability
reporting framework.

Has

international certified training program GRI

Certified Training Program.

Learning Objective 7
15-21

May

2008GRI sponsored Global Conference on

Sustain-ability and Transparency with main outcome:
By 2015 all large and medium companies in OECD countries
and large emerging economies will be required to report on
ESG performance or explain why they dont.
By 2020generally accepted and applied international
standard effectively integrating financial and ESG reporting by
all organizations.

August

2010GRI and Prince of Wales Accounting

for Sustainability Project announced formation of
International Integrated Reporting Committee
(IIRC):
To develop framework to bring together financial,
environmental, social and governance information.
Clear, consistent, comparable and integrated manner.

Learning Objective 7
15-22

UPS

2009 annual report states that it follows GRI

guidelines:
Shows plans to cut airline carbon emissions.
Shows how it responds to each of G3 indicators.

GRI

research indicates worldwide trend towards sustainability:

Helps build and maintain brand.
Strong correlation between high profitability and sustainability in
top international businesses (e.g. Coca-Cola, Microsoft, IBM, GE
and Nokia).

Senior

management clearly express commitment to CSR.

Hard

to find examples of companies quantifying financial

cost or benefit of reducing greenhouse emissions.

Learning Objective 8
15-23

Items

disclosed and methods of CSR disclosure

vary in different countries.

Items Disclosed
U.S.,

U.K. and Australia mostly disclose human

resources and community involvement.

Thailand

mostly discloses employee and

environmental information.

Learning Objective 8
15-24

Methods of Disclosure
U.S.

and U.K. use both monetary and nonmonetary

disclosure.
Australia

usually nonmonetary and more favorable

to company even around time of negative events:
Also havent adopted compliance-with-standard style of
stakeholder reporting as in Europe.
Little reference to reporting standards or necessity of
disclosure.

Learning Objective 8
15-25

Extent of Environmental Disclosure

Varies
Canada

more extensive than U.S.

Firms

from countries that ratified Kyoto Protocol

seem to have higher disclosure indices related to
pollution and greenhouse gas emissions.
Japan

stands out as a country with high rate of

reporting on climate change.

Learning Objective 8
15-26

Extent of Environmental Disclosure

Varies
Few

companies report on risk of legal action or

business disruptions caused by climate issues.

Learning Objective 8
15-27