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TRIPLE BOTTOM LINE REPORTING: A STUDY OF DIVERSITY AND APPLICATION BY

AUSTRALIAN COMPANIES

Meropy Barut

Submitted for the degree of

Doctor of Philosophy

2007

Faculty of Business and Enterprise Swinburne University of Technology

Melbourne, Australia

Triple Bottom Line reporting: A Study of diversity and application by Australian companies

Abstract - Page i

Abstract

Corporate social reporting has been undertaken in various degrees since the 1970’s, and

these communications between companies and users are being recognised as an important

addition to the creation of a more complete picture of the impacts of a company on its

environment. As a result of growing societal pressure on organisations to behave as

responsible corporate citizens, corporate social reports provide the vehicle whereby the

social and environmental undertakings of the company may be chronicled and assessed.

The process of measurement, evaluation and reporting of social and environmental matters

is an area where the accounting profession has a clear role to play, but which it has thus far

effectively ignored. It has been left to others outside the normal accounting sphere to

develop frameworks to assist in social reporting. These concepts, ideas and frameworks,

have come together under the globally accepted term, Triple Bottom Line (TBL) reporting.

TBL reporting provides information about the economic, environmental and social

performance of an organisation. In a departure from the traditional focus solely on financial

performance, TBL reporting is centred on the notion that an organisation’s environmental

and social performance is directly tied to the concept of sustainable development.

This thesis investigates the emergence and level of voluntary social reporting (TBL reports)

by the top 100 companies in Australia. To ascertain the level of corporate commitment to

TBL reporting, the reporting framework developed by Global Reporting Initiative (the GRI

Sustainability Reporting Guidelines 2002) is used as a benchmark for the disclosures and as the

model upon which to make this assessment of the content of the disclosures.

Whilst there have been other studies considering the Australian context conducted prior to

or in parallel with this work (for example Jones et al., 2005; Kent and Chan, 2003), these

studies have simply focussed on whether corporations have attempted to report their

environmental and social performance against the GRI (or similar) indicators or counted

lines of text devoted to particular issues as a measure of the quality of reporting. This work

is ground-breaking in that it is the first study within the Australian context to consider the


Abstract - Page ii

information presented to determine quality of the corporate disclosures. It is also unique in

that all publicly-available disclosures were considered, so that the study did not solely focus

on hard-copy corporate reports but also assessed materials available on and through

company websites.

The corporate TBL reports for the years 2002 and 2003 were analysed using content

analysis to assess corporate reports for their content in the three TBL areas of disclosure,

economic, environmental and the social components of the reports. The content of the

reports was compared and evaluated against the reporting requirements of the 2002 GRI

Guidelines and then scored using a Likert scale of 1 to 5 for their observance with the

disclosures outlined in GRI document.

The results of the study paint a picture of current voluntary social reporting by Australian

companies. The major findings in this study are that:

1. There is reasonable similarity amongst the disclosures in the reports along with the

common inclusion of verification statements. The inclusion of verification statements

also tended to be more prevalent in the energy and material sectors.

2. The level and quality of disclosures in the TBL reports increased over the survey

period.

3. The spread of disclosures was skewed towards environmental disclosures, yet social

disclosures were also apparent and increased over the period assessed.

4. Companies in those industry sectors with a relatively high environmental or social

impact were leaders in the TBL disclosures.

The findings of this thesis indicate that TBL reporting, although still in its infancy, is likely

to lead to significant changes in reporting of results and performance and how the company

has discharged its accountability to the various stakeholders.

It is recommended that the accounting profession look at adopting the GRI Guidelines as a

“standard” for TBL reporting, something that would be presently viable as the Guidelines

have progressed to version three, with the G3 reporting framework due for release in late

2006.


Abstract - Page iii

This field of study is ripe for further investigation and, whilst this study was significant in

developing a preliminary picture of the TBL reporting landscape in Australia, it has also

brought to the fore the need for further research:

1. To determine whether the potential changes likely to emerge from the IASB/FASB

resurgence of interest in the conceptual framework will have any effect on social and

environmental reporting; and

2. To extend the picture of TBL reporting by Australian companies.

Triple Bottom Line reporting: A study of diversity and application by Australian companies

Page iv

Acknowledgments

I would like to thank my supervisor Associate Professor Sheikh Rahman for taking me on

board as a student several years ago and for mentoring me academically. His guidance

through the years I spent under his supervision is greatly appreciated, and this work is

better for his inputs and directions regarding Triple Bottom Line Reporting.

I would also like to acknowledge Swinburne University and, in particular, the Faculty of

Business and Enterprise. When I approached them about undertaking research in this area,

the Faculty was extremely encouraging despite that, at the start of this journey, this was not

a well-established area of research and it represented a significant extension of the Faculty’s

research profile. This thesis also would not have been possible without their educational

and financial support. I also need to acknowledge the help of my colleagues and thank

them for stepping in to fill the gap when I was ensconced in getting my ideas down on

paper.

Special thanks also go to Associate Professor Irene Tempone who had the unenviable task

of guiding me through the last stages of the process. Her wise counsel, professional

approach and calm demeanor were a boon at a time when I needed them most.

Many thanks also go to four very special people.

To my husband, Peter Greilach, who saw the potential for this area of research and

encouraged me to pursue this topic, reviewed copious drafts of the text, and was a patient

listener and sounding board for my ideas. His faith in me never wavered.

To my parents, Michael and Angela Barut, whose unconditional love and encouragement

maintained me through difficult times and who let me know that they believed in my

ability to undertake this project.

And finally to my daughter, Michaela, I am daily grateful to you for bringing laughter and

sunshine into my life. It was your desire to get your long-lost mummy back that provided

the impetus to finally finish this work.

Triple Bottom Line reporting: An study of diversity and application by Australian companies

Page v

Declaration

This is to declare that this thesis

• contains no material which has been accepted for the award of any other degree or

diploma, except where due reference is made in the text of the thesis; and

• to the best of my knowledge contains no material previously published or written by

another person, except where due reference is made in the text of this thesis.

________________________________________

Meropy Barut

10 August 2007


Page vi

TABLE OF CONTENTS Abstract i Acknowledgments iv Declaration v Table of Contents vi List of Figures xi List of Tables xiii Abbreviations used xv

CHAPTER 1 – Triple Bottom Line Reporting - Introduction 1

1.1 This investigation 2

1.2 Chapter development 6

1.2.1 The historical basis of voluntary social and environmental reporting 6

1.2.2 Reporting practices, measures and conditions 7

1.2.3 The development of TBL reporting 8

1.2.4 Development of the research questions 9

1.2.5 Analysis of the data 11

1.2.6 Assessing the future 11

1.3 Summary 12

CHAPTER 2 – Preamble to corporate social and environmental disclosures 13

2.1 Introduction 13

2.2 The rise of voluntary disclosures 14

2.3 Social and environmental disclosures in the annual report 16

2.3.1 The history of social and environmental reporting 16

2.4 Reasons for social and environmental reporting 19

2.4.1 Major drivers of corporate social responses 23

2.4.1.1 Proactive response 23

2.4.1.2 Reactive response 24

2.4.1.3 Risk-based response 25

2.4.2 Do Social disclosures have any affect on market performance? 26

2.4.3 Corporate reluctance to voluntary disclosures 29

2.4.3.1 Disclosure of discrediting events and media coverage 30

2.4.4 Degrees and volume of social and environmental disclosures 32


Page vii

2.4.4.1 Volume of social and environmental information 32

2.5 Conclusion 37

CHAPTER 3 – Review of literature on the evolution of Triple Bottom Line

reporting 38

3.1 Introduction 38

3.2 An overview of business, society and corporate social responsibility 41

3.2.1 The Social Contract Theory 41

3.2.1.1 Moral View and Structural View 43

3.3 Voluntary disclosures in the annual financial report 44

3.3.1 Perceptions about corporate social disclosures and the annual report 46

3.4 Commitment to voluntary social reporting 49

3.4.1 Stakeholder pressures 50

3.4.2 Management accountability and corporate social reporting 53

3.4.3 Environmental Audits and Verification Statements 57

3.4.4 Legislation of social and environmental disclosures 60

3.4.5 Economic opportunities/Performance 61

3.4.6 Corporate social disclosures and decision-usefulness 63

3.5 Form and content of social and environmental disclosures 63

3.5.1 The importance of this research 64

3.6 How are voluntary disclosures evaluated? 65

3.6.1 Studies that have “ranked” corporate social disclosures 66

3.6.2 Stock market utility studies 67

3.6.3 Rating / Scoring systems 68

3.7 Other sources of social and environmental information 69

3.8 The emergence of Triple Bottom Line reporting 70

3.8.1 Reporting begins 72

3.9 Conclusion 77

CHAPTER 4 – Accounting regulation and corporate social reporting 79

4.1 Introduction 79

4.2 Social matters and financial reporting 79

4.3 Objectives of financial reporting 80

4.3.1 Accountability and credibility 83

4.4 Accounting regulation of environmental and social matters 84

4.4.1 Australia 84

4.4.2 United States of America 88

4.5 Classification of environmental costs 91


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4.5.1 Treatment of environmental liabilities 94 4.5.1.1 Industry specific standards in Australia 98 4.5.1.2 Disclosure is a problem 101

4.5.2 The issue of materiality and significance 103

4.6 Moving towards mandatory TBL reporting 106 4.6.1 Theoretical framework for Accounting 108 4.7 Conclusion 110

CHAPTER 5 – Measurement Issues and TBL reporting 112

5.1 Introduction 112

5.2 Accounting concept of measurement 113

5.3 Application of measurement techniques to TBL reports 115

5.4 Internalising externalities and sustainability 117

5.5 Valuation models 122

5.6 The merit in valuation 125

5.7 Summary 129 CHAPTER 6 – Global developments on the TBL front 131


6.2 History of the Global Reporting Initiative (GRI) 132

6.3 The Global Reporting Initiative and TBL reporting 136

6.3.1 Implementation of TBL reporting through the GRI Guidelines 139

6.3.2 Precursor to the GRI 140

6.4 The GRI and human rights 144

6.5 Rating the GRI Guidelines 145

6.5.1 The uptake of GRI Guidelines 147

6.6 The use of the GRI Guidelines as a standard 148

6.7 Environmental policies – pressures to disclose 151

6.7.1 Stakeholder activists 153

6.7.2 Media coverage of environmental issues 154

6.7.3 Community level influences 156

6.7.4 Green alliances 158

6.8 Environmental protection - Australian Government initiatives 164

6.8.1 Pattern of government legislation 168

6.9 Voluntary versus regulatory adoption of a TBL reporting standard 169

6.9.1 Truth and equity issues 171

6.9.2 Creation of level playing field 171

6.9.3 Human Rights 172

6.9.4 Rights of the environment 172


Page ix

6.10 Conclusion 172 CHAPTER 7 – The empirical landscape and research methodology 175

7.1 Background and aims 175

7.2 The questions under investigation 175

7.3 Introduction to the methodological framework 180

7.4 Research assumptions 181

7.5 Description of data collection procedure and techniques of data analysis 184

7.5.1 Choice of large companies 188

7.5.2 Sources of information 190

7.5.3 Size of the population 191

7.5.4 Reporting years used 194

7.5.5 The focus of the research 196

7.5.6 Analytical Techniques Used 196

7.5.7 The scoring system used in the analysis 199 7.5.7.1 Ascertaining the TBL "Disclosure Score" 200

7.5.8 Alternative scoring systems 204 7.5.8.1 Morhardt et al. system 204 7.5.8.2 Environmental and social reputation indices 205

7.6 Conclusion 209 CHAPTER 8 – TBL Reporting by Australian companies: The research findings 211


8.2 General comments on the reports 212

8.3 Identifying the terminology used 215

8.4 Analysis of conformity with the economic component 216

8.4.1 Results of “Economic Indicators” 220

8.5 Analysis of the conformity with the “Social” component 223

8.5.1 Labour 225

8.5.2 Workplace safety and training disclosures 229

8.5.3 Human rights 232

8.5.4 Social / Community disclosures 237

8.5.5 Product responsibility 241

8.5.6 Social topics - Overview 249

8.6 Analysis of conformity with the ‘Environmental’ component 251

8.6.1 Environmental indicators - Overview 259

8.7 Overview of conformity with the GRI indicators 260

8.8 Verification statements 264

8.9 Results on the research questions 265


Page x

8.10 Individual Company “Disclosure Scores”:

‘Walk the Walk’ v ‘Talk the Talk’ 266

8.10.1 Overview of the Total Disclosure Score 271

8.11 Statistical analysis 275

8.12 Measurements and Valuation Methods employed 277

8.13 Industry findings 279

8.14 Findings on Research Question 5:

Correlation between size (revenue) and TBL “Disclosure Score” 284

8.15 Conclusion 286 CHAPTER 9 – Conclusion 288 9.1 Review of the Study and Overview of the Findings 288

9.1.1 Progression of the Analysis 289

9.2 The major findings of this study 290

9.3 Contributions to the Field of Research 293

9.4 Implications for Standard Setters - Setting the GRI Guidelines as a Standard 294

9.4.1 TBL reporting Standard will help with the problem of lack of verifiability 295

9.4.2 Words of caution 296

9.5 Further Research 298

9.5.1 Research into the GRI Guidelines 298

9.5.2 Research into TBL Reporting 299

9.6 Concluding Comments 300 Bibliography 302

Appendix 1 345 Company Reports and Scores

Appendix 2 354 Additional Information on the GRI Guidelines

Appendix 3 362 Additional Measurement Information

Appendix 4 367 Environmental Policy in Australia

Appendix 5 373 Alternative Valuation Models

Appendix 6 377 Additional Readings: Theories to explain corporate social reporting


Figures - Page xi

List of Figures

Figure 3.1 BHP – OK Tedi Disclosures 1995 - 1997 55

Figure 3.2 The distinction between the traditional reporting and TBL forms

74

Figure 5.1 Economic Activity and Environmental Impact 127

Figure 6.1 Global uptake of the GRI Guidelines in 2002 – Number of companies per country which use GRI

135

Figure 6.2 The CERES Principles 161

Figure 6.3 Constitutional Powers and Environmental Protection Legislation

167

Figure 7.1 GRI reporting Principles 182

Figure 8.1 Level of Reporting Rates with GRI Economic Indicators and Average scores for GRI Economic Indicators

221

Figure 8.2 Level of Reporting Rate and Average scores for GRI Social (LABOUR) Indicators

227

Figure 8.3 Level of Reporting Rate and Average scores for GRI Social (HUMAN RIGHTS ) Indicators

234

Figure 8.4 Level of Reporting Rate and Average scores for GRI Social (COMMUNITY) Indicators

239

Figure 8.5 Level of Reporting Rate for GRI Social (PRODUCT RESPONSIBILITY) indicators

246

Figure 8.6 Level of Reporting Rate for GRI Environmental Indicators and Average scores

255

Figure 8.7 Level of Reporting Rate for GRI - Overall Indicators 262

Figure 8.8 Average scores for the overall GRI 263

Figure 8.9 Total Disclosure Scores for Individual Company 269


Figures - Page xii

Figure 8.10 Total Disclosure Scores indexed for each company 270

Figure 8.11 Individual company indexed scores for core and non-core indicators

273

Figure 8.12 TBL Disclosure Scores by Industry Sector (2002) 280

Figure 8.13 Correlation data and Regression Graph 284


List of Tables - Page xiii

List of Tables

Table 2.1 Reasons why companies provide Corporate Social Disclosures

21

Table 2.2 Linkage of drivers and detailed reasons for corporate social reporting

23

Table 2.3 Summary of Findings of Studies 34

Table 2.4 Comparison of Results of KPMG International Survey of Corporate Social Responsibility spanning 2 decades

36

Table 4.1 Objectives of Financial Reporting 82

Table 4.2 Analysis of Section 299 86

Table 4.3 Australian Accounting Standards with content that may relate to social and environmental matters

87

Table 4.4 Definition of Assets and Expenses 92

Table 4.5 Definition of a Liability 96

Table 4.6 Recommendations by the UIG on reporting by the Extractive Industries, 1995 and 2004

100

Table 5.1 Summary of Measurement Methods 116

Table 6.1 2002 GRI Guidelines 137

Table 6.2 WRI Sustainability Rulers: Social/Community 141

Table 6.3 WRI Sustainability Rulers: Environment 143

Table 6.4 Need for a TBL standards and applicability of GRI Guidelines

150

Table 6.5 Influences on the Environmental Agenda 158

Table 7.1 Top 100 Companies (Ranked by Revenue) 185


List of Tables - Page xiv

Table 7.2 List of companies used in the Study (ranked alphabetically)

193

Table 7.3 ASX Industry Sector Classification of the Data 194

Table 7.4 Disclosure Score for each item of disclosure 201

Table 7.5 Scoring system for GRI Performance Indicators 203

Table 7.6 Summary of The Age Good Reputation Index 207

Table 8.1 GRI Economic Indicators for both Core and Additional requirements

219

Table 8.2 GRI Social (LABOUR) Core and Additional Indicators

224

Table 8.3 Extracts from TBL Reports 230

Table 8.4 GRI Social (HUMAN RIGHTS) Core and Additional Indicators

232

Table 8.5 GRI Social (COMMUNITY) Core and Additional Indicators

237

Table 8.6 GRI Social (PRODUCT RESPONSIBILITY) Core and Additional Indicators

242

Table 8.7 GRI Environmental Indicators for Core and Additional requirements

253

Table 8.8 Environmental Indicators with >50% reporting rates 256

Table 8.9 Rankings and Standard Deviation in the GRI Disclosures -–2002 Year

275

Table 8.10 Extracts from Corporate Social reports of measures used

278

Table A1 Quality of Disclosures for Corporate Sustainability Reports (Appendix 2)

356


Abbreviations - Page xv

Abbreviations used

AASB Australian Accounting Standards Board

AGS Auditing Guidance Release

AMA Australian Medical Association

ASSC Accounting Standards Steering Committee (British)

ASX Australian Stock Exchange

CEP Council of Economic Priorities

CERES Coalition for Environmentally Responsible Economies

CR Corporate responsibility

CSD Corporate social disclosures

CSR Corporate social reporting

EITF Emerging Issues Task Force

FAS Financial Accounting Standards

FASB Financial Accounting Standards Board

FEE Federation des Expertes Comptables Européens

GAAP Generally Accepted Accounting Principles

GRI Global Reporting Initiative

HR Human Rights

IAS International Accounting Standard

IASB International Accounting Standards Board

IASC International Accounting Standards Committee

ICAEW Institute of Chartered Accountants of England and Wales

NGO Non-Government Organisation

OH&S Occupational Health and Safety

SAB Staff Accounting Bulletin


Abbreviations - Page xvi

SAC Statement of Accounting Concepts

SEC Securities and Exchange Commission

TBL Triple Bottom Line

UIG Urgent Issues Group

UK United Kingdom

UNEP United Nations Environment Programme

US United States


Chapter 1: Introduction - Page 1

CHAPTER 1

Triple Bottom Line Reporting - Introduction

“Only when the last tree has died and the last river has been poisoned and the last fish has been

caught will we realize that we can't eat money." - Cree proverb.

Triple Bottom Line (TBL) reporting is a form of voluntary corporate reporting that melds

the three aspects of economic, social and environmental performance (Elkington, 1999)

into one report. The term Triple Bottom Line Reporting is defined as:

“The reporting of economic, social and environmental performance of an entity. It is also a possible

means of quantifying a trade-off between these three aspects of performance.” (Godfrey, et al., 2003,

p. 748).

This form of reporting1 has slowly emerged, in this combined2 form, after a period of over

three decades of voluntary ad hoc disclosures covering a variety of social topics and

environmental matters. The KPMG survey (2005, p. 3) includes the following statement

about this type of reporting:

“When we published our first global survey in 1993, we did not expect that in less than a decade the

number of top companies in industrialized countries producing these kind of reports would almost

triple. Neither did we expect that corporate environmental reporting would be the “icebreaker” for a

much wider form of corporate responsibility (CR) reporting in the form of sustainability, triple bottom

line or corporate social responsibility .. reports”.

Concern with our impact on the world around us has led many people to question the

influence of corporations on the natural environment and on society as a whole. The need

1 Reporting of social and environmental matters is variously known as TBL reporting, sustainability reporting, corporate social reporting, corporate social responsibility reporting and similar terms.

2 Ideally each component in TBL reporting should have equal weighting in terms of importance to the

company and to stakeholders. Elkington (1997) notes that TBL reporting encourages reporting against a range of economic, environmental and social performance indicators and is exemplified as the path for the future.



to feel connected and responsible for the world in which we live is resulting in a proactive

and novel viewpoint that we should now look at what constitutes acceptable corporate

behaviour. Thus, lifting the corporate veil to look beneath and discern the policies and

machinations of corporations seems to be the order of the day. Stakeholders are

demanding more in the form of corporate disclosures, and companies and governments and

non-government organizations (NGOs) are acting to bring this about by introducing

changes to the reporting requirements of companies through such additional content as,

governance matters, community and employee matters, and environmental matters.

These ‘extras’ appear in corporate annual reports, as ‘social’ reports and increasingly on the

internet. The release of information to stakeholders on environmental and social issues

arising from company activities is an area demanding close scrutiny as:

1. it is reflective of a company’s commitments to social responsibility, for which there is a

strong moral and business case (KPMG, 2005);

2. there are increasing numbers of companies undertaking TBL reporting (GRI, 2006);

3. the production of TBL reports is seen by companies to have several benefits, such as

reputation enhancement, ability to benchmark performance, operational and

management improvements, improved management of risks and to gain the confidence

of investors, insurers and financial institutions (Australian Government, 2005); and,

4. these types of reports are the result of various competing pressures - the company’s

desire to present its side of the story, and the stakeholders’ demand for greater

transparency. What is then produced by way of a TBL report, should reconcile these

competing pressures and present information so that it is accurate, timely, balanced,

detailed, accessible and comparable (Stratos, 2001). An evaluation of the content of

such reports would ascertain whether these criteria hold true.

1.1 This investigation

According to the late Dr Robinson, Chairman of EPA Victoria:

“the information contained in environment reports has value to all sectors of the community. It

provides accountability and transparency relating to environmental activities. The public, financial



institutions and shareholders would be the key audience for the information. Their reaction is capable

of changing the environmental activities of companies and agencies.” (as cited in PAEC, 1999, p.

19)

Parker (2005, p. 856), noted that in the field of social and environmental disclosures, there

is ample room for research via “qualitative research and inductive theorising, and for

further exploration of the burgeoning media of disclosure”. The area of corporate social

and environmental reporting has developed so much in the last decade to the extent that

these developments are both “striking and exciting” (KPMG, 2005, p. 3) and would

warrant investigation. Thus investigations into “why” reporting is undertaken by

companies, “what” is being disclosed and “how” the information is being disclosed form

the basis of the bulk of the research into this area. This study will focus on the area of

“what” is being reported and “how” it is reported via an investigation of the content of

non-financial voluntary social and environmental disclosures of the top 100 listed entities in

Australia –- and thereby establish a picture of current TBL reporting in Australia.

The supply of information in annual reports, discrete TBL reports and web-based

disclosures will be evaluated via the use of content analysis. As part of this research, a

review of accounting definitions and frameworks and a concentration of such aspects as the

usefulness of the information disclosed will be undertaken. Users are entitled to a level of

accountability (SAC23, par. 44), and to a perceived contract that the information disclosed

will be understandable4, relevant and reliable5 and that the information has been verified.

When making decisions about providing capital and other resources and services to a

company, users would consider the amount of risk they are willing to take on board as

regards these decisions.

3 The Australian Statements of Accounting Concepts (SACs), numbering, SAC 1, SAC 2, SAC 3 and SAC 4 have undergone some changes since the adoption of international accounting standards. According to the Australian Accounting Standards Board (AASB), “SAC 3 and SAC 4 are effective until the first reporting period beginning on or after 1 January 2005, when the Framework for the Preparation and Presentation of Financial Statements (the Australian equivalent to the IASB’s Framework) applies. SACs 1 and 2 remain applicable.” (http://www.aasb.com.au/pronouncements/policies_index.htm, accessed 9 May 2007.

4 The Australian AASB Framework notes that understandability is “an essential quality of the information provided in financial reports is that it is readily understandable by users…information about complex matters that should be included in the financial report, because of its relevance to the economic decision-making needs of users, should not be excluded merely on the grounds that it may be too difficult for certain users to understand” (AASB Framework, par 25).

5 Relevance and Reliability are two qualitative characteristics of information so that the information may fulfill the decision-making needs of users (see AASB Framework par. 26, 27, 31 and 32).



Information relating to this can be generally ascertained from the disclosures made by the

company. There is evidence to show that high quality social and environmental disclosures

can reduce a company’s cost of capital (Botosan, 1997) whilst perceptions of economic

benefits such as increased shareholder value, increased business opportunities for the

company and risk reduction are major drivers for corporate responsibility reporting KPMG

(2005).

Thus Chapters 4 and 5 are devoted to an analysis of accounting elements, definitions,

qualitative characteristics of reporting, objectives of reporting and on measurement issues.

These chapters form a basis framework as to why the informational content of corporate

social and environmental reporting would be useful to stakeholders.

The content of the social and environmental reports is not governed by any standards or

regulation either in Australia or overseas. In order therefore to study the level at which

companies have adopted TBL reporting, the reporting framework developed by the Global

Reporting Initiative6 (GRI) – the Sustainability Reporting Guidelines 2002 - will be used as the

preferred TBL reporting model upon which to assess corporate commitment to these

reporting principles. The 2002 GRI Guidelines were chosen, as they:

• represent the best practice and the most complete and up-to-date reporting framework

that exists (Deegan, 2005; Stratos, 2001),

• have a high international profile and influence (Adams, 2004, p. 733),

• are widely used and widely accepted in the commercial world (Weber et al., 2005),

• cover economic, social, environmental and governance issues, (Weber et al., 2005),

• are developed so that the GRI indicators can be categorised and quantified (Weber et

al., 2005), and,

• recommend external attestation of the data (GRI, 2002).

6 In March 1999, the Global Reporting Initiative (GRI), convened by the Coalition for Environmentally Responsible Economies (CERES), released the exposure draft of the Sustainability Reporting Guidelines, which eventually became the 2002 GRI Guidelines for reporting. These Guidelines are undergoing a revision and G3, the third version, is due to be released in 2006.



The resultant findings of this study could potentially function as a justification for the

application of a mandated framework/model for TBL reporting. This would be based on

compliance with the GRI reporting framework, and thus provide many of those qualitative

objectives that are of value to users and which are espoused in the Australian Statements of

Accounting Concepts, the AASB Framework and by the Guidelines themselves, which note

that “GRI’s mission is to elevate the quality of reporting to a higher level of comparability,

consistency, and utility (GRI, 2002, p. 9).

In this regard GRI (2002, p. 1) explains the following:

“The aim of the Guidelines is to assist reporting organisations and their stakeholders in articulating

and understanding contributions of the reporting organisations to sustainable development.”

Further in the introductory section of the GRI Guidelines (2002, p. 4) comment is made as

to the benefits in providing this type of reporting:

“Today’s strategic and operational complexities require a continual dialogue with investors, customers,

advocates, suppliers, and employees. Reporting is a key ingredient to building, sustaining, and

continually refining stakeholder engagement. Reports can help communicate an organisation’s

economic, environmental, and social opportunities and challenges in a way far superior to simply

responding to stakeholder information request…Companies increasingly emphasise the importance of

relationships with external parties, ranging from consumers to investors to community groups, as key

to their business success. Transparency and open dialogue about performance, priorities, and future

sustainability plans helps to strengthen these partnerships and to build trust.”

As such this study makes its contribution to this area of research by undertaking a content

analysis of the sustainability or TBL reports against the disclosure framework of the GRI

Guidelines. A study by Jones et al., (2005) on sustainability reporting practices of

Australian companies, which was commissioned by CPA Australia, looked at GRI

reporting, but the information considered was limited to a subset of the public domain

information and it did not consider the content and quality of the disclosures.

Thus far no other study has evaluated the content of the TBL disclosures of large

Australian companies against an acknowledged framework such as the GRI Guidelines.



As part of this study, the work will also contain:

• a review into the needs of users and to ascertain whether the TBL reports could be

interpreted as being prepared so as to present the financial, social and environmental

matters of the companies based on the reporting criteria noted in the GRI Guidelines;

• an examination of the origins of TBL reporting and the subsequent development of

models/frameworks (specifically the 2002 GRI Guidelines) to enable a workable

application of TBL reporting;

• an assessment of the uses and relevance of the GRI Guidelines as a reporting

framework/standard; and,

• a review of any shortcomings in the GRI Guidelines that might affect its possible

future as a tool in a regulatory framework for TBL reporting.

1.2 Chapter development

1.2.1 The historical basis of voluntary social and environmental reporting

The first two chapters of this study will review the historical and chronological progress of

social and environmental disclosures, and consider these activities against the various

theories established to explain the existence of such disclosures. The journey to TBL

reporting has been progressing for over 3 decades now and the story about social reporting

is told in Chapters 2 and 3. The reasons why companies undertake voluntary disclosures,

what format they take, what information is included in them and who is expected to use

them is covered in these chapters.

A review of the literature will show that the incidence of environmental and social

disclosures have increased and changed over the past three decades. Although the inclusion

of social aspects in company reporting has been on the agenda for more than a decade

(Gray, Owen and Adams, 1996), the focus of voluntary reporting has shifted to a

sustainability focus that includes the economic, social and environmental performance of

the company. The introduction of global reporting models stemming from the notion of a

triple bottom line has meant that voluntary disclosure patterns in the corporate reports are

gradually merging and becoming increasingly homogeneous.



Many early disclosures had however focussed on employee or social issues and ignored

environmental matters. Research questions and methods have also matured over time and,

where much of the early research into environmental disclosures focussed on counting lines

of disclosure, more emphasis is now given to evaluating their content. Additionally a

substantial portion of research in this field has been done in speculating into why

companies produce social and environmental disclosures/reports when none of this is

mandated in any way and whilst this is not the focus of this research it is included in these

early chapters as support for what types of disclosures are being undertaken.

1.2.2 Reporting practices, measures and conditions

The response of the accounting profession to accounting for social and environmental

measures is looked at in Chapter 4. This chapter contains a review of current accounting

standards and concept statements and their viability and suitability to application of social

and environmental transactions. An examination of accounting standards and guidelines

will show a lack of general environmental reporting requirements, no accounting standards

and few guidelines covering disclosure of social and environmental information for

financial reports. The picture is, however, not completely bleak. There are several

accounting standards and concept statements7 that can be used or expanded to address

social and environmental matters.

7 Some of these existing standards, concept statements and interpretations, are:

• Framework for the Preparation and Presentation of Financial Statements (AASB Framework) - Provides for the definition and recognition of assets, liabilities, income and expenses.

• AASB 101 – Presentation of Financial Statements - All relevant expenses must be included in the current profit and loss calculations. - Could include energy usage, restoration costs, waste treatment and fines. - All relevant assets and liabilities must be documented. - Could include the recognition, valuation and disclosure of environmental assets, liabilities,

provisions and contingencies. • AASB6 – Exploration for Evaluation of Mineral Resources

- Includes costs associated with restoration and rehabilitation of a mine site to its original state. • AASB 137 – Provisions, Contingent Liabilities and Contingent Assets

- Could include the recognition, valuation and disclosure of capital expenses and environmental liabilities.

- In accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets an entity recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken the exploration for and evaluation of mineral resources (AASB6 para. 11)

• UIG Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities



The discussion into reporting practice and conditions that may affect the disclosures of the

social and environmental matters that began in Chapter 4 is continued in Chapter 5. The

investigation into accounting conditions will begin with a review of such matters as the

conceptual framework – the objectives of reporting and the relevance and reliability of the

information.

An identification of the users of such information is also a main feature of these chapters as

they are the recipients of TBL reports.

The issue of measurement and quantification of disclosures of social and environmental

impacts is examined here as well. This assessment of what can and cannot be quantified

will be undertaken against the backdrop of accounting measurement models and market or

surrogate market valuation techniques.

The final part of this section will conclude with a discussion as to the merits of such

measures from an economic viewpoint and a moral stance.

1.2.3 The development of TBL reporting

As this study progresses it will become apparent that voluntary corporate social reports

have mainly resulted from the actions of business and non-government bodies. Although

sustainability and similar terms have become a central part of government language for

some time, legislation has lagged behind the voluntary reporting actions of business and is

not reflective of the needs of society. Thus Chapter 6 commences with a discussion of the

development of voluntary reporting initiatives instituted by environmental or research

bodies, culminating in a review of the Global Reporting Initiative (GRI) Guidelines. The

GRI Guidelines are the focus of Chapter 6, as they epitomise the Triple Bottom Line

reporting culture. In terms of the disclosure format, the Global Reporting Initiative (GRI)

Guidelines appear to have a wider acceptance8 amongst companies than any other

methodology. A comprehensive and systematic methodology for integrating the major

aspects of sustainability reporting is not mandated in Australia or anywhere in the world,

thus models and frameworks have sprung up to fill the void.

8 The GRI Guidelines are used by 863 organisations around the world (source http://www.globalreporting.org/reportsDatabase/06searchDB.asp at 30th June 2006)



Several other guidance documents have been developed to aid companies in preparing

environmental and social reports9, but the focus of Chapter 6 remains on an investigation of

the GRI reporting framework and any precursors. The progress in developing voluntary

environmental and social reporting guidelines will be reviewed so as to determine whether

the process has been one where guidelines have sprung up from some major event, or have

evolved whereby major components have been incorporated in the GRI Guidelines from

work undertaken by predecessors, resulting in a more comprehensive and wider framework

for applicability.

Chapter 6 will also be partially devoted to considering the drivers and the key

participants/players in the development of a social and environmental regulatory

framework. The discussion will show that political and legislative changes have been

pushed by public participation through social pressures and even at times by corporations,

such that legal authority in the form of legislative changes and reporting changes have been

reactive rather than proactive. The fact that legislative change and accounting regulation

have lagged behind practice implies some despondency (or political expediency) by these

bodies. Yet the various other types of authorities, be they social or media based, have been

both the primary means and the instrument of change in corporate social and

environmental disclosures.

1.2.4 Development of the research questions

The function of Chapter 7 is to draw together the contents of the previous chapters and

introduce and clarify the research questions at the centre of this study. Whilst these research

questions are listed here, a detailed discussion occurs in Chapter 7:

9` See for example see: Environmental Protection Authority (NSW), Corporate Environmental Reporting, Why and How in 1998; Environmental Task Force of the European Federation of Accountants, FEE Discussion Paper Towards a Generally Accepted Framework for Environmental Reporting in 1999; Public Environmental Reporting Initiative (USA), The PERI Guidelines in 1992; UK Government’s Advisory Committee on Business and the Environment (UK), Environmental Reporting and the Financial Sector – An Approach to Good Practice in 1997; World Council for the Environment (now part of WBCSD), Environmental Reporting – a Manager’s Guide in 1994; Deloitte and Touche (Denmark), Assessor’s manual for the Analysis and Evaluation of Corporate Environmental Reporting in 1996; United Nations Environment Program (and Company Environmental Reporting: A Measure of the Progress of Business and Industry Towards Sustainable Development (UNEP Technical Report 24).



Research Question 1

Are the GRI Guidelines being adopted as a reporting framework for TBL reporting by Australian companies?

Research Question 2

Are Australian companies providing equal weighting to the three aspects of TBL reporting?

Research Question 3

How are the TBL disclosures of Australian companies faring – via the development of a Disclosure Score based on their conformity with the GRI Guidelines? ‘Walk the walk’ v ‘Talk the talk’

Research Question 4

Are response rates similar within industry sectors? Research Question 5

Is the TBL Disclosure Score (as determined via the rating system) related to the company’s performance as measured by total revenue?

These questions are used to determine

• whether there has been conformity of reporting against the GRI Guidelines,

• the extent of adoption of the Guidelines by the companies undertaking the disclosures,

and,

• whether better comparability has resulted.

As the work is considerably large, the research questions will be broken down into a

number of elements for ease of analysis and to assist in assessment.

With the disclosures being purely voluntary and presented along the guidelines/framework

established by non-government organisations (NGOs), it is envisaged that there will be a

reasonable level of adoption and commonly identifiable and sustained pattern of disclosure.

A number of studies looking into size and industry variables relating to TBL reporting will



be revisited in this chapter, to facilitate the development of the final grouping of research

questions.

Chapter 7 will also include an outline of the methodological framework for this work and

an identification of the range and extent of data selection. Content theory (Krippendorff,

1980) will be used to assess the information. The development and credibility of a resultant

rating system to evaluate the quality of the economic, social and environmental disclosures

in the reports will also be addressed in this chapter.

1.2.5 Analysis of the data

Chapter 8 contains the analysis of the data and an explanation of the findings. This chapter

will proceed along the following lines:

• An analysis and scoring/rating of the disclosures of the companies against the indicators

stipulated in the 2002 GRI Guidelines will be undertaken and a disclosure score or

rating will be assigned to the disclosures. An examination and evaluation of the results

and ratings given to companies will be undertaken to seek any industry similarities,

recurring themes or topics in the disclosures and any bias in the disclosures.

• An evaluation of any link between revenue and the total disclosure score will be

undertaken to ascertain any correlation between size and quality of disclosures.

1.2.6 Assessing the future

The final chapter will integrate the findings and conclusions resulting from the analysis of

the data and the discussions throughout the study. This will include recommendations for

future studies that may further or complement research into social and environmental

disclosures.

This dialogue in this chapter will also look at the development of voluntary reporting

initiatives for the three components, which have been instituted by environmental or

research bodies, culminating in a review of the GRI Guidelines. As noted earlier these GRI

Guidelines will be evaluated to determine their suitability as a possible framework for a

globally accepted reporting standard for social and environmental matters, and as a

reporting tool for the sustainability agenda of TBL reporting.



1.3 Summary

The ‘awakening’ of society and as such, stakeholders has resulted in a demand for more

disclosures by companies on their financial, social, environmental performance and quite

recently in the area of corporate governance. Commitment to social and environmental

impacts has meant that companies have had to reconsider the form and content of their

reporting. For example, a more enlightened approach to sustainable development is

apparent from the considerable government and business participation in two global

conferences, the first in Rio de Janeiro in 1992 and the most recent in Kyoto in 1997.

Whilst attendance at the conferences has not meant the automatic acceptance of the

proposals put forward for a more sustainable approach to development, some

commentators argue that the fact that these conferences were even held, shows the

importance placed on the environmental issue by society10.

The ensuing chapters will investigate the voluntary social disclosures and examine the

current reporting practice amongst the top 100 Australian companies, and thereby develop

a profile for TBL reporting by Australian companies.

10 It could be argued however, that these global discourses have merely assuaged the consciences of governments and business through the pretence of being seen to be present on an international stage without actually having to achieve any outcomes.

Triple Bottom Line Reporting: A study of diversity and application by Australian companies

Chapter 2: Preamble to corporate social and environmental disclosures - Page 13

CHAPTER 2

Preamble to corporate social and environmental

disclosures

“Be warned: the same bowl that makes the corporate goldfish visible to the outside world can

also distort – and the more extreme the viewer’s angle of vision, the greater the distortion”

(John Elkington, Cannibals with Forks, 1999, p. 159).

2.1 Introduction

The purpose of this chapter is to investigate corporate social reporting (CSR), and set the

scene for triple bottom line reporting by undertaking a preamble into the form and content

of the non-traditional disclosures of social and environmental information in financial and

other reports. From the onset it is important to clarify the term, “corporate social

reporting”. The term, “corporate social reporting” is used here to encompass both social

(community, people) and environment (planet) matters. The term has also varied, from

“corporate social accounting”, “social responsibility accounting” to “social disclosure”

(Parker, 1986 as quoted in Guthrie and Parker, 1989; Tilling, 2000).

The definition (Guthrie and Parker, 1989, p. 343) and role attached to corporate social

reporting is thus defined as reporting on the:

• social impacts of its activities;

• effectiveness of its social programmes;

• discharge of its social responsibilities;

• stewardship of its own social resources.

Thus, this term is used in this study to represent disclosures about both social (or

community, or people) issues and environmental (or planet) issues.

Most of these types of disclosures have been shown in the company’s annual and

specialised reports although there are other sources as well (for example, web based

information, specific information pamphlets, product information, and advertising



pamphlets). The focus in this chapter will however be primarily on social disclosures in the

annual report.

2.2 The rise of voluntary disclosures

The progress of mandatory disclosures in corporate financial reports has been an

evolutionary one resulting from changes to corporations legislation and accounting

standards (Godfrey, Hodgson and Holmes, 2003). As business becomes more complex and

as users become more sophisticated so too does the call for information. Thus, several

decades of information demands, resulting from major corporate and stock market

collapses as well as major environmental and social incidents, have also seen the

emergence and proliferation of a wide-ranging package of voluntary disclosures by

companies (Bansal and Roth, 2000; Buhr, 1998; Waddock and Graves, 1997; Guthrie and

Parker, 1990).

Voluntary disclosures in most of the western countries were expanding in the 1970’s fuelled

by political debate about disclosures to employees mainly from an industrial relations

viewpoint (Bartlett and Jones, 1997; Shackleton, 1996). Accounting academics and

practitioners, through professional accounting bodies, were also part of this move to widen

the scope of the corporate report. Reporting was transformed from a format based primarily

on financial statements, to a format where ‘style’ and ‘presentation’ was growing to be

more important (Lee, 1994). The British Accounting Standards Steering Committee1

(ASSC, headed by D. Boothman), was one of the first bodies to extend the notion that

accounting reports should reflect the wider organisational undertakings. The Committee’s

publication The Corporate Report (ASSC, 1975) was progressive for its time, departing as it

did from the traditional viewpoint that the annual report was primarily a document

prepared to satisfy the stewardship requirements of shareholders and putting forward the

doctrine of public accountability. By identifying employees as a key user group, the

stakeholder viewpoint and not the narrower shareholder viewpoint was emerging. The

Corporate Report went even further by recommending that a statement of company

objectives be included in the annual report.

1 The British Accounting Standards Steering Committee as headed by D. Boothman was part of the Institute of Chartered Accountants of England and Wales (ICAEW).



The changes proposed by The Corporate Report may have been influenced by the voluntary

disclosures being undertaken by large corporations at the time, in particular H.P. Bulmer

Holdings PLC, a UK listed company, that was pre-empting the ASSC recommendations

with what were exemplary voluntary corporate disclosures (Bartlett and Jones, 1997). The

key period for voluntary disclosures by Bulmer Holdings was the period 1974–7 when such

matters as long-service leave of employees, analysis of shareholdings, employee council

details, directors’ biographies, company objectives and trading activities were included.

Indeed, Bartlett and Jones (1997) conclude that the corporate reporting innovations at

Bulmer Holdings had national significance and prima facie seem to have contributed to the

provisions of the 1982 Employment Act in the UK.

Only a few years after the release of The Corporate Report the British government released a

green paper, The Future of Company Reports (1977), recognising that the content of corporate

reports “should be extended to reflect the wider accountability of the directors of companies

and cover the interest of others besides shareholders” (DoT, 1977, p. 5). These and other

proposals2, although never fully adopted in any formalised sense, were arguably the

foundations for a proliferation of changes to accounting regulation and accounting

standards requiring greater disclosures in corporate reports. Although today we still do not

have any accounting standards dealing with social and environmental issues, the

accounting conceptual frameworks around the world all recognise that reports are not

produced merely to satisfy stewardship but also should extend the company’s

accountability3 to a wide range of stakeholders (see for instance the Australian and US

Accounting Conceptual Frameworks).

2 See for example the draft proposals put forward to inform and consult with employees, by the European Economic Community’s Vredeling Directive, in 1980.

3 In order to ensure their continuing participation, corporations owe primary stakeholders a degree of accountability. Accountability may extend to the general public and other primary stakeholders that provide the material, environment and human capital resources to the entity (or represent the suppliers of such resources). This principle is recognised in the Australian Statement of Accounting Concepts 2 (AARF, SAC 2, par. 14) which states that, “because of the influence reporting entities exert on the members of the community at both the microeconomic and macroeconomic levels, they are accountable to the public at large”. Given the community concern with the social impacts of corporations, it could be concluded that the parameters of accountability should also include such issues as social and environmental matters, so as to take into account the concern of stakeholders.



2.3 Social and environmental disclosures in the annual report

2.3.1 The history of social and environmental reporting

The inclusion in financial reports of information about employees, employment practices,

community relations and involvement, and social impact of the product can be generally

identified as socially-related disclosures. This list of disclosures is by no means exhaustive.

For example, ethical investment funds (see for example in Australia: AMP Capital

Investors, BT Financial Group, Australian Ethical Investment Limited, SAM Group –

sourced from http://www.eia.org.au) generally screen companies for such factors as

workplace issues, human rights, weapons manufacturing, product safety and impact (in

particular when dealing with products such as alcohol, tobacco, pornography and

gambling), and animal welfare issues.

As a response to the wider criticism of industrialisation that emerged in the 1960s and

1970s, many multinational and transnational corporations developed policies for social and

environmental responsibility. In the late 1960s, debates about issues like social

responsibility and growing concern about the environment played a part in accounting

research and business literature (Drucker, 1965; Beesley and Evans, 1978).

During this time, the U.S. saw major corporations voluntarily reporting on their social

performance (where social is strictly meant here as relating to employees, consumers and

the like), with disclosures about minority employment and consumer and community issues

appearing in the reports of companies. In 1975, Bowman and Haire were investigating the

percentage of textual information on social disclosures in corporate annual reports. They

identified a link between the level of social disclosures and return on equity measures.

Abbot and Monsen (1979) ranked the social involvement of companies, using a disclosure

index against total returns to shareholders, but found no meaningful differences in returns

to shareholders based on whether there was a high-level of disclosure or a low-level of

disclosure.

The early literature on social disclosures from the U.S. tended to simply look at the volume

of textual information devoted to social disclosures, with some studies totalling the number

of lines presented in the annual report (e.g. Bowman and Haire, 1975). Later works began



to look past the amount/quantity of disclosures and evaluate the content of the information

presented (Ingram, 1978; Abbott and Monsen, 1979; Freedman and Stagliano, 1984).

Abbot and Monsen (1979) had found a weak, positive correlation between the social

disclosures and social performance variables, demonstrating that social disclosures reflect

the activities undertaken. Yet, Ingram and Frazier (1980), Wiseman (1982), Rockness

(1985) and Freedman and Jaggi (1982) found no significant relationship between

disclosures and performance variables whereas, and Fry and Hock (1976) found a negative

correlation.

The progress on the disclosure of social information by U.K. companies had taken a

different turn to that of the U.S. based corporations. Whereas the U.S. tended to focus on

self-assessment by corporations, the U.K. differed in that there were a number of significant

external ranking studies undertaken during the same period, such as the social audits

embarked on by Social Audit Ltd4 and Counter Information Services (Medawar, 1976;

Gray et al., 1987; Geddes, 1992; Gray, 1994). Despite their significance in leading the field

in independently-produced corporate social reports, Gray (1994) notes that these studies

have largely remained unique events. The other difference from the U.S. during the period

was that social disclosures made in the U.K. between 1979-1987 also tended to focus

mainly on employment-related reporting rather than broader social issues (Maunders,

1987).

With the election of Margaret Thatcher’s conservative government in the U.K. in 1979, the

interest shown by corporations in reporting their environmental and social performance

declined (Owen, 1992; Gray, 1994). This was also a period of massive social upheaval, with

factories being closed, industries “rationalized” and blue-collar unemployment escalating.

Geddes (1992) notes that whilst companies, encouraged by the Thatcher government,

implemented policies without consideration of the consequences to society and without

reporting on the outcomes of these policies, external bodies took up the mantle of social

reporting.

4 Social Audit Ltd – closely associated with the Consumers Association – conducted a number of studies on U.K. corporations to critically evaluate corporate strategies on such matters as worker health and safety, employee training and access to information. Components of environmental content – for example quality and reliability of products and environmental pollution – were also assessed.



In a study of the social information disclosed by U.K. companies, Gray et al., (1995b) found

that these disclosures primarily related to mandated information (employment and

pensions data), employee-related information and community data (typically charitable

donations). They also noted inadequate coverage of employee consultation issues and

corporate involvement in South Africa, and even occupational health and safety (OH&S)

disclosures were only made by 50% of companies in 1991.

In a study of the reporting practices of environmental disclosures of companies in mainland

Europe, Roberts (1991) found that on average the companies in her sample disclosed less

environmental information than employee-related information. The latter type of disclosure

exhibited country-specific patterns, suggesting that this type of information is a response to

specific issues in each country5. This study, if replicated today, would probably show

different findings, with a more well-rounded content equally weighted between the social

and environmental. Country-specific disclosures have also been identified by KPMG,

(2005); Newson and Deegan, (2002) and Gray et al., (2001).

Towards the end of the 1980s, the social climate in the western nations was turning and

there was a resurgence of interest in social and environmental reporting. The difference was

that the focus had been on social reporting prior to the 1980s, now the focus was shifting to

environmental reporting in the post-1980s period (Gray, 1994; Gray et al., 1995).

Companies started producing public environmental reports in the early 1990s, and it has

only been recently that social reporting has begun to shift back onto a more balanced

agenda, with environmental reports being extended to include social information thus

becoming something akin to “sustainability reports”.

Unfortunately, business interest in the area of strictly social disclosures had tended to

diminish as public focus turned to the environment as an area of concern. Even so, the

significance of the social as one key element of corporate social disclosures has brought this

area back into focus. This has been aided by the increasing public interest in social, as well

as environmental, issues as evidenced by community campaigns over the last decade

5 The study by Roberts (1991) showed overall that companies reporting in Germany and Sweden had better environmental and social information than companies reporting in France, the Netherlands and Switzerland. Roberts (1991) was also intrigued by the political commentary made by 12% of the companies in her sample, which ranged from calls for extra government regulation to comments about the inappropriateness of regulations and their negative effect on competition.



targeting, for instance, Shell for its operations in Nigeria (Elkington, 2004), Nike for its

alleged Third World sweatshops (Wesselink, 2000), and Adidas for its alleged use of convict

labour (Partnerships for Change, 2006).

Indeed social and environmental aspects need to be considered together as, in essence,

these two elements are two sides of the same coin. As environmental issues are examined

and brought to the fore, we are discovering that they have an effect on human welfare and

health, on communities and on employment. Problems in either domain cannot be properly

addressed without due reference to the other. An “exceptionally welcome consequence of

the growing environmental agenda has been the re-emergence of a serious interest in social

accounting” (Gray and Bebbington, 2000, p. 17).

In summary, the major trends in social reporting thus far have been:

• Social responsibility became a community issue in the 1960s and 1970s, and companies

began making “social” disclosures, which also included some environmental

information.

• Academic analysis of social reports, in the early 1970s, was primarily related to the

volume of material presented, but had grown to include assessments of the quality of the

information presented by the end of the decade.

• The 1980s saw a decline in social reporting as a result of the conservative political

climate in the U.K. and U.S. at the time.

• Interest in social and environmental reporting began to increase again in the 1990s,

however, the focus was primarily on environmental reporting.

• There is a small indication that social component of reporting is re-emerging, and

although limited in range of the topics, disclosures are more extensive and mainly

focussed on mandatory requirements, OH&S and charitable donations.

2.4 Reasons for social and environmental reporting

Anecdotal evidence would stipulate that companies have to demonstrate social

responsibility in order to thrive. For the end-user of financial information the difference



between a socially-aware company and one that is not socially aware can only be

ascertained from disclosures, whether these occur in the financial reports or elsewhere, for

example media reports. If all companies then adopt responsible policies, theoretically the

user could have exposure to this information and be able to make suitable investment

decisions in line with their own moral make-up. A number of studies have chronicled many

reasons as to why companies undertake corporate social (and environmental) disclosures.

These reasons are:

• Survival and regulatory interference (or avoidance thereof);

• Corporate image and perceptions;

• Preventing corporate change;

• Media attention;

• Industry affiliations/maintaining connections;

• Effect on financial/market performance;

• Response to community and societal concerns and response to externally reported

events; and,

• Effects due to company size.

A sample of studies in these areas is shown in 0.

It is plausible that companies that have a concern for social and environmental matters and

undertake operations that consider the long-term benefits to the community, would gain

from social disclosures as these undeniably raise their visibility amongst investors,

consumer and the wider public arena. Whilst the reasons for corporate responses are many

and complex, as is shown in Table 2.1, the major drivers can be simplified into three

categories and are discussed in the next section.



Reasons why companies provide Corporate Social Disclosures

Reason for Social Disclosures Study

Survival and Regulatory Interference Deegan et al., 2002(or avoidance thereof) Deegan and Blomquist, 2001 Banerjee, 2001 Buhr, 1998 Newton and Harte, 1997 Corporate Image and perceptions Jupe, 2005 Adams, 2004 Warsame et al., 2002 O’Donovan, 2002 Adams, 2002 Patten, 2000 Deegan et al., 2000 Foulon et al., 2000 Bowen, 2000 Sharma et al., 1999 Simmons and Neu, 1998 Deegan and Gordon, 1996 Deegan and Rankin, 1996 Greening and Gray, 1994 Harte and Owen 1991 Wood, 1991 Guthrie and Parker, 1990 Gray et al., 1988 Preventing Corporate Change Deegan et al., 2002 Deegan and Blomquist, 2001 Response to Media attention Lorraine, Collison and Power, 2004 Deegan et al., 2002 Patten, 2002 O’Donovan, 1999 Neu et al., 1998



Reason for Social Disclosures Study

Industry Affiliations/Maintaining Newson and Deegan, 2002 Gray et al., 2001 Hackston and Milne, 1996 Deegan and Rankin 1996 Deegan and Gordon, 1996 Effect on Financial/Market Performance Murray et al., 2006 Jones et al., 2005 Freedman and Patten, 2004 Al-Tuwaijri et al., 2004 Patten, 2002b Banerjee, 2001 Gray et al., 2001 Halme and Niskanen, 2001 Tilt and Symes, 1999 Stanwick and Stanwick, 1998 Patten and Nance, 1998

Response to community and societal KPMG, 2005 concerns and externally reported events Moerman and Van Der Laan, 2005 Deegan et al., 2002 Deegan and Blomquist 2001 Wilmshurst and Frost 2000 Walden and Schwartz, 1997 Shields and Boer, 1997 Blaccoiniere and Patten, 1994 Gray et al., 1988 Levels of disclosure due to company size KPMG, 2005 Mobus, 2005 Yongvanich and Guthrie, 2005 Gray et al., 2001 Orlitzky, 2001 Adams et al., 1998 Stanwick and Stanwick, 1998 Neu et al., 1998 Waddock and Graves, 1997 Hackston and Milne, 1996 Deegan and Gordon, 1996 Gray et al., 1995b Blacconiere and Patten, 1994 Guthrie and Parker, 1990



2.4.1 Major drivers of corporate social responses

The major reasons why companies undertake social disclosures were listed on page 17,

along with a selection of studies in these areas that was shown in Table 2.1. The detailed

reasons identified earlier can be distilled into three main drivers of corporate social

responses that are organized in Table 2.2. The individual drivers (discussed in the following

sections) are

1. Proactive response,

2. Reactive response,

3. Risk-based response.

Table 2.1 Linkage of drivers and detailed reasons for corporate social reporting

Driver Detailed Reasons for Reporting

Proactive response • Survival and avoidance of regulatory interference

• Preventing corporate change

• Corporate image and perceptions

Reactive response • Response to media attention

• Industry affiliations

• Responses to community and societal concerns and externally reported events

• Effects due to company size

Risk-based response • Effect on financial/market performance

2.4.1.1 Proactive response

In order to guarantee its continuing existence the organisation is dependant on the

approval of stakeholders, and the more powerful the stakeholders the more the corporation

will need to do to adjust its activities to gain their approval (Gray et al., 1995). A lack of

corporate social disclosures, or disclosures that are not linked back into changing social



practice are not likely to satisfy stakeholders. When the only thing that companies do is

report whilst showing no evidence of attempting to change or set policies into place to

circumvent future problems, stakeholders are unlikely to regard these companies as socially

responsible, regardless of how much money is spent on trying to convince society that they

are good corporate citizens.

Some companies are actively trying to alter the way the market perceives them (see

‘Corporate image and perceptions’ in Table 2.2), and to adopt a mantle of a “green”

business. In many cases, this is an attempt to avoid regulatory interference through the

development of a trust between the company, the regulators and the community (Bannerjee

2001; Newton and Harte 1997). Other companies are committing to a green ethos to

increase the environmental visibility of the firm (Foulon et al., 2000; Bowen, 2000; Harte

and Owen 1991) and to improve stakeholder relations (Rivera-Camino, 2001; Waddock

and Graves, 2000; Berman et al., 1999; Cormier and Magnan, 1999; Stafford, 1996). Some

reporting may be seen as actions being put into place to influence the future behaviour of

stakeholders (McMurtrie, 2006; McMurtrie, 2005; Adams, 2002) and whilst some larger

companies are disclosing more social and environmental information than in the past

(Cormier and Gordon, 2001), the quality of these disclosures is being increasingly

questioned.

2.4.1.2 Reactive response

Larger corporations, particularly multi-nationals, are a target for coordinated campaigns by

environment and community organisations and tend to be signalled out because of their

size. A very recent example of this has been the call for more openness in the area of

corporate governance with legislators stepping in to regulate the functions of the board and

the disclosures of the governance system. The study by KPMG(2005) noted this area of

disclosures as one where marked and substantial differences had occurred since their last

survey in 2002. Companies that do not engage with their stakeholders are at risk of putting

their competitiveness, sustainability and their reputations in danger (Turnbull, 2003).

As the size of a corporation is seen as an indicator for more public scrutiny, large

companies may have a tendency to be better disclosers, react to media coverage and pollute

more than their smaller counterparts. Numerous studies relating social disclosures to size of

the firm have been undertaken to link these variable (see for example KPMG, 2005;



Mobus, 2005; Yongvanich and Guthrie, 2005; Gray et al., 2001; Orlitzky, 2001; Adams et

al., 1998; Stanwick and Stanwick, 1998; Neu et al., 1998; Deegan and Gordon, 1996).

Pressure from external stakeholders, means that many companies are working to clean up

their act (Waddock and Graves, 1997) whilst other entities are perceiving the

environmental agenda as an opportunity (Sharma, 2000). Social disclosure can also assist in

bringing about a better corporate image (see for example O’Donovan, 2002; Deegan et al.,

2000; Foulon et al., 2000; Bowen, 2000; Sharma et al., 1999; Simmons and Neu, 1998;

Deegan and Rankin, 1996) or as a response to community concerns (KPMG, 2005; Deegan

et al., 2002; Deegan and Blomquist 2001; Wilmshurst and Frost 2000; Gray et al., 1988).

2.4.1.3 Risk-based response

Stakeholders, and in particular, shareholders, are taking an increased interest in a

corporation’s environmental contingent liabilities, fines for breaches of environmental laws

and/or regulations and legislative compliance, the extent of land contamination, and waste

management by companies (Rankin, 1996). Discrete sustainability reports have also been

linked to better stock price performance and dividend yields (Jones et al., 2005), whilst

Murray et al., (2006) found no direct relationship between share returns and social

disclosures in a study of UK companies.

Additionally, almost half of the companies in the KPMG (2005) survey reported risk

reduction as a major driver for sustainability and corporate responsibility. Along with the

reduction of risk, reduced costs of compliance, and not having to report environmental

contingent liabilities would also be a strong incentive for better environmental performance

(Rivera-Camino, 2001; Hart and Ahuja, 1996; Shrivastava, 1995). There is also evidence

that high quality social and environmental disclosures can reduce a company’s cost of

capital (Botosan, 1997) whilst perceptions of economic benefits such as increased

shareholder value, increased market share and increased business opportunities are the

major drivers for corporate responsibility in the KPMG (2005) survey.



Furthermore, it is found that a company’s proprietary costs6 - such matters as leverage and

profitability, and information costs are significant determinants of a firm’s environmental

reporting (Cormier and Magnan, 2003; Cormier and Magnan, 1999). This has, in fact, been

found to be the case with regard to pollution control (Foulon et al., 2000). It is also in the

interest of the company to be ecologically sound as it can lead to cost reductions, capturing

emerging “green” markets and attaining the advantageous market position of being first in

the industry to be ecologically aware (Shrivastava, 1995b).

However, social and environmental disclosures can be a double-edged sword. A study by

Richardson and Welker (2001), showed that more profitable firms are being penalised for

social disclosures with cost of capital increases (the authors did also note that they did not

rate the information for good news or bad news).

The detailed reasons for adopting a “green” reporting approach are many. Yet when

corporations perceive that being environmentally and socially responsible is important to

users, then pressure exerted by users may stimulate them into reporting (Waddock and

Graves 1997; Deegan and Rankin 1996; Epstein and Freedman, 1994; Polonsky and

Zeffane, 1992; Guthrie and Parker 1990). It could thus be concluded that social disclosures

are valued by the market as an indicator of the corporation’s ability to manage risk and to

alert stakeholders and of the maturity of its management systems.

2.4.2 Do Social disclosures have any affect on market performance?

The effect of social disclosures on market performance rates further discussion, as economic

rationality has been perceived to be the impetus for much of the corporate social reporting

and has motivated many empirical studies starting as early as the 1970’s. Generally these

studies have attempted to demonstrate that a relationship exists between such social (and

environmental) disclosures and market performance - where market performance was

generally indicated by improvements in share price (Vance, 1975) or return on capital

employed (Abbot and Monsen, 1979; Bowman and Haire, 1975).

6 Proprietary costs are defined by Cormier and Magnan (2003, p.47) as “costs resulting from the disclosure of proprietary environmental information”. Examples of these include information about environmentally related capital expenditures, operating costs, site remediation costs and estimates, environmental liabilities and commitments.



From quite early on, the hypothesis that environmental information has a signalling effect

has been tested many times (Griffin and Mahon, 1997; Freedman and Stagliano, 1984;

Shane and Spicer, 1983; Abbot and Monsen, 1979; Ingram, 1978; Spicer, 1978; Vance,

1975; Bowman and Haire, 1975). Many of these early studies of the relationship between

environmental disclosures and market performance were primarily interested in pollution

disclosures and their impact on financial markets.

Market recreation to pollution information disclosures was identified in a study by

Freedman and Jaggi (1986) but they did not find any connection between the extent of the

disclosures and the financial performance indicators. The stock market behaviour of

companies that voluntarily disclosed their pollution-related expenditures is different to that

of companies that did not make any disclosures (Belakoui, 1976). The impact of externally-

produced information was also the focus of a study conducted by Shane and Spicer (1983).

In this study, the pollution information of 72 firms as reported about them in the CEP

(Council of Economic Priorities) Pollution reports was investigated. These CEP reports

resulted in the short-term discomfort of shareholders, and the study tested share prices of

the companies over a six-day period before and after publication of these reports. The

outcome was that there were large negative abnormal returns on two days immediately

prior to newspaper reporting of the CEP studies. The authors concluded that “the reported

results ... are consistent with investors using the information released by the CEP to

discriminate between companies with different pollution-control performance records”

(Shane and Spicer 1983, p. 353).

Similarly, Spicer (1978) studied 18 firms in the pulp and paper industry and showed that

firms with better pollution control records7 tend to have higher profitability, higher price-

earnings ratios, larger size and lower risk than companies with poorer pollution control

records. Chen and Metcalf (1980) critiqued the Spicer (1978) study. In response Spicer

(1980) stressed that associations had been observed between the identified variables and

companies’ pollution control records, however, this did not necessarily imply the existence

of causal relationships.

7 In reviewing the Spicer (1978) study, Mathews and Perera, (1996) commented that the firm’s pollution-control records were useful in assessing the risks of their stocks was a phenomenon that was relatively short-lived.



The finding of moderately large negative stock returns also could not be linked with

negative pollution control information. Pollution disclosures were again the focus of a

study by Jaggi and Freedman (1982) who looked at the disclosures of firms in highly

polluting industries and the market impact of the disclosures. Jaggi and Freedman observed

a positive reaction from investors to the information disclosed which was consistent with

the findings of Belkaoui (1976).

This type of research was the precursor to more than two decades of investigation into a

link between corporate social information and performance. More recently, there is

evidence that disclosures of environmental performance measures are relevant to the value

of the firm, with high pollution levels lowering firm valuations (Hughes, 2000; Cormier and

Mangan, 1997). There is also a suggestion that companies that rate well on social and

environmental criteria also provide better than average returns to shareholders (Al-Tuwaijri

et al., 2004; Hart and Ahuja, 1996; Feldman et al., 1996; Cohen et al., 1995). Australian

studies looking at the social disclosures in corporate annual reports, have found that these

disclosures have some utility for users, and the information had an impact on market

performance (Deegan and Rankin, 1999; Rankin 1996; Guthrie and Mathews; 1985;

Guthrie, 1983).

The relationship between social disclosures and financial performance seems to vacillate

between positive and negative responses amongst the studies in this area. Jaggi and

Freedman (1992) examined the link between market performance of sampled firms and

pollution reports provided to the U.S. Environmental Protection Agency in 1978. They

found evidence that showed a weak link between short-term economic performance and the

degree of disclosure, however, the link was found to be a negative one – the markets

penalised those companies that achieved better performance. This was attributed to the

costs involved in achieving this performance. It was also noted that the markets were short-

sighted in ignoring measures that would result in longer-term profitability, with the

conclusion that “in the absence of encouragement from market forces, strict pollution

control standards are necessary, and these need to be strictly enforced” (p. 710). A Finnish

study by Halme and Niskanen (2001) looking at announcements of environmental

investments by companies in the paper and pulp industry found that the instantaneous

effect on market prices was negative, but the post-announcement prices showed several

consecutive positive returns. This led them to conclude that investors consider the positive



image effects of the news, thus revising their expectations of the future value of the

investment.

The results of studies linking market or investor reaction to social disclosures have

indicated that such disclosures do have a triggering effect (Jaggi and Freedman, 1992),

companies with discrete sustainability reports have better stock price performance and

dividend yields (Jones et al., 2005) and investors do react to social responsibility disclosures

(Deegan, 2005).

2.4.3 Corporate reluctance to voluntary disclosures

In the last few years the spate of corporate collapses and embarrassments in Australia, the

U.S. and some European countries (Enron and WorldCom in the U.S.; HIH in Australia;

Sonera in Finland; Parmalat in Italy) have seen considerable and nervous debate about

ethics and added further to the issues of corporate social responsibility. Public confidence

has eroded because of insufficient or inappropriate disclosure in financial statements that do

not reflect the actions of the firm. The present level of focus on corporate responsibility and

ethics should enhance the level of voluntary disclosure, but the reality is that there is a poor

track record of voluntary social and environmental disclosures that accurately portray

corporate dealings (Orlitzky, 2001; Buhr, 1998; Gray et al., 1995; Harte and Owen, 1995;

Adams, 1992). There is the major problem that many companies may not perceive social

responsibility as necessary in the pursuit of profit, hence their reticence to be socially

responsible and in providing “social” disclosures. Corporations are already required by law

to make significant financial and related disclosures, so it would seem illogical for them to

undertake the additional cost of reporting matters that are not required and also that may

not be of a financial nature. Bernhut (2002) teased out the following points on corporate

reluctance to be socially responsible:

• there is no economic reason to be socially responsible;

• other businesses are not acting in a socially responsible way either;

• company management is not interested in social responsibility; and,

• social responsibility has not become part of the value system of the organisation.



Sharma et al., (1999), Greening and Gray (1994) and Wood (1991) amongst others have

argued that social and environmental issues can be validated as an important part of

corporate identity on the basis of internal economic focus or a broader corporate social

responsibility basis. Indeed, according to Cormier and Magnan (1997), the evidence from

prior literature generally demonstrates that there is a common thread that links

environmental stewardship and firm value.

2.4.3.1 Disclosure of discrediting events and media coverage

Discrediting events do directly impact the bottom line of an organisation and influence the

perceptions of stakeholders about the current risk and return of their investments in those

companies (Magness, 2005). Thus, environmental disclosures in annual reports may be

used by companies as a possible means of managing or limiting the negative consequences

that stakeholders associate with discrediting environmental information (Warsame et al.,

2002) and in demonstrating to stakeholders that the corporation is capable of identifying

and managing future risks (Magness, 2005; Blacconiere and Northcut 1997; Blacconiere

and Patten 1994). To reduce political costs and to avoid regulation, companies choose

policies and programs that highlight good behaviour in the area of social and

environmental performance or reduce the visibility of undesirable behaviour and outcomes

(Banerjee, 2001; Newton and Harte, 1997).

Media is referred to as a major power that may influence corporate social disclosures

(Brown and Deegan, 1999; O’Donovan, 1997; Ader, 1995; and Smith, 1987). Media

coverage may force a company to use corporate social disclosures as a strategy to alleviate

potential adverse side effects of negative media coverage (O’Donovan, 1997), and any fines

imposed can affect the company’s share price (Lorraine, Collison and Power, 2004).

Voluntary environmental disclosures also tend to increase or be related to media exposure

of environmental activities (Cormier and Magnan, 2003; Bewley and Li, 2000). However,

financial press reports on the negative impact of a company’s environmental may

sometimes be scarce (Thomas and Kenny, 1997).

A study by Van Buren III and Paul (2000) into company reactions to socially responsible

investing showed an interesting aspect of a firm’s response to negative news about its social

performance. They noted that the companies in their study tended to involve corporate

counsel, senior management, and investor relations officials to respond to the negative



news, indicating that companies tended to focus on legal and public relations concerns

rather than social and environmental concerns. Van Buren III and Paul (2000, p. 143) were

surprised to find that “the board of directors, which is charged with representing the

interests of shareholders, is less involved in formulating a response and may not even hear

the negative information that comes to the attention of managers”.

Foulon et al., (2000) note that the reporting of environmental data has an impact on the

way business is done, with public disclosure of environmental performance moderating

corporate behaviour. Furthermore, users have been found to be taking increased interest in

corporations’ environmental contingent liabilities, environmental debts, fines for breaches

of environmental laws and/or regulations, the extent of land contamination, legislative

compliance and waste management (Barth, McNichols and Wilson, 1997; Rankin, 1996).

By their very nature annual reports lend themselves to being vehicles for presentation of

good, and sometimes bad, environmental news. Warsame et al., (2002) posit that the

environmental disclosures in annual reports are the ways that organisations respond to

discrediting environmental activities. Higher levels of toxic releases are also associated with

higher levels of environmental disclosures (Patten , 2002b).

Environmental disclosures are not only limited to annual reports, however, the use of

annual reports by financial stakeholders tends to add to the notions of validity and

significance of the item being disclosed. To impart environmental disclosure in such a way

is about the careful framing of the organisational activities so that financial stakeholders are

satisfied (Oliver, 1991) and so that their perceptions about risk and return due to

environmental costs are not overly influenced.

In some instances information about environmental accidents may affect not only the

company but have a spill effect on other firms in the industry in the form of cumulative

abnormal portfolio returns (Patten and Nance 1998) additional disclosures (Deegan et al.,

2000; Deegan and Rankin, 1996) or other matters (Collins and Fagan, 1994; Patten, 1992)

and to off-shoots of that industry (Owen et al., 1995; Blacconiere and Patten, 1994; Dowdell

et al., 1992). For example, research by Blacconiere and Patten (1994) into the share price of

chemical firms after the Union Carbide Bhopal disaster in 1984 led the authors to conclude

that the market interprets disclosures as good news signals and interprets their absence as

bad news. They found that, unless environmental information is proprietary, the market



assumes that only managers with negative news would withhold the information. They also

found that chemical firms in general suffered falls in their share price after the Bhopal

incident, however, the reaction was less for firms with more extensive environmental

disclosures.

2.4.4 Degrees and volume of social and environmental disclosures

Whilst it is uncertain whether shareholders share the attitudes of the wider society on social

and environmental issues, they do consider it important that their companies report on

social activities, not damage the environment, produce safe and quality items and act

responsibly (Epstein and Freedman, 1994). Yet, the intricacy and the complexity of

corporate activities along with multiplicity of sites in which a particular organisation

operates make it impossible for environmental disclosures to present all facets of the

company’s environmental activities (Warsame et al., 2002; Neu et al., 1998; Li et al., 1997).

2.4.4.1 Volume of social and environmental information

Early studies found that much of the social and environmental information tended to lean

heavily towards disclosures of a qualitative nature and had a tendency to be descriptive

with little by way of measurable outcomes. Trotman (1979) studied the social (and

environmental) disclosures in the annual reports of the 100 companies over the ten-year

period between 1967 and 1977. It was found that, on average, the volume of report devoted

to social responsibility disclosures had increased over this time from 0.08 pages in 1967 to

0.57 pages by 1977, with a predominance of qualitative information.

Guthrie (1982) undertook a study to determine the level of social disclosures of Australian

companies in their 1980 annual reports. Results showed that 21% of the 150 companies

sampled included environmental disclosures and, when Guthrie reviewed the study in 1984

with further data, he reported that these disclosures had increased in volume. Furthermore

there had been an increase in companies attempting to quantify their social disclosures

from 56% in the 1982 study to 82% in the 1984 review. Gibson and O’Donovan (1994)

concluded that approximately 70% of Australian companies include information about

environmental performance in their annual reports.

The level of environmental information varies greatly, and three significant Australian

studies by Guthrie and Parker (1990), Deegan and Gordon (1996), and Gibson and Guthrie



(1996) are summarised in Table 2.3. These studies have shown that corporations tended to

favour disclosing positive environmental information and that the disclosures of Australian

corporations had tended to be in line with their overseas counterparts.

For the two decades — 1980’s and 1990’s — Australian corporate social reporting had

traditionally focussed predominantly on textual information, completely under the control

of the individual company doing the reporting and with only the smallest amount of

guidance from the regulatory framework. As a result several Australian studies were

concentrating on looking at the types of disclosures being undertaken, with much of the

analysis tending to concentrate mainly on counting lines of text or looking at news reported

(Deegan and Gordon, 1996; Mathews and Davey 1996; Guthrie, 1982).

Other works in the Australian arena (Deegan et al., 1995; Coombes and Davey, 1994) have

tended to support the implication that there is corporate awareness and participation in

environmental and social disclosures, but that these disclosures are not of primary

importance. Mathews and Davey (1996) go further and consider the maturity and level of

information of environmental management systems. Their preliminary study showed that

71% of companies in their sample did not collect and analyse environmental information.

The research, however, showed that there has been an increase in environmental

disclosures in corporate annual reports that led the authors to question where the

environmental information being disclosed was coming from.

Not surprisingly the results of these Australian studies were consistent with results of

overseas studies in the U.K. (Owen, 1994; Bebbington et al., 1994; Hines, 1991; Roberts,

1991) and in Canada (Gorman, 1992). Research to discover how thirty sampled U.K.

companies were providing environmental information in their annual reports was

undertaken by Harte and Owen (1991). They took the opportunity to look at the level of

coverage of environmental information and the extent of financial and non-financial

disclosures. Ten companies gave separate sections for environmental disclosures, with the

information taking up between one-half to two pages in the reports. Six companies

provided financial data covering such matters as clean-up and restoration costs, and

another 3 companies provided non-financial statistical data about quantities of waste

recycled.



Table 2.2 Summary of findings of studies

Results and Findings Scope and Study Deegan and Gordon (1996) Guthrie and Parker (1990) Gibson and Guthrie (1995)

Description of Study Examined the annual reports of 197 listed Australian companies from 1988 to 1991

A comparative analysis of the social disclosure practices of companies in the U.K., U.S.A. and Australia.

A comparison of the environmental disclosures of 60 Australian companies with their overseas counterparts

Sample 197 listed Australian companies Environmental disclosures of 50 companies as reported in the1983 annual reports.

The disclosures of 60 private and public Australian companies and compared results to overseas studies.

Results and Findings 71 companies (being 36% of the total) produced environmental impact data

98% of U.K. companies, 85% of U.S.A. companies and 56% of Australian companies disclosed social information.

The amount of environmental information provided was limited;

Both positive and negative disclosures

Disclosures were mainly qualitative in nature

Disclosures were located separately from the financial section of the report, and normally in the Chairman’s or Directors’ Report.

Most firms disclose favourable information more often than unfavourable information

A significant increase in social disclosures during 1988-1991

No company provided bad news about their activities.

Social reporting with an employee focus scored high (mainly due to the influence of legal requirements, mostly in the U.K.)

The amount of environmental disclosure was relatively small for most companies (no legal requirement and awareness of issues was not as dominant),

Reporting was greater where there were legislative requirements or a social interest in the areas being reported on.

Australian organisations appear to have more disclosure (being > 1 page) than those in the international surveys

53% of Australian organisations report some form of environmental disclosures

12% of the Australian sample had undertaken an environmental audit.

U.S. companies appear to have more financial and qualitative disclosures, reporting environmental expenditures. (linked this to U.S. regulatory requirements).

Comments by Researchers

Disclosures “are typically self-laudatory, with little or no negative disclosures being made by the firms in the study” (p. 198).

Social pressures from particular interest groups prompted disclosures, which were an attempt to respond to this.

Findings showed that the Australian results were on par with the international surveys chosen for comparison.



It could be argued that the small sample size might limit the usefulness of this survey, but

its usefulness lies in showing the emerging trend towards a greater coverage of green issues.

In a later publication, Harte and Owen (1992) claimed that a noteworthy development in

these types of disclosures was the utilisation or reporting of corporate objectives in this area,

increased use of specific narrative and the inclusion of external reference points to relate

back to the social disclosures. Despite this, they conclude by pointing out that “the

information provision is generally highly selective and largely public relations driven with a

virtually universal reluctance to disclose bad news” (p. 199).

On the global front, several studies have been carried out by KPMG to look at international

environmental reporting with the first report issued for the 1993-year and the most recent

report issued for the 2005-year. For clarity of information and to highlight similarities and

differences in the two decades between the surveys, the results of the two studies are shown

in Table 2.4.

In other areas in the world, levels of voluntary social disclosures that contained social and

environmental information were at a slower rate of development. A view of these voluntary

corporate social disclosures is presented by Yamagami and Kokubu (1991) with their study

of the 1985-1986 reports of the 49 largest Japanese companies (which were included among

the Fortune 500 list). The reports were analysed for disclosures about environment,

community involvement, employee relations, research and development, and international

activity. They noted that disclosures about research and development and international

activities were extensive (average of 82.8% and 66.9% respectively), whilst the disclosures

related to environment (11.0%), community (27.6%) and employment (34.5%) were not as

comprehensive. Their conclusion was that Japan was slow in developing corporate social

disclosure practices as compared to the U.S. and Europe. A study of the 1989 annual

reports of Hong Kong based companies by Lynn (1992) produced even lower levels of

voluntary social disclosures, with only 6.4% of the 264 companies making any disclosures

on social performance. Lynn speculated that the political environment and cultural factors

might be the cause for the disappointing levels of disclosure.



Table 2.3 Comparison of results of KPMG International Survey of Corporate Social Responsibility spanning 2 decades

KPMG 1993 Survey KPMG 2005 Survey

Survey details and Sample size

Carried out in ten different countries - Australia was not surveyed

Nine European countries (including the U.K.) with the tenth country being the U.S.

The companies chosen for the research were the leading companies based on market capitalisation or revenue.

There were 810 respondents to the survey.

Carried out in 16 different countries

Australia was included in the survey.

The companies chosen for the research were the leading companies based on market capitalisation or revenue.

There were 1600 plus respondents to the survey.

Results Approximately 58% of the companies sampled produced some environmental information in the annual report predominantly in the Chairperson’s Message or in the operational review section.

183 of the companies gave environmental information in either the Directors’ Report or in a management discussion section.

- This was an unusual outcome as this portion of the annual report is required by law to be audited, which would mean that the environmental references had been checked over by the company’s auditors.

Majority of companies are issuing stand-alone corporate social reports

>50% of the reports are published as sustainability (social, environmental and economic) reports

Increased number of companies publishing corporate responsibility information as part of their annual reports

The top reporting countries are Japan and U.K.

Stakeholder dialogue is mentioned in approximately 40% of reports

Supply chain reporting is now common - supplier issues mentioned in 80% of reports

Social issues are still only superficially reported on (and tends to be “anecdotal”) as compared to environmental issues

25% of the companies discussed impact of their economic activities on society.

Verification Statements

Independent assurance of the reports increased to approximately 30%.

Types of News:

Good/Bad news

Only 63 of the 690 companies (9%) in the sample gave negative news about their environmental performance

Majority of these companies came from the U.K. and Canada

The U.S. companies gave the most limited bad news information

A more balanced view is presented in particular to environmental problems from greenhouse gas issues.

Disclosures of supply chain issues -emerging but, need more developmental work

Disclosures for social performance not always substantiated through quantitative data.

Conclusions/ Comments

Conclude that the limited disclosure about ‘bad news” could be a reflection of the fear of legal ramifications from any disclosures made.

Rising strategic importance of corporate responsibility at board level

Transparency and consistency are still matters that need considerable attention

Source: KPMG (1999) and KPMG (2005)



2.5 Conclusion

The discussion in this chapter has given an overview of corporate social responsibility

reporting, and included along the way was reference to the literature in relation to

corporate social disclosures and the beginnings of a new more unified approach. Through a

historical review of the voluntary disclosure patterns in the corporate reports, it is possible

to see that corporations are becoming increasingly concerned with their social

responsibilities. In the process of arriving at this conclusion, a perusal of the reasons behind

these types of disclosures was undertaken, leading to accountability concerns/stakeholder

issues or market responses as the impetus behind the onset and growth of these disclosures.

Consistent with the research, this chapter has predominantly focussed on the annual report

as a vehicle for such disclosures as many voluntary disclosures were normally reported in

the annual reports. Various studies have noted that the annual report is the main

communication medium for sending a message to stakeholders about the company’s

activities and intentions and has tended to be the main source of social/environmental

information (see for example: Warsame et al., 2002; Adams and Harte, 1998; Bartlett and

Jones, 1997; Harte and Owen, 1991; Roberts, 1991; Wiseman, 1982). This is not however

to say that annual reports are the sole vehicle which corporations use to communicate with

their users (see for instance Gamble et al., 1995; Zeghal and Ahmed, 1990). A majority of

the research in this area has also been conducted in measuring, counting and evaluating the

level of this type of information found in annual reports.

The discussion in the coming chapters will undertake a review of social and environmental

information disclosed in annual reports and more specifically in item-specific reports

(usually separate to the annual report) taking the form of environmental reports, social

reports and sustainability reports.


Chapter 3: Review of literature on the evolution of TBL reporting - Page 38

CHAPTER 3

Review of literature on the evolution of Triple Bottom Line

reporting

“Income may be likened to the fruit which a tree yields periodically, and which may

be gathered and used without injury to the tree itself. If when the fruit season arrives

we not only pluck the fruit, but break off a large portion of the branches as well and

use them, our tree is reduced, and the next season bears less fruit, and so on until in

the course of time there is no tree left at all”

(M. Wade, FCA, presented to the Liverpool Chartered Accountants’ Students’

Association, 1896)

3.1 Introduction

The main aim of this chapter is to continue the examination of the literature in respect of

corporate social reporting and to identify a conceptual shift in the types of social

responsibility disclosures. These have recently manifested into the much broader based

reporting phenomenon of Triple Bottom Line (TBL) reporting which is portrayed in the

form of qualitative and quantitative summaries or reports about the economic,

environmental and social performance of the company. As the quote by Wade (1896)

shows, the idea of not depleting resources can be looked at as an early notion of

sustainability, which makes the thinking behind TBL reporting not a totally new

phenomenon. Triple Bottom Line Reporting is defined as:

“The reporting of economic, social and environmental performance of an entity. It is also a possible

means of quantifying a trade-off between these three aspects of performance.” (Godfrey, et al., 2003,

p. 748).

Also as noted by Elkingon (1999, p. xi)

“Future market success will often depend on an individual company’s ability to simultaneously satisfy

not just the traditional bottom line of profitability but also two emergent bottom lines; one focusing on



environmental quality, the other on social justice. As a result companies and their boards will need to

think in terms of the triple bottom line.”

Higgins (2001) regards TBL reporting as an essential tool in the corporate citizenship

“toolbox” and according to Zadek (1998, p. 142), it is “one of the few practical mechanisms

for companies to integrate new patterns of civil accountability and governance with a

business success model focused on deepening stakeholder relationships around core non-

financial as well as financial values and interests”.

Norman and MacDonald (2004) date the term “Triple Bottom Line Reporting” back to the

1990’s claiming that it was coined and being used by a management think-tank called

“AccountAbility”. Elkington (2004, p. 1) states that:

“As originator of the term, I have often been asked how it was conceived and born. As far as I can

remember – and memory is a notoriously fallible thing – there was no single eureka! moment. Instead,

in 1994 we were looking for new language to express what we saw as an inevitable expansion of the

environmental agenda that SustainAbility (founded in 1987) had mainly focused upon to that point.

… We felt that the social and economic dimensions of the agenda … would have to be addressed in a

more integrated way if real environmental progress was to be made.”

Irrespective, the term gained momentum and wider exposure since it was used by John

Elkington in his book Cannibals with Forks: Triple Bottom Line of the 21st Century Business

(1997). TBL Reporting is also commonly referred to as the 3Ps of reporting. Elkington

(2004, p. 2) goes on to further clarify the use of the 3P abbreviations:

“In 1995, we also developed the 3P formulation, ‘people, planet and profits’, later adopted by Shell for

its first Shell Report and now widely used in The Netherlands as the 3Ps”.

The concepts of corporate social responsibility reporting and TBL reporting are ways of

looking into the relationship between business and society (where, in this context, the

concept of society has been extended to encompass the natural environment that supports

society). Wood (1991) notes that research into aspects of corporate social responsibility has

become rather commonplace over the past two decades, but even with the rising awareness

and research there has still not been an universally accepted definition of corporate social

responsibility. Although there has been an improvement since 1991, this problem of a lack



of definition still appears to exist today. Much of this improvement is however due to the

advent of Triple Bottom Line reporting through its supporters (CERES, 1998).

As the following literature review will show, corporate social reporting has gradually

moved away from information or reporting presented in an Annual Report or General

Purpose Financial Report (GPFR) designed for users1 of financial reports and has emerged

into separate specialised report formats. Communicating social and environmental

information to stakeholders may be undertaken through separate reports, company releases

or as additional information in the published annual reports (or GRFRs), enabling a wider

accountability2 which is historically established.

There are many research tracks available in any field, and in the area of corporate social

reporting, the questions as to “what” is reported, “why” reporting is undertaken and “how”

the information is reported are all valid questions. The focus of this study is on “what” is

reported, and the route to this path is taken via an initial discussion in this chapter of

corporate social responsibility and then progresses through to the voluntary social reporting

or disclosures in the annual report. The examination of the literature shows that, whilst

many studies have centred on the disclosures in annual reports, there has been some work

done on other media as well.

The final section of this chapter looks into the emergence of TBL reporting, and how it has

come about from a long process beginning with social reporting, moving to environmental

reporting and forming now into an amalgam that incorporates the three aspects, economic,

social and environmental into a wider based reporting model. To enable an understanding

of the growth of corporate social responsibility disclosures and therefore TBL reporting, the

discussion in this chapter continues the review of the literature on corporate social

responsibility disclosures and the research focus that has occurred over the last 30 years.

1 Under the AASB Framework for the Preparation and Presentation of Financial Statements, (para. 9) the users of financial reports include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public. They use financial reports in order to satisfy some of their different needs for information.

2 Accountability is defined in SAC2 paragraph 5 as “the responsibility to provide information to enable users

to make informed judgements about the performance, financial position, financing and investing, and compliance of the reporting entity”.



3.2 An overview of business, society and corporate social

responsibility

Originally, the charters that enacted corporations (such as the first corporations legislations)

were designed to ensure that these entities served the public interest and that such a charter

could be revoked if the corporation failed in its duties to the wider society (Estes, 1996;

Baxt and Fletcher, 1992; Lipton and Herzberg 1991). As corporations are social creations,

it could be argued that their existence depends on the willingness of society to continue to

allow them to operate (Reich, 1998). The chief responsibility of a corporation, as originally

constituted, was to society and its second responsibility was to provide financial returns to

the investors of capital (Estes, 1996). Corporations, particularly in the United States of

America, have used their power and influence over the last 200 years to argue that, firstly,

the corporation is a private body not a public body and, secondly, that the corporation is a

“natural person” under the U.S. Constitution (Korten, 1995). Together these two factors

exempted corporations from meeting their public obligations, removed control from public

hands to those of private shareholders, and allowed corporations the right to influence

governments to act in the corporations’ interests in the same manner as any voter

(Grossman and Adams, as quoted in Korten, 1995, p. 53). These new-found “rights” did

not come with any responsibilities, but they did allow a concentration of power into a few

private hands. This has, in turn, produced a world where many corporations are larger

economically and yield more power internationally than many governments (Korten,

1995).

3.2.1 The Social Contract Theory

The concentration of power in the hands of companies opens up the discussion as to

whether the activity of corporations promotes social and environmental welfare. Society’s

control over an individual’s freedoms so as to achieve collective goals is founded in the

concept of the social contact, one whereby individuals undertake to act within the

boundaries of acceptable interaction with other members of the society. If, as Estes (1996)

notes, the first responsibility of a corporation was to the society then the concept that a

corporation has a contract with the society is not a new phenomenon, however, it is

something that organisations (and the accounting profession) have historically been

unwilling to address.



Shocker and Sethi (1973, p. 97) give a summary of the definition of a social contract:

“Any social institution – and business is no exception – operates in society via a social contract,

expressed or implied, whereby its survival and growth are based on:

1. the delivery of some socially desirable ends to society in general, and

2. the distribution of economic, social or political benefits to groups from which it derives its power.

In a dynamic society, neither the sources of institutional power nor the needs for the services are

permanent. Therefore, an institution must constantly meet the twin tests of legitimacy and relevance by

demonstrating that society requires its services and that the groups benefiting from its rewards must

have society’s approval.”

Rousseau (as cited in Baker, 1960) used the notion of a social contract to explore concepts

of equality, the sharing of responsibilities and powers and the determination of practices

that were either acceptable or unacceptable to society. Rawls (1971) wrote that those who

engage in social cooperation jointly choose the principles that are to assign the basic rights

and duties to thereby determine the division of social benefits and regulate claims against

each other. This would then be the foundation charter for their society. Within the basic

structure of society, Rawls advocates the basic moral principle that those in a favoured

position because of nature should be permitted to gain from their circumstances only on

terms that permit those who are less fortunate to improve their situation. Organisations

could gain from their good fortune only once they improve the social wellbeing of those

less fortunate and once they provide for future generations. Thus, consideration of the least

advantaged members of society is forced upon us by Rawls’ theory of justice. Inequality

between parties, therefore, results in the powerful party using their position to their

advantage and organisations as powerful entities have used accounting as a tool to

influence outcomes (Cooper and Sherer, 1984).

Organisational use of social and environmental resources may be scrutinised from the

perspective of sustainability under Rawls theory of justice where such problems as inter-

generational equity become apparent. Lehman (1995, p. 408) argued that the inclusion of

environmental data in annual reports does more than provide information, “it establishes

and articulates an accountability relationship between the corporation and others”.

Shrivastava (1995a, p. 954) explains that companies have the ability to contribute to the



environmental agenda in a number of ways, mainly with their knowledge, resources and

even with the power to bring about “enormous positive changes in the earth’s ecosystem”.

3.2.1.1 Moral View and Structural View

Viewing the corporation from both a moral-person view and a structural view, the entity

has the capacity to use moral reasons in decision-making and to use this capacity to control

corporate acts, structures and rules. The study of moral obligation (deontology), although

not new, is exemplified by Kant (1938), which Rawls (1971) expands on. Rawls (1971)

puts forward an ethical theory in the deontological approach that is useful in examining the

context of the organisation and social accounting matters. In terms of the moral position of

the firm, it could be argued that, if society subscribes moral reasoning to corporations, then

the company could be held to have a moral obligation to be responsible3 for its actions. This

would extend to direct and indirect responsibility to society as a whole. Donaldson (1982)

identifies two conditions whereby a corporation may act as a moral agent, thus embodying

a process of moral decision-making:

1. The capacity for the corporation to use moral reasons in decision-making; and,

2. The capacity of the decision-making process to control not only overt corporate acts but

also the structure of policies and rules.

Thus meeting the condition of moral agency grants the organisation the “right” to exist.

Donaldson (1982) saw the productive organisation as an organism that satisfies social

interests. He notes that organisations “are subject to moral evaluations which transcend the

boundaries of the political systems that contain them. The underlying function of all such

organisations from the standpoint of society is to enhance social welfare through satisfying

consumer and worker interests while at the same time remaining within the bounds of

justice” (Donaldson, 1982, p. 57). As a result, if an organisation is to exist, society must

perceive a net benefit from its existence. Such a benefit would come from allowing the

corporation to exist in order to produce a product (and a waste product) and would be

greater than the cost of the consumption of resources - being both environmental and

3 In short, society may require that corporations take responsibility for their actions and, if corporations want to be regarded as “natural persons”, they must behave morally.



human resources – taken from society. This could then be seen as an unwritten social

agreement that obligates business to behave in a way that is beneficial and acceptable to

society.

The structural view of social contracts suggests that a contract exists between corporations

and society, with the basic premise that the organisation draws from the community’s

resources, outputs (emits) waste products to the general environment and uses social capital

in order to transform inputs to outputs. In respect of corporate social responsibility,

companies may be motivated to act in a responsible manner, not because it is in their

commercial interest but because it is how society expects them to operate (Moir, 2001).

Given this type of reasoning a preliminary understanding as to why companies should

undertake corporate social reporting, or TBL reporting, begins to emerge. By undertaking

such voluntary reporting, companies may believe that they are able to show society that

they are beneficial to society, their existence equates with more positives than negatives and

that they are adhering to this unwritten social agreement. Yet Mobus (2005) remains

sceptical noting that voluntary disclosures are a means of communication by which firms

attempt to satisfy external social pressures to conform without necessarily an

accompanying change in their behaviour.

3.3 Voluntary disclosures in the annual financial report

The traditional corporate annual report along with containing the integral and legally-

required financial report, directors’ report and auditor’s report also fulfils a general

information and public relations role. This latter component usually comprises such matters

as the background and structure of the company, descriptions of the areas of business, an

overview and highlights of the financial year, a chairman’s address and corporate

governance statements. The annual report as a formal public document:

1. provides the organisation with the mechanism to communicate directly with its relevant

stakeholders (Marx, 1993; Zeghal and Ahmed, 1990), and,

2. has “multiple voices and multiple stories (which) allow audiences to choose the story

they want as well as supporting the targeting of various audiences” (Stanton and

Stanton, 2002, p. 496).



Yet, Hines (1988) points out that although the content of the annual reports of companies is

heavily regulated, they are far from merely being a collection of socially innocent facts and

figures. She observes that the reports include messages designed to “construct reality” by

communicating managers’ interpretations of reality - thereby attempting to sway the user

into accepting the corporation’s value judgements and opinions. Furthermore Hopwood

(1996) argues that annual reports have become a highly sophisticated product of the

corporate design machine, with the main reason being to create a particular visibility and

meaning rather than what has actually happened. Graves et al., (1996) suggest that the

annual report may function as a tool to improve public relations activities. The traditional

annual report has also been described as a vehicle which is used by organisations to

construct an appropriate response or message to the concerns by stakeholders and

regulators (Guthrie and Parker, 1989; Preston et al., 1996).

One such concern by stakeholders is corporate governance. Until recently Australian

companies did not include a corporate governance section, but it has become a much-

desired component of the annual reports. This is particularly so as this issue has come

under social scrutiny, due to several high profile corporate collapses in Australia and the

United States. Information about governance matters is now required as part of Australian

Stock Exchange (ASX) Listing Requirements. Under the ASX Listing Rules (in particular

ASX Listing Rule 4.10.3), Australian-listed companies are required to disclose information

about their corporate governance practices and matters in their annual report. Even so, the

ASX rule that imposes the reporting obligation only provides an indicative list of corporate

governance matters and does not dictate the level or the quality of disclosures on these

items4. Accordingly the quality of corporate governance information is left to individual

corporations to deal with (Foreman, Barut and Richardson, 2004) to determine and to

manipulate. In this respect, environmental and social disclosures, although mainly

voluntary, are subject to vast differences in the quality and quantity of information.

4 The items indicated are: • composition of the board, and information as to executive or non-executive directors; • procedures for selection of new directors, and criterion for board membership; • access of directors to independent advice at the company’s expense; • method for setting and reviewing remuneration of directors, procedures business risk management and

establishment of ethical standards; and, • arrangements relating to selection of the auditor and for reviewing audit arrangements.



3.3.1 Perceptions about corporate social disclosures and the annual report

Tilt (1994) points out that community and environmental groups see the annual report as

the major source of information about social and environmental matters. Whilst the annual

report is not the sole medium for such information, it is a major information source for

both users and preparers (Rankin, 1996). Linking the voluntary information in the annual

report to disclosures in other sources can also provide further insight into a company’s

dealings. Gamble et al., (1995) undertook a cross-sectional longitudinal study (1986

through to 1991) of the annual reports and 10K5 reports of 234 U.S. companies. They found

that industries with the potential to have the highest environmental impact – petroleum

refining, hazardous waste management, steel works – provided the highest quality of

environmental disclosures. Their analysis also showed that environmental disclosures had

significantly increased since 1989. The environmental disclosures in the 10K reports also

significantly increased over the 1989-1991 period, but this could be reflective of the

increased SEC reporting requirements for environmental information. Overall, however,

the quality of environmental disclosures in the annual reports and 10K reports was low

with less than 20% of the required disclosures being fulfilled. The results of this study were

pre-empted by the KPMG (1993) study which showed that the mining sector concentrated

heavily on cost data, and environmental fines and expenditures, whilst the retail,

engineering and business services sectors provided no quantitative information at all.

Perceptions about environmental disclosures can vary between preparers and users. In

questioning report-preparers in Australian companies as to whether they perceived

environmental disclosures to be a threat or opportunity, Rankin (1996) found that:

• 11% of respondents perceived them as a threat,

• 28% of the respondents perceived an opportunity to demonstrate that they were good

corporate citizens,

• the majority of respondents saw neither a threat nor opportunity,

5 A 10K Report is the official annual business and financial report filed by public companies with the Securities and Exchange Commission in the US. The document contains comprehensive information about the company including financial information a business summary, information about subsidiaries, legal proceedings, environmental commitments, etc. (Source: http://www2.lib.udel.edu/subj/bsec/resguide/annual10.htm).



• over half of the companies sampled (53%) did not want to see environmental disclosures

become a mandatory component of annual reports,

- 28% of the companies were neutral on the issue, and

• 43% of companies undertook external environmental audits,

- less than 3% actually disclosed details of these audits in their reporting,

- 64% of users of corporate reports agreed that such reporting should be mandatory.

On the whole, many users perceive “the annual report to be the most important source of

environmental information as fewer seek this information from other sources” (Rankin,

1996, p. 26). The annual report is also perceived to possess a degree of credibility that is not

normally associated with other media such as advertising material. Thomas and Kenny

(1997) warn that a study of only the social disclosures in annual reports may not provide a

complete picture of corporate environmental undertakings.

A study undertaken by Alnajjar (2000), investigating the social responsibility disclosures in

annual reports by the U.S. Fortune 500 firms, found that firms appeared to disclose

narrative types of information far more than monetary or quantitative information. Alnajjar

(2000) concluded that, as long as there is an absence of accounting standards and regulation

for social responsibility disclosures, it seems likely that companies will continue to disclose

narrative information as an attempt to influence public opinion.

Indeed, Harte and Owen (1991) had noted that social and environmental information

provided in annual reports tended to be merely a general statement as to the commitment

of the company to such an agenda, rather than quantitative data by which to measure

performance. They comment that “social information provided within annual reports tends

not to be directly related to quality of actual performance and can indeed be positively

misleading” (Harte and Owen, 1991, p. 59). Other studies have similarly noted that social

and environmental information tended not to be directly related to the quality of the actual

performance by the corporation and may, in fact, be misleading (Deegan and Rankin, 1996;

Rockman, 1985; Wiseman, 1982; Ingram and Frazier, 1980). The social and environmental

disclosures in corporate annual reports are also variously described as vague, incomplete, or

unreliable (Deegan and Gordon 1996; Gamble, Hsu, Kite and Radtke 1995; Harte and

Owen 1991; Wiseman 1982). That companies may not be objective or factual in their

disclosures of environmental information may be the cause of some disquiet to users.



According to Tilling (2001) this could have significant ramifications for the long-term

viability of social reporting, as questions of validity if raised often enough may lead users to

become reticent in their use of such information.

Several key points regarding the objectivity of the environmental disclosures of Australian

companies were made by Deegan and Rankin (1996):

• in circumstances where there is an absence of regulation in environmental disclosures,

Australian companies will only report favourable environmental news,

• many environmental disclosures were typically self-laudatory,

• environmental information would be material to the users of annual reports, and that

this was recognised by corporations, and,

• the information presented did not reflect actual performance and, when considered

together with records of environmental prosecution, would actually be misleading with

regard to performance.

Other studies have also identified that many environmental disclosures decisions are made

on the basis of presenting corporations in a positive light (O’Donovan, 2002; Deegan et al.,

2000; Bowen, 2000; Simmons and Neu, 1998; Deegan and Gordon, 1996). Not

surprisingly, social impact and environmental disclosures by companies would seem to

have been tracking community and political interest in environmental and social issues

(Henderson and Peirson, 1995), but not be reflective of the attitudes of accountants, who

deemed environmental information immaterial to investors (Deegan et al., 1996). Whilst

corporate environmental disclosures has been pressured by public concern and increased

environmental legislation, Banerjee (2001) and Newton and Harte (1997) assert that

corporations take on an environmental mantle in order to be perceived as “green” and to

avoid regulatory interference.



3.4 Commitment to voluntary social 6 reporting

As a business progresses through its lifecycle and becomes more stakeholder-oriented,

commitment to environmental and social reporting becomes apparent. Organisational

commitment to the environment was considered by Hunt and Auster (1990) whose study

looked into organisational resource commitment, the mindset of management and the support of

top management for the environment. From their research they compiled five stages of

environmental management: beginner, fire-fighter, concerned citizen, pragmatist and

proactivist. As a means of evaluating organisational commitment and consciences,

Polondsky and Zeffane (1992) rejected these five stages. They argued that the groupings

implied that there was only one stage of environmental management at any given time and

that this was a flawed notion. Corporate culture is constantly evolving, and different areas

within the corporation will have different evolutionary paces. Even so, these groupings may

represent different levels of commitment within the company, and it may be the interaction

of these, that results in a shift in the corporation’s culture. When, however, concern for the

environment becomes a key component of corporate identity, environmental issues become

harder to disclaim (Weick, 1988).

A shift in a corporation’s culture can be achieved through several factors or drivers. Bansal

and Roth (2000) have identified four drivers of corporate ecological responsiveness:

legislation, stakeholder pressures, economic opportunities and ethical considerations. These

drivers bear a distinct similarity to those reported by KPMG (2005, p. 18): “While the most

common driver for sustainability as reported by 74% of the companies is ‘economic

reasons’, more than 50% of the companies reported …(that they are) .. motivated by ethics,

values and codes of conduct guiding their business operations”.

Additionally in explaining corporate commitment to social reporting and in order to

establish some benchmarks, Gray et al., (1995) identifies three broad groups of theories in

an attempt to elucidate any discussion about corporate social reporting:

1. social and political studies (see Appendix 6 for more information);

2. economic theory studies (see Appendix 6 for more information); and,

3. decision-usefulness studies.

6 The word “social” here encompasses both social and environmental matters



Several of the ensuing sections will combine Bansal and Roth’s (2000) four areas of

corporate ecological responsiveness with the three theories proposed by Gray et al., (1995)

to develop a picture of corporate voluntary social reporting.

3.4.1 Stakeholder pressures

The application of stakeholder pressure and power (see Appendix 6 for further discussion)

assumes that there is a causal relationship between areas of societal interest and subsequent

corporate reporting response. Guthrie and Parker (1990) addressed this issue as part of a

comparative analysis of social disclosure practice based on a sample of the 50 largest

companies in the U.K., U.S.A. and Australia. Their study, the results of which are tabled in

Chapter 2, Table 2.3, analysed the content of the annual reports for the period ending 1983,

based on theme (being for example: environment, employment, products), evidence (being

monetary, non-monetary, declarative) and amount (being number of pages and location in

the annual report). At the time of the Guthrie and Parker (1990) study, there was interest

primarily in social issues such as employee welfare, equal opportunity, and health and

safety. Interestingly the disclosures made by the companies were indicative of wider social

trends at the time and, as such, indicate a potential causal relationship between societal

interest and areas of corporate disclosures. Deegan and Gordon (1996) also found a

significant increase in social disclosures during 1988-1991 – a finding which is consistent

with the work of Guthrie and Parker (1990) and Polonsky and Zeffane (1992).

The results of a study like the Guthrie and Parker (1990) study are different even one

decade later, perhaps due to wider societal awareness. Findings from KPMG (2005) show a

marked difference in country data, and in the information disclosed, with more information

about environmental issues being disclosed as compared to social disclosures – completely

opposite to the findings back in 1990, thereby again showing a societal shift, or new societal

pressure about present concerns for the environment. The KPMG (2005) study also showed

that many social and environmental disclosures were undertaken in separate corporate

social reports as compared to the Guthrie and Parker (1990) which was based on the

disclosures in annual reports.

Neu et al., (1998) sought to assess the association between the level of corporate social

disclosures in the annual report and the pressures placed on the company by concerned

public/stakeholder interests. They particularly note that the environmental messages



produced by companies and the strategies adopted are influenced by the relative power of

the public, supporting perhaps Ullmann’s (1985) stakeholder theory. Though early

disclosures have been primarily editorial in nature, Day (1994) argues that companies can

no longer produce a glossy publication and expect this to satisfy stakeholders – user groups

are much more sophisticated now and demand reports that are logical, honest and have

quantifiable data and have external verification/assurance of the information presented.

Yet, Magness (2005, p. 40) wonders if as prior research suggests “internally produced

environmental performance information is vague, incomplete, or unreliable … then why

would investors look to this information for comfort at a time when markets are

distressed?”

When considering if the information is relevant to stakeholders and their decision-making

processes, Deegan and Rankin (1996, 1997) found that there are groups within society that

perceive environmental issues to be material to their decision-making processes and,

therefore, seek information about such activities from the annual reports of companies.

There is, however, evidence to show that an expectations gap existed between users needs

for environmental disclosures and what was produced by the preparers of annual reports

(Deegan and Rankin, 1999). Yet, lack of data may be due to inadequate systems to capture

such environmental information or that companies are not really aware of the need to

disclose performance information about social and environmental matters (Day, 1994).

The content and quality of the information provided in corporate reports should thus be

looked at when considering whether companies simply regard such disclosures as

promotional opportunities or whether the information disclosed is useful7 to stakeholders.

Neu et al., (1998) observe that when examining corporate social disclosures, the mode,

media and strategy of communication need to be considered. Meeting the information needs

in an extended annual report or a stand-alone corporate social report8 could be addressed

by the development of a reporting framework such as the Global Reporting Initiative

(GRI). Reporting against such a framework and general compliance with for example, the

7 According to the Framework for the Preparation and Presentation of Financial Statements, the characteristics that make the information provided in financial reports useful to users are the four principal qualitative characteristics of understandability, relevance, reliability and comparability.

8 A stand-alone corporate social report would be preferable as inclusion of the social and environmental disclosures in an already lengthy annual report may reduce the impact of the non-economic information or may lead to the information being ignored completely.



GRI Guidelines or similar, may better suit stakeholder informational needs. An assessment

of the content of such reports, when compared to a pre-determined reporting framework, is

the topic of investigation and research in this study.

As a means of ascertaining how the content of social and environmental disclosures can

change over time, it is worth looking again at the study by Buhr (1998, p. 165) who

expressed the view that “the chosen level of environmental disclosure may have everything

or nothing in common with the environmental management record of the organisation”.

In her case-study of the large smelting company in Canada, Buhr noted that the smelting

industry had been successful in fighting off environmental regulation of sulphur dioxide

emissions (the pollutant of prime concern in the study) for over 50 years. It was only after

scientific knowledge identified the link between emissions and acid rain, and determined

that the impacts were not localised but were regional, that community pressure forced

regulations to be instigated. Post-regulation (of environmental regulation of sulphur dioxide

emissions) the company’s disclosures went through several stages. Reporting in the 1969-

1979 period focussed on the technological costs of and the failures in implementing

pollution control mechanisms, with Buhr suggesting that the motive was to stave off further

future regulation by demonstrating the difficulty and cost of pollution control. Later

disclosures during 1980-1984 sought to demonstrate the company’s successes, its role as a

good corporate citizen and the lack of need for further regulatory interference. After 1985

the company began discussing governmental regulation in its reporting, thereby

demonstrating that it understood that it no longer controlled the environmental agenda.

The reporting period under investigation by Burh (1998) was also typified by the fact that

the company was working with government “as a means of influencing agenda setting”.

The common thread through all stages was the use of reporting to attempt to reduce

environmental controls on the company’s operations. At no stage did the company appear

to encompass the community’s cultural perspective. Thus, in this case, the content of

corporate disclosures was changing in an attempt to influence community and perhaps

avoid regulatory standards not unlike the results of studies (Deegan et al., 2002; Deegan

and Blomquist, 2001). In a case-study of a large international company, Adams (2004)

found that the company displayed a lack of full disclosures regarding social and

environmental impacts and there was insufficient indication in the company disclosures to

show that it accepted its ethical, social and environmental responsibilities for these impacts.



Thus, companies want to be able to choose the content of their social and environmental

disclosures, and it may be inferred that they regard the opportunity provided by

environmental disclosures to be one of promotional value, or that these disclosures make a

difference (O’Donovan, 1999). There would seem to be a significant reporting gap between

the needs of stakeholders and the moves by companies on the issue of providing a greater

level of social disclosures.

3.4.2 Management accountability and corporate social reporting

Accountability of the board of directors and governing bodies and levels of corporate social

responsibility are ascertained by the information produced by the company or by external

bodies. As an assessment of the accountability of management is possible through the

disclosures by corporations, so too is an assessment, even if it is a cursory one, of the social

commitment of management. Through a number of avenues, such as the disclosures in

statutory accounts or as additional information to these accounts, media information,

advertisements, information sheets and the like, shareholders and stakeholders are able to

monitor and judge social and environmental performance and thus accountability.

A study to determine the environmental commitment by Australian companies was

undertaken by Polonsky and Zeffane (1992). Their study identified the following five

factors which were significant for environmental management:

1. Existence of (environmental) policy and policy implementation;

2. Environmental consideration in new investments and ventures;

3. Environmental considerations in corporate objectives and performance evaluation;

4. Commitment of Board and Board Members; and

5. Environmental opportunities.

Polonsky and Zeffane (1992) concluded that it is important to track organisational

behaviour over time to achieve a clear picture of the development of the firm’s corporate

culture in relation to environmental management. Their study is significant as it identified

important factors influencing environmental management, but by adopting three broad

industry sectors to break down the information, there may have been a loss of industry-



specific information. An attempt to uncover the reasons why companies choose to disclose

environmental commitment would have added weight to their study.

The existence of environmental policy and policy implementation (Polonsky and Zeffane

(1992) is an area that is commonly reported on by companies and is also the area where

there is likely to be the greatest gap between policy and reality. For example Broken Hill

Proprietary Ltd. — (BHP as it was known before changing its name to BHP Billiton) is a

major example of how environmental policy is reported by the company and how this

policy is seen as being implemented by external observers.

BHP’s disclosures of environmental and financial impacts of its copper mining activities in

the Ok Tedi region of Papua New Guinea greatly downplayed its potential financial

exposure9 to the Ok Tedi situation in the statutory notes with only small commentary in a

note on Contingent Liabilities. In the same annual report the company comments about the

efficacy of its environmental policy. Figure 3.1 shows the contingent liability notes

appearing in the BHP statutory accounts against the environmental information produced

elsewhere in the annual reports and in some media stories. The two sets of commentary are

marked in their difference and, when compared to the media reporting (see for example R.

Skeleton (1995), extracts) which was quite emotive, the annual report disclosures appear to

show that BHP’s impact on the Ok Tedi region was harmless. Jantadej and Kent (1999)

report that there was an increase in the number of environmental disclosures relating to the

Ok Tedi copper mine, from 7 lines of information to 24 sentences during 1994 – 1996,

representing an increase of 243 percent in the amount of lines disclosed. They suggest that

these increases in disclosures could be attributed to adverse publicity – not unlike the

statements shown in Figure 3.1.

9 The claim for damages amounting to A$4 billion is described as the largest compensatory suit in Australian history (Chu, 2001).



Figure 3.1 BHP - OK Tedi disclosures 1995 - 1997

Year BHP Annual Report Disclosures

1994 BHP Contingent Liability Note

Shown as part of the Financial Statements Contingent Liability (Note)

In May 1994 two writs were issued in the Supreme Court of Victoria on behalf of certain persons resident in Papua New Guinea seeking unspecified damages and relief in respect of loss and damages allegedly caused by discharge of tailings and other releases from the Ok Tedi mine into the Ok Tedi river. Since May 1994 two further writs have been issued in respect of similar matters and seeking relief….

Whilst the liability (if any) of the defendants cannot be quantified it is not expected that the outcome of these proceedings will have a material adverse effect on the BHP Group.

(Contingent Liability Note #31, Page 24 of 1994 Financial Statements)

BHP Other Annual Report disclosures

Shown as part of the Report to Shareholders

Environment

BHP’s Environmental Policy stresses the achievement of a high standards of environmental care and approach to environmental management which seeks continuous improvement. The Board is committed to the highest levels of environmental responsibility.

OK TEDI

Ok Tedi Mining Limited, a subsidiary of BHP, continuous to work with government and local communities in Papua New Guinea to improve the well-being of people along the Ok tedi and Fly Rivers and to compensate for impacts on the environment. …The mine is being run in compliance with Papua New Guinea law and the Company believes that its on-going operation is beneficial to both its shareholders and the people of Papua New Guinea (1994, page 31)



1995

–

1996

BHP Contingent Liability Note - Shown as part of the Financial Statements Legal proceedings were instituted in Victoria in May 1994 and December 1995, and writs were presented for issuance in September 1994, against OK Tedi Mining Limited and BHP on behalf of plaintiffs claiming unspecified damages and relief in respect of loss and damages allegedly caused by discharge of tailings and other releases from the OK Tedi mine into the OK Tedi (river).

The Company considers that the terms of settlement will not have a material adverse effect on the financial condition or results of operations. (Contingent Liability Note #35, Page 28 of 1996 Financial Statements)

BHP Other Annual Report disclosures - Shown as part of the Report to Shareholders

Our Commitment - Environment In the environment area, two issues in particular caused public concerns – the Iron Baron oil spill off the coast of Tasmania in July 1995 , and the environmental impacts of the OK Tedi copper mine in Papua New Guinea… Resolution of the issues relating to the OK Tedi mine in Papua New Guinea has been a high priority in 1996. We have made good progress though 1996 on issues associated with the release of tailings and overburden from the mine into the Fly River system. A detailed study of remediation options, involving experts from all over the world is close to finalization. (1996, page 7)

Media Content

Newspaper Commentary – The Age Newspaper

Paradise Privatised By R Skelton, The Age, 23 September 1995, pA15.

“ The landscape confirms the villagers’ plight. The waters of the OK Tedi are a turbid muddy swirl. Across the river stands the skeletal remains of tropical rainforest”.

“OTML’s chief environment scientist concedes that the die-back will continue to spread down the OK Tedi.”

“The die-back will spread well in the Fly (river system) over the next 15 years unless the dumping of waste is curbed”.



BHP’s own portrayal and disclosures of community and environmental information gives

the impression that BHP is trying to show that it is a good corporate citizen, by progressing

the Ok Tedi matter and having leadership in the field of environmental care (see BHP’s

1994 and 1995 Annual reports).

In many of its disclosures BHP ameliorated the bad news and attempted to create a self-

chastisement scenario thereby espousing better methods and structures, that once put into

place would mitigate or expunge future bad environmental behaviours. Furthermore, in a

study of the social disclosures of BHP and the OK Tedi case, Chu (2001) found that the

means of disclosing the information shifted from the traditional reporting medium of the

annual report towards more strategic disclosure media. Chu (2001, p. 17) reasons that

“annual reports might have a limited audience particularly when environmental and social

issue are discussed and ..(other) media could be used … as a tool for targeting the relevant

publics”.

3.4.3 Environmental audits and Verification Statements

The argument that companies can no longer produce a glossy publication and expect this to

satisfy stakeholders (Day, 1994) still rings true today, as users are now more willing to

question corporate actions (Monaghan, 2004). In a case-study looking at the ethical, social

and environmental disclosures of one company over the years 1993 to 1999, and compared

against information about the company from other sources Adams (2004) noted that two

quite different pictures emerged. She concludes that there is a need for improved

accountability, comprehensive mandatory social and environmental reporting guidelines

and the development and standardisation of audit practices to reduce the reporting

performance portrayal gap.

When reviewing corporate social and environmental reports, it would seem reasonable that

users expect a degree of accountability and verification of the information disclosed. In

Australia the Statement of Accounting Concepts, SAC2 paragraph 5, identifies accountability as

“the responsibility to provide information to enable users to make informed judgements

about the performance, financial position, financing and investing, and compliance of the

reporting entity”. Furthermore, accountability is a mechanism whereby a company’s social

relationships can be revealed from the perspective of the company as a member of the

community (Lehman and Shanahan, 1994).



As an extension of accountability, any reliance in the information contained in accounting

reports, is thus based on an expectation that the annual report is audited. It then does not

require a vast conceptual jump for users and stakeholders to have the same verification

expectation of social and environmental information. There is an inference that the

reliability of voluntary disclosures is likely to be increased where there are external

verification statements or environmental audits. That there is an increasing number of

companies now appending external verification/audits to their corporate social reports

(KPMG, 2005) may be due to expectations of accountability.

Verification and audit processes are advocated by CERES (1992), which also calls for self-

evaluation and the timely creation of generally accepted environmental audit procedures.

According to the GRI, verification should “strengthen the reliability of information…

without relieving the management of the enterprise of responsibility for the accuracy,

completeness, and - in particular - balance and fairness, of the representations it makes”

(CERES, 1999, p.9). The support for verification statements is numerous and varied,

coming from researchers, NGOs and others (see for example, Adams, 2004; O’Dwyer et al.,

2004; Monaghan, 2004; GRI, 2002; Solomon, 2000; Beets and Souther, 1999).

A survey to help determine the extent to which finance directors and chief accountants

considered environmental matters as an issue for business proved useful in identifying the

need for external audits of corporate social disclosures. The survey, (C&LD, 1990), which

was commissioned by Coopers and Lybrand Deloitte (C&LD) was based on 108 telephone

interviews of U.K. companies randomly selected from The Times Top 100 list. In support of

Rankin (1996) who found that 43% of companies in the study undertook external

environmental audits10, C&LD (1990) found that their respondents were very much in

favour of external audits. Over half (58%) of the respondents in the C&LD study suggested

that it would be helpful if auditors commented on the company’s management information

systems and processes in regard to environmental issues, particularly compared with those

of other companies.

10 Rankin (1996) also found that less than 3% actually disclosed details of external social audits in their reporting.



The respondents in a study undertaken by Solomon (2000) agreed that there is a need for

verification in corporate social reporting. Even so, O’Dwyer (2000) commented that

support for Solomon’s findings in respect of verification statements were tentative, and

argued that the type of verification that corporate social reporting would require is

fundamentally different to that required by the financial reporting framework. A decade

earlier Power (1991) had suggested that accountants might not be the most appropriate

people to undertake an environmental audit/verification as they may lack experience and

are subject to pressures from the management of the company. In contrast, Welford and

Gouldson (1993) maintained that accountants are appropriate agents for verification.

Epstein and Freedman’s (1994) survey of 3000 randomly selected investors showed that

68% of the respondents wanting information to be provided to stakeholders want that

information to be audited. The authors note their survey results “clearly show a distrust of

management representatives and a demand for independent verification of those

representations” (Epstein and Freedman, 1994, p. 105). They conclude that if social

disclosures were audited then readers of financial statements would be more likely to feel

that the disclosures were not merely propaganda. Adams (1992) points out that corporate

social information is unlikely to be credible to the users unless the information is externally

audited. Studies of NGO’s have also suggested that external verification of corporate social

disclosures is required by these stakeholders (O’Dwyer et al., 2004; Tilt, 1994). Thus not

only is verification generally thought to be a good idea (Owen, 1992; Buck, 1992; Grey et

al, 1987), but an attestation statement is also relatively inexpensive in comparison to the

overall report (Outram, 1996).

The involvement of an auditor as external verification of the environmental disclosures also

increases the pressure placed on corporations to produce accurate non-financial disclosures.

Such disclosures are becoming increasingly quantitative, with environmental information

being provided on fines paid, levels of emissions, amounts of waste produced and recycled

waste. The response to this by external observers has also been positive (Gray and Owen,

1993). Where social disclosures are contained in the annual report, Neu et al., (1998, p. 269)

comment that “while the narrative material in the annual report is unaudited, its proximity

to the audited financial statements and the fact that the auditors are required to read this

information lends it a degree of credibility.”



Ball et al., (2000) undertook a study to assess how external verification statements appearing

in published corporate environmental reports promoted organisational transparency and

assisted in empowering external parties. They concluded that “overall the work undertaken

by verifiers varies considerably… and existing (verification) practice tends to mitigate

against the verifier reaching an informed opinion on the reporter’s environmental

performance and, therefore, adding value for an external constituency” (Ball et al., 2000, p.

19). A matter that was echoed by Moerman and Van Der Laan (2005, p. 384) who

commented that the verification statement of BAT’s social reports “suggest the report

presents a “true and fair” view …… however this audit process could not comment about

whether the activities of the organisation were socially desirable”.

Thus a need for verification statements is undisputed and the lack of thorough independent

third-party verification is a major factor in undermining environmental reporting

(Monaghan 2004). Indeed, the benefit of independent verification most frequently cited in a

study of sustainability reporting in Australia is that it “enhances reputation/credibility – this

was identified by 83 per cent of those responding” to the survey (Australian Government,

2005, p. 4).

Yet, companies face many difficulties in trying to establish credibility in many areas of

corporate reporting and responsibility (OECD, 2001, p.13):

“One of the sources of the problem is the lack of a well-developed, widely accepted framework of

supporting, intangible infrastructure (especially, standards on behaviour, auditing and reporting).

Such infrastructure, once developed, will make it more difficult for firms, auditors (or possibly even

NGOs) to “bluff” in this area. In effect, well-designed standards – by codifying (largely) accepted

norms for behaviour, management systems, audit and reporting – lower the room for manoeuvre by

companies and their auditors (social, environmental or financial), while still allowing them the

flexibility they need to respond to different business, ethical and legal circumstances”.

3.4.4 Legislation of social and environmental disclosures

Matten (2003) asserts that environmental politics is fraught with instances of ‘symbolic

politics’ (measures which are announced but are merely rhetoric or target a signalling

effect) that are at the very worst, a failure in politics, or at the very best, an initiating

processes which governments are unwilling or unable to do. More regulation about



corporate social behaviour (or self-regulation by the market) could address any shortfalls in

behaviour (Khor, 1992) yet this may be a moot point as Economou (1999) contends that

environmental policy importance has diminished, becoming more a metapolicy for debates

amongst institutional players. Grossman and Moran (2005, p. 20) recommend that

“enhanced government leadership and mandatory disclosures is likely to encourage the

development of a sustainable corporate culture”

Gunningham (2002) advocates a reward or carrot policy whereby the promised outcome of

better market performance produces better social and environmental behaviour than

regulations and legislation. Stakeholders also impact on legislation as these parties are the

ones that vote in governments which bring with them a platform of policies and are also

often swayed by public pressure to do something about environmental and social concerns

(Miller, 2002; Morrison 1991).

As the discussion on the legislative context for corporate environmental and social

reporting is quite extensive, further commentary is devoted to the topic in Chapter 6 and

Appendix 4.

3.4.5 Economic opportunities/Performance

Economics is a major driver for corporate environmental and social reporting (KPMG

2005), and corporations who are driven to maintain profitability and market share cannot

ignore the intense community concern for the environment. Several studies attest to the

economic drivers that impel company responsiveness (KPMG, 2005; Freedman and Patten,

2004, Banerjee, 2001; Halme and Niskanen, 2001; Patten and Nance, 1998; Blacconiere

and Patten, 1994; Jaggi and Freedman, 1992).

Positive issues (for example: waste reductions and recycling, safe working environments,

equal opportunity) and the negative impacts such as environmental accidents, fines,

workplace deaths, and the effect these have on financial performance have been the topic of

many studies. Several earlier studies (Rockness, 1985; Freedman and Stagliano, 1984;

Wiseman, 1982; Freedman and Jaggi, 1982; Ingram and Frazier, 1980; Abbott and

Monsen, 1979; Ingram, 1978; Fry and Hock, 1976), however, have had little success in

finding a strong and consistent correlation between corporate social reporting and financial

performance. Indeed as Freedman (1993) had observed, the results of these studies make it



difficult to assess, for example, pollution performance based on the pollution disclosures in

the financial reports. A decade later and a definitive link is not forthcoming, as Murray et

al., (2006) find that no direct relationship between share returns and corporate social and

environmental disclosures was demonstrated.

Other studies have indicated a positive relationship between financial report environmental

disclosures and market reactions (Freedman and Patten, 2004; Patten 2002b; Banjeree,

2001; Patten and Nance, 1998; Blacconiere and Patten, 1994). There is a positive

relationship between good environmental performance, economic profitability and good

disclosure (Al-Tuwaijri et al., 2004, p.467) and these would seem to go “hand-in-hand”.

An examination of the market returns for 25 petroleum companies (other than Exxon)

during the fifteen trading days following the Exxon Valdez accident was the focus of a

study by Patten and Nance (1998) who found that portfolio cumulative abnormal returns

following the oil spill were significantly positive. This is in contrast to previous studies

investigating the impact of catastrophic events of intra-industry companies: see for example

the study by Dowdell et al., (1992) which showed a decline in market price of the makers of

Tylenol after the Tylenol incident in 1982 and the study by Blacconiere and Patten, (1994)

which showed negative industry reactions of other chemical companies after the Union

Carbide accident at Bhopal, India.

Further opportunities or reasons for corporate social disclosures include enhanced

production processes in the form of better waste disposal, reduced production costs, and the

lowering of negative environmental impacts (Porter and van derLinde, 1995; Cordano,

1993; Lampe et al., 1991). Marketing of green products helps increase revenues, and cost

reductions can occur as a result of management/sale of waste product (Synnestvedt, 2001).

Some entities perform so well that they end up outsourcing environmental expertise, thus

boosting income as well as being environmentally aware (Cordano, 1993). Increased

product quality through the exploitation of ecological efficiencies is a benefit from

ecological sustainability (Shrivastava, 1995a). Economic factors relating to increased

budgetary funding affect the social disclosures of public entities as Burritt and Welch (1995)

found in their study of the environmental disclosures over a ten-year period (1984 and

1993) of Australian Commonwealth entities.



3.4.6 Corporate social disclosures and decision-usefulness

Gray et al., (1995) noted that in determining what motivates companies to undertake

voluntary social disclosures, many studies have looked at the decision-usefulness objective

of the reporting as a reason. The concept of decision-usefulness found in the Australian

accounting conceptual framework is discussed in some length in Chapter 4, however a

preliminary and short definition and explanation is given here:

• The AASBs, Statement of Accounting Concepts 2, (SAC 2) Objectives of General Purpose

Financial Reporting states that “general purpose financial reports shall provide

information useful to users for making and evaluating decisions about the allocation of

scarce resources” (para. 43).

• The Fédération des Experts Comptables Européens (FEE) comments that

environmental reporting is part of overall organisational communication:

“An environmental report is part of an organisation’s external communication and aims to deliver

a message (information) from a sender (company/organisation) to a receiver (reader/user). That

message should be useful to the user, Therefore, the prime consideration of the sender is to make the

information understandable, useful, and reliable.” (FEE, 1999a, p. 6).

Any discussion about the decision-usefulness objective, must also deal with compliance as

this is a relevant and major factor when users are making decisions and evaluating

information. As part of this compliance process, information would also be related to

externally-imposed requirements such as environmental protection legislation and work

safety legislation. Users should be able to presume that, “in the absences of disclosures to

the contrary, the reporting entity has complied with all externally-imposed requirements”

(SAC 2 para. 39), and this is shown through the disclosures in corporate social and

environmental reports and in the verification/assurance statements.

3.5 Form and content of social and environmental disclosures

Corporate social and environmental matters are being researched extensively and any

research in this area would examine questions relating to accountability, performance,

accounting, disclosures and reporting. The nature of these disclosures, the processes by



which they are actualized and their similarity (if any) to a reporting framework is a

question worth exploring in an Australian setting.

3.5.1 The importance of this research

The discussion thus far on voluntary social reporting, has been useful in identifying the

evolving commitment to voluntary social and environmental reporting. Whilst the full

picture of corporate social disclosures remains hidden, many studies as cited in this section

have:

1. investigated why companies company produce these reports, posing theories to explain

the reporting behaviour – by attempting to link reporting practices into a social

contract theory, or to link the information to performance goals, to reductions in risk

levels and many other reasons;

2. investigated the existence of social and environmental disclosures in annual reports;

and,

3. investigated the levels or amounts of social and environmental disclosures in annual

reports.

The question as to “why” companies produce corporate social reports thus remains

unanswered, although persuasive argument can be put forward to explain much of what is

reported. However, such an analysis of the reasoning behind these disclosures cannot begin

to be fully comprehended without firstly asking “what” is being disclosed and “where” and

“how” the information is being disclosed.

Many of the studies cited here have examined the social and environmental content of

annual reports and although this last ten years has seen an increase in the volume of

environmental and social disclosures, Australia has lagged behind the world (KPMG, 2005;

Maitland, 2003; Australian Government, 2005). Furthermore a noticeable trend in

reporting medium is apparent in the move away from disclosures in annual reports to

disclosures in separate or stand-alone reports (KPMG, 2005; Australian Government, 2005)

and in using the Internet to report (Andrew, 2003).

Thus an examination of “what” types of social and environmental disclosures are

contained in annual reports, in stand-alone TBL reports and in web-based disclosures



would be the preferred approach rather than merely looking again down a path trodden so

many times over – that of investigations based only on the content in annual reports.

Indeed, the annual report as a reporting medium may become outmoded as the Internet

becomes a more prolific information tool. “A revolution in corporate reporting is about to

engulf users of financial statements. Companies are due, as a result of Internet technology,

to report far more fully and frequently than ever before, stakeholders of all kinds will be

informed and empowered and the old fashioned glossy corporate report is due for its long-

awaited demise” (Gowthorpe & Flynn, 1997, p. 58).

The question as to “how” the information is disclosed is also part of this research and this is

where an investigation into the content of the disclosures will assess their conformity with

two reporting frameworks, firstly the GRI Guidelines and secondly the Australian

Conceptual Framework. The importance of this research lies in its contribution to

developing a fuller understanding of the complete picture of corporate social reporting

along with the “why” questions in relation to such reporting.

A further impetus for this research is provided by Crowther (2000, p. 1845) when he argues,

“corporate reports can now be viewed as nothing more than image-creation mechanisms”.

As such an in-depth analysis of the content of these reports (and of web-based disclosures)

compared against a suitable reporting framework (such the GRI Guidelines) is imperative.

Such an examination can provide an understanding into the reality of the social and

environmental performance of the company and perhaps forestall Crowther’s (2000, p.

1845) dire words: “As long as they (corporate reports) are consumed as real by their

recipients, then this consumption suffices to legitimate their existence and to disguise the

absence of any relationship with corporate activity”.

3.6 How are voluntary disclosures evaluated?

A major and important area in this research is the evaluation of the form and quality of

disclosures produced by companies. The users’ perceptions of both the statements and

measures used need to be taken into consideration, as too does the viewpoint of the

companies in preparing these disclosures. The research effort in this area has been diverse

as Griffin and Mahon (1997) found in their investigation of 51 studies. Their results showed

that the metrics that had been used (to measure financial performance and social

responsibility) totalled over 80 different types of performance measures and of these 57



were only used once. The measures of financial performance have been accounting-based

(for example: return on asset, return on equity, return on investment) or market-based (such

as: market returns, price-earnings ratios) with the former tending to be a better predictor of

social performance than the latter (Moore, 2001). Yet, Magness (2005) notes that the

inadequate definition of a disclosure factor is one explanation for the absence of statistical

significance in some studies. This questions the consistency in the research approaches and

also questions the reliability and validity of these measures in this area.

There are several approaches in evaluating voluntary disclosures and at times in linking

these disclosures to such factors as sustainability, awareness, change of heart, effect on

performance and effect on risk. These studies can be broken down into three approaches:

ranking the information for importance, rating/scoring the information disclosed, and

linking the information to some external measure such as market performance, profitability

etc. Each approach is briefly discussed below.

3.6.1 Studies that have “ranked” corporate social disclosures

Ranking studies are based on ranking the responses of management, shareholders, other

users, analysts and community stakeholders on the importance of the disclosures, whether

they are purely financial or include social and environmental information. The results of

ranking studies of corporate social and environmental disclosures have produced varied

results, ranging from perceptions that the information is better than nothing at all, and

other studies showing that the information was ranked as “moderately important”

(Belkaoui 1984; Firth 1984; Firth 1978).

An adaptation of ranking studies is to assess the company via a reputation index assigned

to the company from a panel of experts in finance, environmental matters, community

groups and the like who rank the data supplied for each company. In Australia there are

two major groups who undertake a ranking of Australian companies on their social and

environmental responsibility: The Age/Sydney Morning Herald Good Reputation Index (The

Age Index) and the RepuTex Index or rating by RepuTex which is “an investment research

agency, specialising in quantitative “enhanced risk” analysis” RepuTex (2007).

Yet, such rankings are viewed with concern by some authors. Cochran and Wood (1984)

argued that the use of an external index – for example, the Council of Economic Priorities



(CEP) index - assumes an association between other types of social performance and

pollution performance. In an alternative use of a reputation index, Hammond and Slocum

(1996) used Fortune magazine’s reputation index to consider the implications of the firm’s

reputation and stakeholder expectations. Their findings led them to conclude that firms,

which delivered financial results in accordance with stakeholders’ expectations, were

perceived as more socially responsible, based on the perceived link in management’s ability

to reduce costs.

Shane and Spicer (1983) cautiously remarked that reputation index rankings were not free

from bias and indeed the use of reputational scales adopted by Moskowitz (1972) rated

firms as “worst”, “honourable mention”, or “outstanding” would reflect this. The

measurement of social and environmental activities is extremely complex, even impossible,

and using differing techniques for measuring social performance (or perceived

performance) provides questionable results and restricts comparability (Ullmann, 1985).

3.6.2 Stock market utility studies

These studies attempt to investigate whether social disclosures are treated as information by

stock market participants. Effectively such studies are testing for any information effects on

share price behaviour. There are several important early studies in this area (Shane and

Spicer 1983; Ingram 1978; Spicer 1978) and findings ranged from no evidence to positive

evidence. Ingram (1978) contributed to the empirical research in this area by observing that

market reactions may vary according to the industry or company characteristics. Freedman

and Stagiano (1984) showed no positive or negative association of share prices with the

pollution measures being investigated.

Whilst it is still to be ascertained if a demonstrable relationship exists between social

disclosures and stock market performance, there are many studies that have used

accounting variables and stock market prices to evaluate the effects of social and

environmental performance (Jaggi and Freedman, 1992; Freedman and Stagliano, 1991;

Ingram and Frazier, 1983; Freedman and Jaggi, 1982; Abbott and Monsen, 1979; Fry and

Hock, 1976). The use of a disclosure score by Abbott and Monsen (1979) helped them to

determine corporate social responsibility. They were of the opinion that firms outlay

resources so as to create the impression of being socially sensitive, which could be in the

longer-term interests of shareholders. To test the theory they constructed a social



involvement disclosure score, which gave a total measure of social disclosure by using the

content analysis of annual reports and Ernst and Ernst11 studies. The disclosure score was

correlated with economic performance that was based on return on equity. Abbott and

Monsen (1979) found no association between economic performance and social

involvement.

3.6.3 Rating / Scoring systems

The use of rating systems is not unusual in evaluation of corporate social disclosures

(Clarkson et al., 1999; Warsame et al., 2002). The scoring system developed by Morhardt et

al., (2002) used three existing rating systems to evaluate the environmental and

sustainability reports of 40 of the largest global companies. The study by Warsame et al.,

(2002) took the environmental disclosures in the annual reports of Canadian companies

between 1985 and 1997, indexed the information into four sub-groupings then rated12 each

item. In the process of the investigation Warsame, et al., (2002) noted that some companies

had clearer presentation style with well-organised data thus the authors modified the rating

system they used to recognise this “superior style of presentation”.

Another way of examining voluntary disclosures is to use the method of page proportion,

page counting or sentence counting (see Jupe, 2005; Campbell, 2000, Unerman, 2000;

Jantadej and Kent, 1999; Grey et al., 1995b; Gray, Kouhy and Lavers, 1995; Patten, 1995;

Gibson and O’Donovan, 1994), of social disclosures. Although successfully used by other

researchers to ascertain the level of voluntary disclosures the results do not give a definitive

picture of the content and quality of the disclosures. The sentence count method “simply

quantifies environmental disclosures in annual reports” (Jantadej and Kent, 1999, p. 84) the

issue of the quality of the disclosures would require further investigation.

An alternative method that is used in examining voluntary social disclosures is the use of a

word-count method (Wilmhurst and Frost, 2000; Deegan and Gordon, 1996; Deegan and

11 Ernst & Ernst’s (1978) investigation of environmental disclosures was also based on financial information, quantitative information, and qualitative information.

12 The numerical rating that was assigned by Warsame et al., (2002, p. 27) depended on the existence and

specificity of the disclosure. “A score of 0 was assigned for no disclosure; 1 was assigned for the mention in general terms; a score of 2 was assigned if disclosures were company specific but not quantitative, and 3 was given for disclosures that were company-specific and described quantitatively”.



Rankin, 1996; Zeghal and Ahmed, 1990). The benefit of this approach is that it records

only those disclosures in which an intellectual investment has been made (Campbell et al.,

2003) rather than merely counting pages. Yet, sentences and words may ignore such

pertinent content as graphs and charts (Al-Tuwaijri et al., 2004) and greater quantity of

disclosures does not imply higher quality disclosures (Gray et al., 1995b; Zeghal and

Ahmed, 1990).

Work has also been done using disclosure-scoring methods derived from content analysis,

whereby the researcher identifies the social and environmental issues and then analyses and

evaluates the disclosure with a score (see for example Davis-Walling and Batterman, 1997).

Studies using this method have incorporated the application of frameworks such as Global

Reporting Initiative (GRI) reporting guidelines (to identify the social and environmental

disclosures) then scored the disclosures accordingly (Morhardt et al., 2002; Morhardt, 2001;

Kolk et al., 2001; and Kolk, 1999) or otherwise determined the social and environmental

matter and scored the disclosures accordingly (Al-Tuwaijri et al., 2004).

3.7 Other sources of social and environmental information

Most of the analysis thus far has concentrated on the annual report as the major means of

disclosing social and environmental information. Companies do, however, have access to a

wider source of media with which to communicate information to shareholders. In fact

other sources such as television, brochures, advertisements, item-specific reports are at

times preferable for they tend to be less costly to produce and information can focus on the

issue the company is trying to get across. Zeghal and Ahmed (1990) looked at corporate

social disclosures found in various sources: annual reports, brochures and advertising

pamphlets. Their study looked at the disclosures over 1981 and 1982 of the six largest

Canadian banks and nine largest petroleum companies and found that the full picture was

not always available in the annual reports. Similar findings have been noted by others (see

for example Adams, 2004 and Chu, 2001). Brochures and advertisements sometimes gave

longer narrative and targeted disclosures to suit the reader expected to read the brochure or

specifically targeted for the advertisement. Zeghal and Ahmed (1990) concluded that the

study was limited in scope and that there was ample room for further research.



The most recent version of the KPMG International Survey of Corporate Social Responsibility

Reporting 2005 shows that in the surveyed 1600+ companies, corporate social responsibility

reporting has been steadily rising since 1993 and has “increased substantially in the last

three years” (KPMG, 2005, p. 4). The results of the 2005 KPMG survey showed that 53%

of the top 250 companies of the Fortune 500 companies produced separate corporate social

responsibility reports with quantifiable data.

3.8 The emergence of Triple Bottom Line reporting

As stated earlier the term “Triple Bottom Line Reporting” gained momentum when it was

used by John Elkington (1997) in his book Cannibals with Forks: Triple Bottom Line of the 21st

Century Business. Yet the move towards social awareness and acceptance of corporate social

reporting and TBL reporting came slowly. Long after Rachel Carson’s Silent Spring was first

published in 1962, which was a scientific exposé of the effects of indiscriminate pesticide

and insecticide usage on the natural environment, reporting of oil spills and toxic effluents

has become mainstream for many large companies. Carson’s (1962) seminal work was the

impetus for the nascent environmental movement to rally around. Environmental

awareness was further aided by a group of respected scientists going under the name “The

Club of Rome” who, in 1972, released a report entitled Limits to Growth. Their report

predicted that society was heading for a collapse due to unfettered population growth,

industrial expansion, depletion of natural resources, environmental destruction and food

shortages. That same year, the United Nations held its Conference on the Human Environment

at which developing nations identified the need for economic (and social) justice was as

necessary as the need for environmental protection identified by the developed nations. The

notion of sustainable development – with its entwined goals of environmental protection,

social justice and economic equity – was born.

In the decades since, environmental and social awareness have become mainstream

concerns within the community. This period has also seen the enactment of environment

protection authorities in most western nations. In Australia, Environmental Protection

Authorities in all states – Victoria in 1970, Western Australian in 1986, New South Wales

in 1991, South Australia in 1993 and Queensland in 1994, slowly emerged. Thus,

regulatory muscle has been added to aid in the public scrutiny of companies, albeit limited

to the environmental end of the equation.



Community response and backlash against companies for producing unsafe products,

causing environmental damage and human rights abuses has also become apparent over

the past decades. The 1989 Exxon oil spill when the Exxon Valdez ran aground in Prince

William Sound in Alaska releasing 11 million gallons of oil saw an immediate response,

particularly amongst consumers. Customers switched brand loyalty to other petrol

suppliers, with the subsequent reduction in Exxon share prices for almost a decade.

Concerns about such negative environmental impacts by companies have been noted and

incorporated into in the CERES13 Principles (CERES 1992) after the Exxon Valdez

accident in 1989:

• Protection of the biosphere;

• Sustainable use of resources and energy conservation;

• Reduction and disposal of waste;

• Production of safe products and services;

• Environmental restoration and risk reduction;

• Management’s commitment to environmental and social matters; and,

• Verification of information via audits and external reports.

In the U.S., another oil giant, Texaco, was forced into paying $176 million in an out-of-

court settlement to 1,400 employees alleging racial discrimination (Elkington, 1999). Royal

Dutch/Shell felt the public wrath in 1995 when it was forced by public opinion to abort the

dumping of the Brent Spar (an oil storage and off-loading platform) in the deep North

Atlantic (Irving et al., 2002). Negative public opinion was reinforced by Shell’s perceived

complicity in the arrest and subsequent execution of Ken Saro-Wiwa, an opponent of Shell

Nigeria’s operations where significant negative environmental and social impacts were

being inflicted upon the Ogoni people.14

13 CERES stands for the “Coalition for Environmentally Responsible Economies” 14 In 2004, a Shell-funded report found that the company “feeds” the violence in the region and has

recommended closing its Nigerian operations by 2008. Shell have decided not to implement the recommendation, but instead propose to “help reduce conflict by changing our operating, security and community development practices” (The Age Business section, 11 June 2004, p. 5).



Closer to home, the Australian Federal Government passed legislation in 1983 to prevent

the Hydro-Electric Commission of Tasmania from building a dam on the Franklin River.

This came after public protest at the dam site and national media coverage, and resulted in

the area being given World Heritage listing (Law, 2001).

3.8.1 Reporting begins

The concept of corporate social responsibility and corporate social reporting was slowly

emerging, and coming together with the inclusions of stakeholders (not only shareholders)

which were developing into acceptable business practice in the USA and the UK (Wheeler

and Elkington, 2001; McIntosh et al., 1998; Cannon, 1992). A series of political pressure

“waves” have shaped the environmental agenda (Elkington, 2004, p. 7) and these changes

in social attitudes have led to a change in the way that financial reporting is viewed.

Once the traditional domain of accountants and traditionally focussed on financial matters,

the annual report and the reporting parameters have expanded markedly. According to the

NSW Environment Minister Bob Debus (Waste Management and Environment, 2003) “the

environment has gone from the front page to becoming a mainstream value for much of the community

… This change is part of a wave of environmental concern across the western world which is driving

concepts like triple bottom line action, covering a company’s environmental and social impacts.”

The Triple Bottom Line reporting process has slowly emerged from this “wave of

environmental concerns” and does not look like going away. GRI (2004) and Higgins

(2001) note an increasing number of organisations are using TBL reporting15, whilst Watty

and Evans (1997) conclude that accounting for the environment is not likely to diminish, as

its impact is not prone to subside. Furthermore, after presenting a summary of a number of

surveys of environmental and social reporting practices around the world, Wheeler and

Elkington (2001, p. 4) conclude that “in just five years, social reporting had moved from a

fringe activity pioneered by the socially conscious but main-stream companies into a

credible and serious practice embraced by a number of major corporations”.

As a practice TBL reporting has emerged from the separate areas of social reporting and

environmental reporting and purports to meld these areas with the economic functioning of

15 For example the number of Australian companies using the 2002 GRI Guidelines numbered 54



a company. The progression has not been an easy one, nor has it been an overnight

occurrence. In most of the western nations, the economic disclosures of companies have

always taken the dominant position in corporate reports, as they are seen as a means of

showing managerial accountability and stewardship to the owners of these companies. A

feature of this movement towards TBL reporting has been the fact that is driven by the

private sector and by companies (GRI, 2002) and not by governments.

Figure 3.2 shows the three levels of corporate reporting. Level 1 shows the focus on the

financial resulting in traditional annual reports. At this level, environmental and social

disclosures are either ignored or treated in a piecemeal approach, typically with some

information about a company’s commitment to its customers, care and training of its

employees and information about public/community benevolence. At this level the

quantity of financial information and disclosures far exceeds the other information.

This then extends into the second level, Level 2 of Figure 3.2, with social and

environmental information or a basic triple bottom line reporting which is presented as a

corporate report through either modified annual report or separate social and

environmental reports. Financial, environmental and social disclosures are all given equal

weighting in terms of importance, yet in many instances as currently practiced this from of

reporting does not link the three parameters. Each aspect of the company’s performance is

reported separately and generally no link is made between the three areas.

The final level, Level 3 of Figure 3.2, shows the progression of triple bottom line reporting

into an integrated approach with each component - economic, social and environmental -

interacting with the others and blending into a sustainability report which shows not only

the company’s past performance but evaluates consequences.

This is something that the GRI Guidelines are aiming to do (GRI 2002, 2004). This type of

integrated report can then be used to assists the company in developing and implementing

sustainability solutions. Goldberg (2001) notes that TBL reporting serves two objectives.

Firstly as a means of integrating decision-making within businesses and secondly as a

vehicle for businesses to render account of their activities to a wide group of stakeholders.

companies as presently listed on the GRI website (GRI, 2005).



Figure 3.2 The distinction between the traditional reporting and TBL forms

Financial

Social

Annual Report

Level 1Traditional corporate reporting with prominence of financial reporting over social and environmental reporting

Environmental

Financial

Environmental

Social

Corporate Reports

(Annual and Environmental

Reports)

Level 2TBL reporting as generally practised and perceived. All three parameters are equally weighted forreporting yet are still very separate

Financial

Social

Annual Sustainabilty

Report

Environmental

Integrated Corporate Planning

Sustainability

Level 3TBL reporting including sustainable development decision-making. The three parameters are integrated and interwoven into one Sustainability Report



In many instances, under the present format as typified in Level 1 of Figure 3.2, users may

not be able to assess the extent, to which their company is socially minded and/or careful

of the environment. Simply looking at an entity’s financial progress is insufficient to

ascertain performance against targets in a range of other areas. TBL reporting would seem

to be the answer. The approach of taking financial profit and linking it with social and

environmental reporting is a means of directly tying it to sustainable development.

There are doubts in the viability of linking the 3Ps16 under the present economic, social and

accounting systems. Squire (1994) notes that harnessing the conflicting agendas of profit

maximisation and wealth maximisation with sustainable practices seems to be unattainable,

yet there is some basis for hope if society and business embrace a new paradigm based on

social consciousness. Squire (1994) believes that this new consciousness will be the way to

balance environmental and industrial needs. Gray et al., (1988) and Gray et al., (1987)

contribute to the debate by arguing that corporate social reporting has no unifying

paradigm and that when the traditional accounting baggage is used to explain the issues

they are exposed for the “flaccid paraphernalia that they are” (Gray et al., 1987).

Governments and businesses around the world are striving for this balance and are placing

a significant emphasis on sustainable development. The first steps in this direction were

made in 1987 when the Brundtland Commission - formally the World Commission on

Environment and Development (WCED), known by the name of its chairwoman Gro

Harlem Brundtland, was convened by the United Nations in response to the 1983 General

Assembly Resolution A/38/161 – “Process of preparation of the Environmental

Perspective to the Year 2000 and Beyond”.

The World Commission on Environment and Development published a report entitled

“Our common future” and it developed guiding principles for sustainable development, as

it is generally understood today. The Brundtland Report called for a strategy that united

development and the environment – this in now described by the more common term

“sustainable development”. Sustainable development:

16 The abbreviation “3Ps” was explained on page 40 and as noted then, Elkington (2004) explains that TBL Reporting is also commonly referred to as the 3Ps of reporting, representing reporting for people, planet and profits.



• “meets the needs of the present without compromising the ability of future generations to meet their

own needs” (p8), and

• is “a process of change in which the exploitation of resources of investments, orientation of

technological development, and institutional change are made consistent with future as well as

present needs” (WCED, 1987, p9).

This is where the latest incarnation of corporate social responsibility reporting – TBL

reporting – is different from previous attempts at social and environmental disclosures. As

noted earlier, TBL reporting manifests in the form of qualitative and quantitative

summaries of the economic, environmental and social performance of the company. Early

forms of corporate social disclosures were primarily based on qualitative information with

little by way of quantitative disclosures (Guthrie and Parker, 1990; Guthrie, 1982;

Trotman, 1979). The information disclosed was also not considered very important

(Deegan et al., 1995; Coombes and Davey, 1994) or data was not collected by the company

(Mathews and Davey, 1996).

The progression from traditional financial information as the main component (if not the

only component) towards reporting on all three factors, profit, planet and people may have

begun as a novel idea but is now becoming increasingly fashionable (Norman and

MacDonald, 2004). A reason why this approach has taken on such a universal acceptance

could be the fact that there is still a focus on profit (satisfying the economic needs of the

organisation), and also maintaining that organisations consider the “cost” of this financial

profit on both social resources and environmental resources. TBL reporting which has been

championed by such organisations as Global Reporting Initiative (2002) and

AccountAbility avoids the problems of finding a new reporting framework has the potential

to fit into the traditional accounting reporting mechanism whilst taking a stakeholder

viewpoint into consideration.

Even with more extensive use by major corporations around the world (AT&T, Dow

Chemical, British American Tobacco, Shell, Ford, British Telecom, General Motors,

Toyota, BHP Billiton) and many smaller corporations, there is still no mandated regulation

nor any standard for TBL reporting. With a growing number of companies now issuing

annual reports on social and or environmental performance (GRI, 2002; Trust Us, 2002;

CERES, 2002; see also Appendix 1 showing Australian companies using TBL reporting),



many reporting entities are left to make do with inadequate tools leading a wide variety of

reporting practices and numerous ad hoc approaches being adopted by companies.

A lack of reporting framework or guidelines for social and environmental matters is

apparent and the present Accounting Conceptual Framework is not filling the void.

Further, the lack of regulation or of a reporting standard in the these areas results in a

variety of makeshift approaches, although there has been some guidance in the form of a

handful of current best practice reporting developments - two of which are nominated

below:

• A Framework for Public Environmental Reporting: An Australian Approach (March 2000). A

discussion paper by Environment Australia providing detailed elements that could be

included in a corporate environmental report.

• Sustainability Reporting Guidelines on Economic, Environmental and Social Performance

(CERES, 2002b; CERES, 1999), set up by the GRI, convened by CERES. These are

commonly referred to as the GRI Guidelines.

The suite of indicators developed by Environment Australia in 2000 was similar to the

environmental measures included in the GRI Guidelines. The GRI Guidelines as a

reporting framework, however, were made more comprehensive by the inclusion of

financial and social measures. To date, the Guidelines for environmental and corporate

social reporting represent one of the most comprehensive and widely accepted suite of

indicators and are used as a basis for reporting by a vast number of the Global 25017

companies (KPMG, 2005; GRI, 2005). The way the GRI Guidelines are structured should

enable a better balance of information about environmental, social and financial

information.

3.9 Conclusion

The discussion in this chapter has reviewed the literature in relation to corporate social

responsibility for both social disclosures and environmental disclosures. As much of the

social information has been predominantly reported in the annual report or as an

17 The Global 250 companies consist of the top 250 companies of the Fortune 500 companies.



addendum to the annual report, most of the studies reviewed in this chapter centred on the

annual report as a reporting medium. Additionally, a review of the commitment to

corporate social reporting and the reasons behind these types of disclosures was necessary

to highlight the importance and reliance of these past investigations into the content of

annual reports. Although the annual report is an important reporting mechanism it is not

the sole source of social and environmental information, and as such an evaluation of these

disclosures would not be complete without an investigation of other media. Therefore, the

early discussion into the drivers for corporate social reporting was part of the route taken to

the “what” and “how” questions looking into the content of social reporting information

shown in annual reports.

The discussion in this chapter then progressed into how corporate social disclosures are

evaluated, and the various techniques used to evaluate the information disclosed. As

companies now include social/community and environmental information in annual

reports, separate reports and on the Internet, an evaluation of the content of the

information in these areas is critical to determine the level of reporting being undertaken; to

ascertain whether these disclosures are based on a reporting framework; whether firms

provide verification of the information disclosed; and whether the disclosures are consistent

across industry sectors.

Finally, the review in this chapter also explored the unique fusion of economic, social and

environmental disclosures, culminating into a new reporting practice of Triple Bottom Line

Reporting. With this in mind the remainder of this work will undertake the following:

• a review of the regulatory framework for accounting information and social and

environmental reporting, to ascertain the level of required reporting that is imposed on

companies,

• a review of measurement concepts for inclusion into TBL reporting, so as to enable an

understanding of the quantitative data that may be found in TBL reports,

• an investigation of the global push that has led to TBL reporting, and,

• an analysis of social and environmental information/TBL reporting undertaken by

Australian companies in annual reports, specific social reports (usually separate to the

annual report), and web-based disclosures, taking the form of Triple Bottom Line Reports,

Environmental Reports, Social Reports, Sustainability Reports and the like.


Chapter 4: Accounting regulation and corporate social reporting - Page 79

CHAPTER 4

Accounting regulation and corporate social reporting

4.1 Introduction

The purpose of this chapter is to undertake a detailed analysis of the relevant regulatory

and conceptual accounting frameworks for corporate social and environmental reporting.

More specifically, the chapter will contain a discussion into the present theoretical base for

the definition of the elements of financial reporting and assess whether the present

definitions are versatile enough to allow for the inclusion of non-financial matters to be

recognised and disclosed. A close inspection on such matters as to whether definitions of

accounting elements can be used when considering for example, environmental assets,

environmental liabilities, and environmental contingencies will ensue with the aim of

arriving at a conclusion about the suitability of the present accounting framework for

reporting social and environmental matters.

4.2 Social matters and financial reporting

The problem that we face under the existing reporting practice is that environmental and

social matters are not generally accepted as accounting transactions and are generally not

taken into consideration when preparing financial reports. Even when companies include

environmental information in their accounts, these are either down-played through

discounting (Gray, Owen and Adams, 1996) or do not really reflect the ecological impact

(Deegan, 2005). Furthermore companies have been found to hide or ignore debt or

commitments related to environmental matters (Sutherland, 2002; Chu, 2001). In some

cases the content of the disclosures on social and/or environmental matters generally takes

the form of qualitative rather than quantitative information (Alnajjar, 2000) and where

there are financial environmental disclosures these tend to be less predictable than general

environmental disclosures (Bewley and Li, 2000).

Yet it is social and environmental factors that substantially affect the opportunities of

companies and impact on their risk levels as well (Rivera-Camino, 2001; Foulon et al.,



2000; Hart and Ahuja, 1996; Shrivastava, 1995). Authoritative accounting bodies1 around

the world recognise this and have begun a dialogue about a wider accountability owed by

companies to stakeholders. It is foreseeable that professional accounting bodies2 and

government agencies spurred on by public opinion, lobby groups and even by some

companies may issue new reporting standards with a focus on environmental and social

issues.

Several decades ago, the 1960’s and 1970’s saw a massive effort put into developing

accounting systems that would be better suited to reporting in inflationary economic

situations. Historical cost accounting was touted as outdated and redundant, yet to date it

remains intact, with some slight modifications. Henderson et al. (1992) wrote that “the

absence of widespread change suggests that either the hypothesis was invalid; that a new

paradigm is still emerging; or that the profession eventually decided that the historical cost

system was superior to the alternatives and that it emerged from the crisis as the dominant

accounting paradigm”. Using traditional accounting, some environmental and social effects

may be difficult to value in dollar terms, for example the sight and smell of burning

chimneys, the costs of depression, the impact of increased stress on the workforce, the rates

of pollutants discharged, and the impact on wildlife. Social and environmental matters are

not likely to diminish, and accounting for these matters is not a phase or trend that is likely

to disappear.

4.3 Objectives of financial reporting

The annual report is not only a document concerned with financial stewardship to satisfy

statutory regulations, but also includes public relations commentary and voluntary

disclosures about social (people) and environmental matters. Yet accounting standards and

statements progress slowly in matters relating to social and environmental transactions and

disclosures. Since the late 1970’s the major authoritative accounting bodies, have stated

that the objective of financial reporting is to provide information that may be employed by

the users of these reports to make decisions about their relationships with the company.

This could be widely interpreted to include social and environmental matters as well, that is

TBL reporting, but it is not implemented in this way.

1 The Australian Accounting Standards Board in Australia, the International Accounting Standards Board

and in the US the Financial Accounting Standards Board.



The framework for accounting could be used to provide a basis for the inclusion of social

and environmental transactions along with economic transactions in corporate reports.

With the assistance of external auditors the accounting framework would uphold the

information as relatively bias free, thus showing and maintaining accountability and

promoting credibility.

Table 4.1 shows the various conceptual approaches outlining the objectives of financial

reporting. The objectives of financial reporting are generally described by the Australian

Accounting Standards Board (AASB), the International Accounting Standards Board

(IASB) and the Financial Accounting Standards Board (FASB) as reports that are useful in

providing information to a wide range of users. All three examples do not limit the

purported usefulness of financial reports to one group of users - the shareholders. As may

be seen from Table 4.1, the “users” of financial information has expanded beyond the

shareholder to include a wider audience, the stakeholder.

Furthermore there is a secondary objective attached to financial reporting, which is the

discharge of accountability by management to users of these reports. This further enhances

the quality of the information and may encourage a greater level of responsibility and

credibility to the actions of management, when they are seen as accountable.

2 CPA Australia currently includes TBL reporting as one of the topics in its professional training modules.



Table 4.1 Objectives of Financial Reporting

Australia (AASB)

• Statement of Accounting Concepts 2, (SAC 2) Objectives of General Purpose Financial Reporting states that “general purpose financial reports shall provide information useful to users for making and evaluating decisions about the allocation of scarce resources” (para. 43). This is a primary objective of financial reporting

• Secondary objective: management to present information that will assist in discharging their accountability (SAC 2, para. 44).

• Additional qualitative requirements on information: to be relevant, reliable, comparable and understandable (Framework , para 24).

• (None of these are mandatory and cannot be imposed upon companies).

• Section 2973 of the 2001 Corporations Act states that “the financial statements and notes…must give a true and fair view4 of…the financial position and performance of the company…or disclosing entity”.5

• The Australian Accounting Standard AASB101 Presentation of Financial Statements clearly adopts the “presently fairly” approach, as para. 13 of the standard states: “A financial report shall present fairly the financial position, financial performance and cash flows of an entity”

International Accounting Standards Board (IASB)

• “The objective of financial statements is to provide information about the financial position, performance, and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions” (IAS 1, IASC, 1998).

• This is constrained to financial information, yet it does note the existence of a wider range of users not only shareholders.

United States (FASB)

• Users of financial reports are not limited to investors and potential investors, but could be include the general public: “Efficient and profitable use and protecting … (users)… to the extent possible from unfavourable economic impacts in the economy such as … social changes. To the extent that management offers securities of the enterprise to the wider public, it voluntarily accepts a wider accountability to prospective investors and to the public in general. Society may also impose broad or specific responsibilities on enterprises and their management” (FASB, 1995, SFAC1, para. 22).

3 Section 297 has a focus on the financial position and financial performance of the company allowing report

preparers to close their eyes to the social and environmental features of performance and position. 4 The language of the legislation is that it requires only “a” version of the true and fair view, not “the” true

and fair view, leaving room for interpretations as to which ‘true’ version of facts is to be presented. 5 There is no definition in the Australian legislation for what “true and fair” actually constitutes. McGregor

(1992) noted that the “true and fair view” had not been tested in court thus no one really knew what the term meant. McGregor (1992) advocated that we dispense with the concept in favour of the idea that financial reports “present fairly” the financial position of the company, in accordance with accounting standards.



4.3.1 Accountability and credibility

Accountability of management makes for a very substantial argument for the inclusion of

environmental and social information in financial reports. Lehman and Shanahan (1994)

note that accountability is a mechanism to reveal a company’s social relationships from the

perspective of the company as a member of the community. They explain that this type of

accountability or ‘consciousness’ will result in a change from preparing traditional financial

reports, to preparing “accounts which recognise and acknowledge the impact a

corporation’s actions may have on other members of the community” (Lehman and

Shanahan, 1994, p. 27). In a further elucidation on accountability, Lehman (1995) wrote

that it establishes and articulates the accountability relationship between the company and

society and that accounting must provide fairness of reporting in a wider social context.

The parties to a transaction would not merely be the company and a debtor, creditor,

lender or customer but society as a whole. Thus both traditional and non-traditional or

emerging stakeholders have a claim on the issue of sustainability. At the very extreme,

Elkington (1999) goes so far as to include ‘surrogate stakeholders’, which he states are not

traditionally represented and may more widely be defined to include the planet’s biosphere,

the world population, and future generations.

External auditors mandatorily audit the financial reports of most public companies, giving

the information presented some credibility. This process to verify the application of

approved accounting standards to the financial reports and to attest to the truth and fairness

of the accounts may really be of limited use (see for example Footnote 5 for a brief

discussion of “true and fair”). The lack of a reporting standard for social matters may then

lead to a greater loss of credibility as users may see the reporting of social matters as a

public relations exercise or merely putting the best light on environmental performance

(Aeppel, 1993). Yet, credible assurance would likely appease some stakeholders (Beets and

Souther, 1999).

Reporting for a wider social context is an issue that has had much coverage and debate as

to whether these further disclosures are added to existing financial statements or are

presented as separate social reports. The main disadvantage of placing social and

environmental information into separate reports is that this may devalue their use and give

the impression that information is not as useful as financial information and not to be relied



upon. The Fédération des Experts Comptables Européens (FEE) comments that

environmental reporting is part of overall organisational communication:

“An environmental report is part of an organisation’s external communication and aims to deliver a

message (information) from a sender (company/organisation) to a receiver (reader/user). That

message should be useful to the user, therefore, the prime consideration of the sender is to make the

information understandable, useful, and reliable.” (FEE, 1999a, p. 6).

The gaps in legislation, the gaps in reporting requirements imposed by approved accounting

standards and choices in these same accounting standards means that the economic

information (and also social and environmental information) may be presented in a way

that best suits management. Yet as regards social and environmental matters, the latter are

tending to fare better than social matters in some areas of accounting — the biggest

advances has been in environmental valuation, with debate still occurring over the

valuation of social impacts (Richardson, 2004). Thus even as standard setting bodies and

regulatory bodies have attempted to ensure that unbiased information is made available to

stakeholders with more disclosure requirements, little has been done to promote or

encourage social and environmental reporting. In a report to the Victorian parliament on

environmental accounting and reporting, PAEC (1999), they put forward the

recommendation that

“the government establish a taskforce, with representatives from the professional accounting bodies and

the accounting and auditing standard setting boards and relevant stakeholders, to develop basic

standards for verification of environmental performance reports for publicly listed companies” (PAEC,

1999, p. 148).

Without a suitable frame of reference, stakeholders are left to deal with corporate social

information that may not be as unbiased, truthful, fair, comparable and complete as the

financial information the company produces.

4.4 Accounting regulation of environmental and social matters

4.4.1 Australia

There is little by way of required environmental and social disclosure in the Australian

reporting framework. Corporations are required to disclose environmental information as it



relates to environmental regulation as part of the Directors’ Report (see Section 299(1)(f) of

the Corporations Act 2001) and give details of the entity’s performance as to this, but there is

no requirement for financial information on these matters to be disclosed. The Corporations

Act 2001 states that the Annual Directors’ Report must give information about the

following:

“If the entity’s operations are subject to any particular or significant environmental regulation under a

law of the Commonwealth or of a State or Territory – (the report must) give details of the entity’s

performance in relation to environmental regulation” (Section 299(1)(f)).

This is duly noted by reporting entities, but any reasonable level of detail in information is

mostly non-existent, with many companies simply noting whether an environmental law

exists for their industry sector and if so, that they have complied with it. The company does

not have to report on how such compliance has been achieved or whether environmental

performance has been achieved against targets. Table 4.2 shows the information that must

be disclosed and reveals some of the ambiguities present in the legislation.



Table 4.2 Analysis of Section 299

Legislation

Section 299

The Annual Directors’ Report must, “if the entity’s operations are subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory – give details of the entity’s performance in relation to environmental regulation”

Commentary Resolution re problems - Practice Note 68

• This section seeks to make companies more accountable for their environmental performance

• The information is not meant to relate to the financials of the company.

• The wording is ambiguous

• Criticism has been aimed at the words ‘particular’ and ‘significant’ as neither is defined in the Law.

• Accounting concept of materiality may be an issue

• The requirements would apply where the entity is subject to conditions for the purpose of environmental legislation or regulation

• Such information as required would be more general and not as technical as compliance reports required by an environmental body

• The requirements are not specifically related to financial disclosures but related to performance in relation to environmental regulation.

• Accounting concepts of materiality may not apply and thus amounts may be quite small, but would still need to be disclosed

• The information required in the report can in no way be reduced as a result of information already having been supplied to the relevant environmental authority

In terms of accounting standards that may touch on social and/or environmental matters,

Australia has some standards that may be applicable commencing from the year 2005.

Table 4.3 lists the handful of standards that may give some information about social and

environmental matters. As Table 4.3 shows, the information relating to social matters is

based mainly on disclosures about amounts payable for superannuation plans and bonuses,

with no information about other matters. In terms of environmental matters, the standard

AASB6 gives some information, but again these disclosures do not give any great detail of

the environmental impacts of the companies.



Table 4.3 Australian Accounting Standards with content that may relate to social

and environmental matters

Standard

Number

Standard Name Information

AASB6 Exploration for and Evaluation of Mineral Resources

Requires information about restoration costs for damage done to the environment

AASB119 Employee Benefits Requires information about profit share or bonus arrangements if required for specific employees (eg AASB124 related parties and directors) or for other standards (eg AASB101 requiring disclosure of employee benefits expense)

Requires financial information about defined benefits superannuation plans to be disclosed

Requires some disclosure of trends, such as medical cost trend rate (see para 120(h)(v))

AASB137 Provisions, Contingent Liabilities and Contingent Assets

Gives examples of matters such as provisions to be recognised and disclosed for matters relating to legal or constructive obligations, such as:

• clean-up costs of contaminated land

• warranties on products

but, not for example staff training for new tax legislation (see AASB137, Appendix C)

The standard, AASB6 Exploration for and Evaluation of Mineral Resources, contains a limited

amount of what could be termed environmental information which should be included in

the accounts for the restoration or rehabilitation of mine sites. As stated in AASB6,

exploration and evaluation assets shall be measured at cost at recognition (AASB6 para 8).

Elements of such costs are detailed in the Standard and in particular are seen in paragraph

11 which states:



“In accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets an entity

recognises any obligations for removal and restoration that are incurred during a particular period as a

consequence of having undertaken the exploration for and evaluation of mineral resources.”

Previously the old standard AASB1022 (which was effective until 31st December 2004), had

required that where there is an expectation that an area of interest (mine site) is to be

restored, then the cost of restoration work should be accounted for and incorporated in all

phases of mining. The AASB1022 Standard had not been clear about what sort of

disclosures were required for rehabilitation costs and in order to clarify the matter the

Urgent Issues Group (UIG) released Abstract 4: Disclosure of Accounting Policies for Restoration

Obligations in the Extractive Industries in August 1995. This Abstract clarified some issues and

extended the disclosures of rehabilitation obligations to include information about the

assumptions and judgements made by the reporting company in determining those

obligations6. There are also some listing requirements imposed on companies wishing to be

listed on the Australian Stock Exchange. These requirements are, however, primarily

targeted at specifically the extractive industries.

4.4.2 United States of America

In the early 1990’s the US Financial Accounting Standards Board (FASB) began addressing

environmental accounting concerns through its Emerging Issues Task Force (EITF). Two

publications from the EITF were produced during this period as guidelines on the

treatment and capitalisation of costs for environmental contamination and treatment of

environmental liabilities. Both these publications gave general information about these

issues, but were also focussed on accounting issues related to the Superfund 7 legislation.

Several studies (see for example Zuber and Berry, 1992; Johnson, 1993) have cited the

FASB and the document SFAS No. 5 Accounting for Contingencies as a basis for requiring

environmental disclosure.

This is not however strictly correct, as neither this document nor any other accounting

standard the FASB has subsequently released has specifically addressed environmental

reporting. (Patten, 2000).

6 This will be discussed further in Section 4.4.1.1. 7 In the US, Superfund was created through the Comprehensive Environmental Response, Compensation,

and Liability Act of 1980 and was reinforced and extended in 1986 with the passing of the Superfund Amendments and Reauthorization Act (1986).



Yet the FASB is currently undertaking a review of the conceptual framework, in a joint

venture with the IASB. The resultant document, Preliminary Views on an improved Conceptual

Framework for Financial Reporting (2006) includes commentary that the future stages of the

project will look into boundaries of financial reporting and determine whether social and

environmental accounting will be included (FASB, 2006).

The Securities and Exchange Commission (SEC) in the US is the only regulator to require

the disclosure of environmental information and has done so since 1982 (Bibler, 2002). The

SEC issued Staff Accounting Bulletin No. 92 (SAB 92) in 1993 which, amongst other

matters, required certain disclosures that were similar to environmental and product

liability contingency information that may have affected the company’s financial

statements (Roberts, 1995) and may have been required by other standards. The SEC

requires disclosure for all material effects from compliance with environmental regulation

on such matters as capital required by the company, earnings, expenditures, and the

competitive position of the company (see SEC Item 101 of regulation S-K as regards

compliance with environmental laws and SEC Item 103 of Regulation S-K as regards

material pending legal proceedings – including those arising from environmental laws).

For economic reasons, a firm’s primary concern about environmental costs is likely to be

the impact on competitiveness rather than an altruistic concern for sustainability.

Nevertheless, a reduction in environmental costs, be they based on economic or sustainable

matters, will still have a positive result – less of an impact on the environment. Thus a win-

win situation arises for both the company and society. Companies concerned with the effect

environmental restoration costs and fines will have on their business, would be prompted to

act in a more sustainable manner.

There is some debate as to whether the Bulletins issued by the SEC (which may not be

official regulations) have a signalling effect and thus influence corporate environmental

disclosures. Hughes et al., (2000) posit that poor environmental performers faced with

environmental contingent liabilities and capital spending on pollution reduction plant

should be better disclosers than their counterparts, the good environmental performers.

They argue that as the poor performers must adhere to mandatory FASB and SEC

reporting requirements their disclosures are likely to be more extensive and detailed than

the better performers who may have nothing to report. Prior studies (see for example,

Walden and Schwartz, 1997; Gray et al., 1995; Guthrie and Parker, 1990) suggest this may



not always be the case for, even where the disclosure is mandated – there might still be

unwillingness on the part of poor performers to disclose extensive information.

The U.S. Environmental Protection Agency (EPA) presents an even more pessimistic view

based on the results of a recent study (Sutherland, 2002). The study reviewed the 1998

corporate compliance with SEC’s S-K regulations requiring disclosure of significant

environmental liabilities and debt exposures. The results highlighted a significant problem

of non-disclosure by corporations even when there is a federal requirement to do so. The

EPA study found that 74% of U.S. publicly-traded companies in the survey openly

breached SEC environmental debt accounting regulations. Sutherland (2002) states that the

hiding of corporate environmental debt from shareholders is a major issue in the stock

market, where it is estimated that aggregate corporate exposure to environmental liabilities,

clean up costs, legal fees and the like is more than US$100 Billion. The way that most of

these breaches have been allowed and the reports not qualified by external auditors is that

companies have argued that the information will not have a materially adverse effect on

their operations8, and thus, no disclosure is required (Sutherland, 2002). The likelihood is

that the increased focus on corporate governance post-Enron will result in greater levels of

such liabilities being reported.

The introduction of the 2002 Sarbanes-Oxley Act is seen by practitioners (Bibler, 2003) to be

an added regulatory requirement for environmental disclosures. The Sarbanes-Oxley Act

requires chief executive officers and chief financial officers to submit written certifications

of their company’s quarterly and annual reports to the SEC; and procedures for preparing

and disclosing the required information.

Although not specifically referring to environmental disclosures, the Act will undoubtedly

affect the method adopted in the estimation and calculation of environmental costs and

liabilities and their disclosures as per the SEC requirements for the reasons just stated.

8 See also Sections 3.4.2 and 4.5.1 related to the Australian company, BHP and its mining operations in the

Ok Tedi region of Papua New Guinea.



4.5 Classification of environmental costs

As much of the focus in both the literature and in a more limited extent in legislation and

accounting standards, has been on disclosure of environmental matters, this section shall

deal with accounting for and classification of environmental costs.

Costs for environmental matters, such as costs of conversion of production devices, costs of

remediation, waste management, and environmental fines will affect many companies

some time in their life-cycle. For a given environmental activity it is important to identify

the transaction, measure the transaction (using monetary units or physical units) and then

describe or disclose the transaction if its effect is material. Accountants are fixated with the

dollar value effects of a transaction and placing such a label on environmental transactions

may enable the financial costs and benefits to be understood by most stakeholders. As

environmental matters become increasingly important on the strategic front is there some

argument that the narrow definitions of costs, assets and liabilities should be re-considered

as present reporting systems are not adequately suited to measure environmental costs? In

the context of reporting environmental liabilities, Gray, Owen and Adams (1996) highlight

the limitations of traditional financial accounting when they note that many reporting

entities discount liabilities to their present value, which tends to make future expenditure

look less significant in the present period. Discounting may make good economic sense as

opposed to good ecological sense (Deegan, 2005), but it can diminish the significance of the

environmental liability. Gray, Owen and Adams (1996) contend that discounting an

environmental liability can:

• downplay the importance of the future clean up requirements, and,

• encourage the entity to undertake activities that will damage the environment but which

may not have to be remedied for many years.

Deegan (2005) states that the change in Australian accounting standards in 2005, as a result

of adopting International Financial Reporting Standards, will not result in an accounting

standard that relates specifically to environmentally related liabilities. The ‘business’ of

accounting seems to have stalled in this area, and in Australia, Deegan (2005) notes that

the adoption of International Financial Reporting Standards, may see the process set aside



for a period of time as the IASB does not have social or environmental issues on its current

agenda, but does not preclude this from the future (FASB, 2006).

Companies, which due to their industry have a major impact on the environment, are faced

with the dilemma of how to account for environmental costs once they are incurred. There

is very little by way of guidance for companies, and the classification of environmental

expenditures as assets or expenses is not overly clear in accounting regulation, or in

Generally Accepted Accounting Principles (GAAP) for that matter. Table 4.4 lists the

definitions of assets and expenses for both the Australian and the United States (US)

accounting frameworks. In principle the distinction between an asset and an expense seems

clear in both examples – if the expenditure creates a future benefit then it is classified as an

asset, otherwise it falls under the definition of an expense.

Table 4.4 Definition of Assets and Expenses

Australian United States (US)

Asset An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

(Framework, AASB, 2004, Framework, para. 49(a))

Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

(FASB Concept Statement No. 5, para. 25)

Expense Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

(Framework, AASB, 2004, Framework, para. 70(b))

Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

(FASB Concept Statement No. 5, para. 80)

Neither the AASB (Australia), nor the FASB (United States) definitions specifically

identifies social and environmental costs, but they also do not exclude them. In practice

classification of costs are not always patently clear. Where for instance a company has



expenditures incurred for pollution prevention or has undertaken emissions reductions,

there will undoubtedly be benefits derived by the entity from these transactions, and there is

also the outflow of resources that has been necessary, thus the choice of whether to expense

or capitalise (create an asset) must be made.

The approach adopted by the IASB (and now the AASB) in the case of environmental costs

is shown in International Accounting Standard, IAS 16 (and in AASB116), whereby costs

that result in an increase in future benefits should be capitalised. These International

Financial Reporting Standards note that some items of property, plant and equipment may

be acquired for safety or environmental reasons (see AASB116, para. 11). These Standards

note that the acquisition of such items, while not directly increasing the future economic

benefits of any particular existing asset may be necessary in order for the enterprise to

obtain the future benefits from its other assets. In such cases, these acquisitions qualify for

recognition as assets. Thus looking again at the definition of assets as shown in Table 4.4, it

becomes apparent that where the Australian definition is couched in general terms, the

AASB116 standard extends and elucidates on this and the result is a facility that enables the

inclusion of certain environmental costs as assets.

There is some ambiguity in the terms ‘safety and environmental reasons’, as these are not

explained or mandated as being legal, equitable or constructive obligations or reasons.

Further reading of the IAS16 (and AASB116) section does not clarify the term, but just

adds to the ambiguity with the example of a chemical manufacturer installing new

processes because of the need to “comply with environmental requirements” (see

AASB116, para. 11 which is the Australian equivalent of IAS16). Again, no definition or

further clarification of “environmental requirements” is given in the International Financial

Reporting Standards, leaving the reader to presume that the term actually applies to legally

enforceable requirements only. If this is the case, then it could be interpreted to mean a

condition that must be legally complied with rather than one that is construed from the

facts, or morally enforceable.

The stance taken by the Federation des Expertes Comptables Européens (FEE) in Europe

and the Financial Accounting Standards Board (FASB) in the US are similar to that taken

by the IASB. The FEE (1999b) approach recommends that:



1. costs incurred to prevent environmental impacts should be capitalised if future benefits

are expected, else they should be expensed, and,

2. costs incurred for the clean-up of past environmental damage should be capitalised if

future benefits are expected, else they should be expensed.

The guidance on most environmental outlays would be to allow professional judgement as

to how they are accounted for (see for example FASB, 2005), thereby affecting profits, and

the valuation of assets. Yet, not only is recognition a matter of importance but so too is the

disclosure for without this latter aspect the information is hidden amongst layers of other

corporate expenses and cannot be evaluated by users of the financial statements. This is

where something like the ethos of TBL reporting and the GRI Guidelines is of prime

importance. The international accounting standards are not legally binding on any

company or country 9, so compliance was problematic. The international accounting

standards are used widely, and they are developed so as to encompass a global viewpoint of

the accounting. The GRI Guidelines are also not mandatory and they too are drawn up so

at to accommodate a global viewpoint. Thus the GRI disclosure guidelines could hopefully

prove very useful to stakeholders when traditional accounting standards and regulatory

requirements fall short of meeting information needs for environmental and social

information.

4.5.1 Treatment of environmental liabilities

As an historical idiosyncrasy, the conservative nature of accounting has meant that

liabilities, rather than assets were more likely to be recorded in the accounts. Even when a

liability is not recognised, the concept of a contingent liability has for a long time been

more prevalent in the disclosures of companies with little by way of similar treatment and

disclosures for contingent assets.

The disclosure of contingent liabilities due to environmental impacts has, at times,

produced monumental impacts on the reports of companies, whilst at other times the

impact has been played down and underrated by management. An example of the former is

the impact of the Exxon Valdez into Prince William Sound in Alaska in March 1989, which

9 This has now changed in Australia, as of the 1st January 2005, with the adoption of the international

accounting standards as the approved and legally enforceable accounting standards for the country.



resulted in the disclosure by Exxon of hundreds of millions of dollars as a contingent

liability for environmental damage.

On the other end of the scale is BHP (as it was known in the 1980s and 1990s) which did

not quantify the costs of the potential environmental liability accruing from damage done

from its mining enterprises to the Ok Tedi area in Papua New Guinea - even when writs

were filed for damages of $4 billion (Chu, 2001 and see also BHP Annual Reports 1994 and

1995). At the time, whilst the company was embroiled in lawsuits – for billions of dollars -

the disclosure in the BHP 1995/6 accounts read:

Legal proceedings were instituted in Victoria in May 1994 and December 1995, and writs were

presented for issuance in September 1994, against Ok Tedi Mining Limited and BHP on behalf of

plaintiffs claiming unspecified damages and relief in respect of loss and damages allegedly caused by

discharge of tailings and other releases from the Ok Tedi mine into the Ok Tedi (river).

The Company considers that the terms of settlement will not have a material adverse effect on the

financial condition or results of operations.

(BHP 1996, BHP1996 Financial Statements, Contingent Liability Note #35, Page 28)

The major questions that companies must answer is what constitutes an environmental

liability (or contingent liability), should it be recognised in the accounts, how is it to be

measured and what should be disclosed. The definitions of a liability (see Table 4.5) do not

vary greatly as most of them involve some present obligation for a future sacrifice as a

result of a past event.

For an item to fit the definition of a liability would require some future outflow and a

present obligation to do so, thus environmental costs of the sort that relate to soil

contamination, air emissions and contamination, energy emissions and even visual impacts

would potentially fit such criteria. The recognition then depends on whether the occurrence

of the amount is probable (more likely than less likely to occur) and a can be reliably

measured (see AASB, new Framework, para. 83).



Table 4.5 Definition of a Liability

Location Definition

Australia: AASB A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

(AASB, Framework, para.49(b))

United States: FASB Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

(FASB Concepts Statement No. 6, para. 35)

The measurement of these liabilities can involve either a historical cost valuation being the

amount paid to clean up the environmental impact, or some form of other current

valuation based on discounted cashflows, fair values or the like.

The Australian Accounting Standard AASB137 Provisions, Contingent Liabilities and

Contingent Assets requires provisions (for instance a provision for clean-up costs) to be

measured at the best estimate available: “The amount recognised as a provision shall be the

best estimate of the expenditure required to settle the present obligation as at the reporting

date” (AASB137 para. 36).

This is a strong indicator that entities are required to do their best in establishing a reliable

value for the liability to be recognised in the accounts. With respect to environmental costs,

this can be problematic because the time-span may be some distance into the future and,

because of frequently changing regulations and political decisions the legality of the liability

may change. Yet, in this sense, is this any different to valuing real estate, international

currency transactions or any other liability in a fluid environment? The “use of estimates is

an essential part of the preparation of financial reports and does not undermine their

reliability” (AASB137, para. 25). Since estimation is an accepted method, then the

reticence in estimating and disclosing environmental liabilities can only be due to



professional and managerial timidity. As noted however, time may be an issue and

companies may be tempted to ignore or delay the recognition of the liability until

legislation crystallises the company’s obligation.

In terms of contingent environmental liabilities, the FASB viewpoint remains relatively

conservative and board members are hesitant to change exiting standards to allow for

specific inclusion of environmental liabilities. Even so the FASB board members feel that

existing standards and Interpretations already allow for the inclusion of such matters (FASB,

2005).

In a meeting of the FASB members in 2005 to review and discuss accounting for contingent

environmental liabilities, the Board minutes (FASB, 2005, p. 3) of the meeting contain the

following:

“Accounting for contingent environmental liabilities is governed by the provisions of Statement

5 and its interpretive guidance ….. In Interpretation 14, the Board concluded that when a loss

contingency meets the probable criteria in paragraph 8(a) of Statement 5 and the reasonable

estimate of the loss is within a range of possible losses, it is deemed that the amount of the loss

can be reasonably estimated and an amount shall be accrued for that loss. The Board further

concluded that when no amount within the range is a better estimate than any other amount,

the minimum amount of the range shall be accrued”.

Further in the same document (on page 5), the following comments were made:

“With respect to the concerns raised regarding the measurement of contingent environmental

liabilities, in light of the far reaching effects of Statement 5 and Interpretation 14, the staff sees

no basis for reconsidering the accounting and reporting of contingent environmental liabilities in

isolation. Further, the staff believes that there should be no established difference between the

measurement attribute of contingent environmental liabilities and the measurement attribute of

other contingent liabilities recognized in the financial statements. With respect to the concerns

raised regarding application of the materiality concept, the staff believes that adhering to both

the letter and the spirit of the existing literature provides adequate and reasonable disclosures of

environmental liabilities in audited financial statements.”



4.5.1.1 Industry-specific standards in Australia

The Australian standard setters have also been slow to respond to the need for a standard

for environmental liabilities and assets. The closest that we have to such disclosures has

been the requirements of the standard AASB6 (previously AASB1022) for the extractive

industries. This earlier standard, AASB1022, was a response to the numerous accounting

treatments used by companies in the extractive industries, and it was extraordinary for its

time. One of the problems with the AASB1022 standard, however, was that the disclosure

requirements for restoration costs were being interpreted differently by various companies

resulting in a lack of comparability and understandability.

This culminated, as mentioned earlier, in the UIG issuing guidance in 1995 to clarify and

thereby reach some consensus on the disclosure requirements for rehabilitation/restoration

costs for mining operations. Since the adoption of international accounting standards the

earlier UIG (Abstract 2, in 1995) guidance has been superseded by UIG Interpretation 1,

Changes in Existing Decommissioning, Restoration and Similar Liabilities. The two versions of

the UIG are shown in Table 4.6.

As Table 4.6 shows, the change of the Australian Accounting Standard from the old

AASB1022 to the new AASB6 has meant that the UIG has had to reconsider some of its

considerations on the matters of restoration and rehabilitation costs. In fact as the Table

shows, the UIG conclusions in July 2004 appear markedly less comprehensive and

particular in terms of disclosures than their earlier counterparts – one such example is seen

in the last section, where commentary about judgements in determining restoration

obligations is lacking.

Paragraph 10 of UIG Abstract 4 (1995) also noted that

“in a number of instances, restoration and decommissioning of sites will not occur for many years. As

such, a number of significant assumptions will be made in determining the amount of the liability.

These assumptions relate to uncertainties that may exist about, for example, the nature and extent of

the restoration which will be required, the environmental sensitivity of the location, changes in

restoration technology and its impact on cost structures, relative inflation levels, the nature and extent

of tax relief, if any, community expectations and future legislation”.



That this move to incorporate environmental disclosures in the financial statements of

Australian companies was innovative, is apparent. The rationale may not have been about

protecting the environment but the recommendations were and still are based on the need

to promote comparability, consistency in disclosure, and in ensuring that the risks and

liabilities were divulged to stakeholders.

Interestingly, Dierkes and Preston (1977) consider that companies that undertake activities

that modify the environment, for example extractive industries, are more likely to disclose

social and environmental impacts from their activities than companies in other industries.

The previous Australian accounting standard AASB1022 forced these disclosures on

Australian companies. The new standard AASB6 supported by AASB137 should see this

reporting practice continue.



Table 4.6 Recommendations by the UIG on Reporting by the Extractive Industries, 1995 and 2004

UIG Abstract 2, 1995 UIG Interpretation 1, July 2004

Reporting entities in the extractive industries shall disclose separately the amount of restoration obligations recognised as a liability in their financial reports.

No comment is made expect in discussion about restoration and similar liabilities, implying therefore that these items are liabilities

Commentary is found in AASB6 and AASB137

Reporting entities in the extractive industries shall disclose the accounting method adopted in determining the liability for restoration including:

a) whether the total amount of the restoration obligation is recognised at the time the disturbance occurs, or on a gradual basis over the life of the facility,

b) whether the total amount of the restoration obligation is recognised includes the cost of reclamation, platform removal, plant closure, waste site closure, etc

c) whether restoration costs are estimated on the basis of current cost or estimates of future costs, and whether the amounts of restoration costs have been discounted or not.

There is mention of the need to include in the initial cost of the property, plant and equipment the costs of dismantling and removing the asset and restoring the site.

• AASB116 is cited as a source for this

• IAS16 is indicated as a source for this

Measurement of a restoration cost liability should be the at the best estimate. Changes may occur as a result of

• Changes in estimated cashflows

• Changes in discount rates

• An increase in the passage of time

The financial report shall identify significant uncertainties, assumptions and judgements made in determining restoration obligations.

No comment made



4.5.1.2 Disclosure is a problem

Disclosure of the environmental liability may also be a problem, as there is no specific

accounting standard relating to the environment10 - it is a brave company that will go

outside generally accepted accounting principles (GAAP) and disclose more than they

absolutely have to. The reported balance sheet is not a complete picture of the company as

mostly it is a basic listing of account titles, very much a skeleton of the information relating

to assets and liabilities. Some detail may be found in the notes attached to the balance

sheet, but there is never enough information for the user to construct the complete set of

accounts if they so wish. In such a regimented and universally accepted disclosure format,

it would seem that environmental liabilities and assets do not really have a place.

Yet some accounting bodies have made an attempt at changing disclosure requirements for

environmental liabilities. The Canadian Institute of Chartered Accountants in 1993

proposed the following:

• environmental liabilities should be disclosed separately in financial statements;

• environmental liabilities of individual materiality should be disclosed separately;

• a deferred charge should be disclosed in connection with the liability it relates to; and

• the nature of any uncertainties of measurement should be explained.

However, there is still very little by way of guidance in accounting standards let alone any

precedent to follow as formats to disclose such items.

Dealing with environmental costs such as, site contamination and restoration costs, are not

limited to Australia but are issues that have been addressed by overseas accounting bodies

as well (see for example Canada: Association Canadienne de Normalisation; US: Financial

Accounting Standards Board; UK: Accounting Standards Board). Land contamination and

toxic waste sites resulting from an entity in the oil industry or in the chemical industry are

factors that affect the operations and finances of companies and as such pose a significant

accounting problem.

10 There is however definition and recognition criteria for liabilities as per the AASB Framework, paragraphs

49 and 83.



A study by Li and McConomy (1999) found that financial condition is a factor affecting the

decision by Canadian resource companies to disclose liabilities/provisions for future

removal and site restoration costs. Bewley and Li (2000) looked at the disclosure of general

and financial environmental information of Canadian companies, and found that the

results of their study indicated that disclosures of financial environmental information were

associated with the pollution propensity of the firm’s industry and firm size. In their study,

Bewley and Li (2000) defined financial environmental information as that which refers to

specific dollar amounts of environment-related items or disclosures about accounting

policies for environment-related items. Their study also showed that financial

environmental disclosures are less predictable than general environmental disclosures. They

surmised that management has less discretion over these types of disclosures as such

information also tends to be governed by generally accepted accounting principles.

Even if this is the case, a study undertaken by Alnajjar (2000), investigating the social

responsibility disclosures by the U.S. Fortune 500 firms, found that firms appeared to

disclose narrative types of information far more than monetary or quantitative information.

Alnajjar (2000) concluded that, as long as there is an absence of accounting standards and

regulation for social responsibility disclosures, it seems likely that companies will continue

to disclose narrative information as an attempt to influence public opinion.

The problem with what is to be disclosed is closely linked to the recognition of a liability

(and an asset) in the accounts of entities. Many companies may recognise environmental

liabilities and provisions but not specifically disclose them, as there is generally no

requirements in accounting standards for such separate disclosure. Indeed PAEC (1999, p.

77) note the following:

“Because of the lack of accounting standards dealing directly and fully with environmental issues,

some of the … information is not adequately or consistently presented in financial statements. Perhaps

more importantly, there are many environmental issues that are excluded by the existing accounting

framework. The existing accounting standards and conventions mean that many environmental

matters are simply not recognised, measured or disclosed”.

It is not commendable when it takes oil spills and chemical disasters to push the general

public and the accounting profession into becoming more aware of the information needs

in accounting for environmental damage (Freedman, 1993). Where such damage does



occur, it should lead to the creation of an environmental liability if the item is ongoing and

an expense. Where environmental expense is incurred through an oil spill or chemical

accident, then such an item may need to be disclosed as an extraordinary items in the

accounts as it is likely to be a single or non-recurring occurrence. Yet in circumstances or

industries where environmental damage is a major factor of doing business, risk analysis

and project costing would indicate that an allowance for future clean-up cost would be

advisable. Thus for such companies, oil-spills and chemical accidents are not extraordinary

events (in terms of accounting definitions), but part of the ordinary risks of doing business.

Furthermore such transactions at times present with a large degree of estimation and

prediction challenges due to uncertainty of the extent of damage or length of time before

clean-up is required.

For an item to be recognised it must be able to be reliably measured and occurrence must

be probable (Framework, para. 83, AASB, 2004). In the event that there is uncertainty as to

either of their two criteria, an entity may consider the disclosure of a contingent liability in

the notes to the accounts. For example, the AASB defines a contingency liability as “a

possible obligation…whose existence will be confirmed only by the occurrence or non-

occurrence of one or more uncertain future events. ... ” (AASB137, para. 10). In this way

the accounting equation — the assets of the entity equal the liabilities owed by the entity

plus the equity brought in by the owners, denoted as “A=L+P” — is not affected, yet users

get a better picture of the claims both actual and potential on the company.

4.5.2 The issues of materiality and significance

The term ‘significant’ is of specific interest when attached to environmental matters, as

posed in an earlier discussion paper by the Institute of Chartered Accountants in Australia

(ICAA). “Environmental impacts that are significant are those that are of considerable

importance to either the environment, the organisation or its stakeholders. Determining

what is significant is a dynamic and subjective process” (ICAA 1998, p. 15). The ICAA

discussion paper and Practice Note 68 both attribute significance to environmental matters

beyond the accounting concept of materiality. Indeed distancing the disclosure

requirements from materiality is a major concept in the reporting/disclosure of

environmental matters (Deegan, 1998).



A commonly used excuse for not disclosing social and environmental information is the

need to comply with the concept of ‘materiality’. Under existing Australian (and many

overseas) standards only information which is material is required to be disclosed in the

financial statements (see for example the Australian standard, AASB1031 Materiality).

Under AASB1031 information is considered to be material if leaving it out would give a

misleading picture of an entity’s operating results or financial position (AASB1031 para. 9).

In normal practice the materiality of an item is measured in financial terms. The Standard

AASB1031 states that an item is material if it is more than 5% of an appropriate base, such

as operating revenue, profit or a particular class of asset. Under these generally applied

thresholds for materiality, environmental and social expenditures may not be considered to

be financially material. The disclosures for instance by BHP in its 1995 and 1996 financial

reports informed of a lawsuit brought by the OK Tedi residents for billions of dollars was

deemed to be too immaterial to disclose by the company (see Section 4.5.1).

This issue of materiality is an important one where environmental disclosures are

concerned. Many stakeholders look at the financial matters of an entity and environmental

disclosures in a different way where even minor issues are of importance to the user. As

part of this study it is envisioned that the sustainability reports of Australian companies will

have significant amounts of information and disclosures of environmental matters, in the

nature of both legislative compliance and ecological impact.

Development of an accounting standard(s) specific to the environment has been delayed. In

Australia, the Australian Auditing Standard AUS 102 par 44 states that “Australian

Auditing and Assurance Standards, while developed primarily in the context of financial

report audits, are to be applied, adapted as necessary, to all audits of financial and non-

financial information, to all other assurance engagements, and to all audit related services”.

Yet, no accounting standard has ever been introduced on how to account for the

environment. The accounting profession has been lax in coming to the fore with a suitable

framework leaving the issue of disclosure to be fulfilled inadequately through the voluntary

attempts by companies and the problem of recognition and measurement barely addressed.

A report produced by the ICAEW Environment Research Group (1992) suggested that

environmental issues posed two major challenges for the development of accounting. The

first issue is for a significant way to combine scientific and technical environmental

information with financial information in such traditional items as assets, liabilities, and



expenditures. The second issue involves investigating the possibility of extending

established accounting conventions to include external costs and benefits of a company’s

environmental impact.

The ICAEW Report specifies that the former of the two issues merits further investigation

and calls for a mild green approach towards corporate environmental reporting and calls

for four areas of inquiry into the successful development of an environmental accounting

standard:

1. Is financially quantifiable environmental information material enough to be require separate

recognition and disclosure in the financial statements?

• For information relating to environmental matters, materiality may not be an issue,

since users may require that any environmental information regardless of size is

significant in their decision-making. Consideration should also be given to Practice

Note 68 and the 1998 Discussion Paper, by the Institute of Chartered Accountants,

on The Impact of Environmental Matters on the Accountancy Profession.

2. Are the existing generally accepted accounting principles sufficient in dealing with environmental

issues, or is further guidance required?

• There is no “technical reason why measuring externalities is intrinsically more

difficult than measuring costs such as pensions, depreciation, health care … and

goodwill – all of which involve patterns of costs and benefits that are extremely

uncertain, and may stretch far into the future” (Tinker et al., 1991, p. 33).

• There have been calls to review the ‘control’ criteria in the definition of assets

(ICAA, 1998, Gray, 1992). The ‘control’ criterion in the definition of an asset

requires that the entity is able to limit or deny use of the asset by others. Thus to

consider the environment as an asset, would mean that the company had the

capacity to deny or regulate the use of the environment by others, which it does not.

It could be argued however that where companies pollute/damage the environment

they in fact do limit the unobstructed use and enjoyment of the environment by

others, thereby exercising their control/power to do so.



• Contingent liabilities may pose a problem in instances where disclosure of a

contingent environmental liability may be ignored or insufficiently disclosed by the

corporation.

3. Where in the annual report should environmental information be disclosed – in the main financial

statements, notes to the accounts, the operating financial review, or in a separate environmental

section?

• The main sources of details are found in the notes to the accounts and this would be

the logical placement for environmental disclosures.

• The gradual acceptance of TBL reports (and the adoption of a framework such as

the GRI Guidelines) may mean that many of the corporate social reports that are

now being produced by companies may evolve into a new generation of financial

reports.

4. Are the accounting policies relating to environmental issues sufficiently distinctive as to require

clear and concise disclosure?

• The notes to the financial statements already require that accounting policies

adopted in the preparation of the reports be disclosed, thus an extension into

environmental and social matters should not be an insurmountable conceptual leap.

• An example of an area that is a major concern is that of environmental contingent

liabilities, yet as the FASB (2005, p. 5) has already commented, they are under the

belief that adhering to both the letter and the spirit of the existing accounting

pronouncements provides adequate and reasonable disclosures of environmental

liabilities in audited financial statements. Extrapolating this statement, it can then

be reasonably argued that existing accounting policies may suffice for not only

environmental but also social issues.

4.6 Moving towards mandatory TBL reporting

Very slowly recognisable procedures of accounting and reporting for environmental effects

are emerging, even whilst there are calls for comprehensive mandatory reporting (Adams,

2004) and in spite of professional accountants, who display reluctant behaviour by giving



environmental reporting and auditing a low priority (Bebbington et. al., 1994; Harte and

Owen, 1991; Harte, Lewis and Owen, 1991). Accounting academics are also reluctant to

“challenge the very core of financial accounting practice — even if that challenge can be

shown to be in the best interests of the environment and society” (Gray and Bebbington,

2000, p. 14). Typifying the profession, Mathews and Perera (1996) state that there is reason

for debate about whether further disclosures, financial or non-financial, can be justified in

terms of the additional expenditure for such disclosures and the ensuing benefits (if any) for

user groups. Yet, Reynolds and Mathews (2000) would like to see an accounting and

reporting model that will account for the natural environment.

Burritt and Welch (1995, p. 4) state that “it cannot automatically be assumed that social

and environmental disclosures are desirable per se ... (but that) ... a continuum of different

views exists”. Indeed one such view is presented by Benston (1982, p. 100) who points out

that “required reporting in annual financial reports of data that purport to measure the

benefits or costs of social responsibility issues has little chance of being other than public

relations or other self-serving exercises”. Even so, that the content of annual reports has

changed over time is apparent, and that the annual report contains more voluntary

information than ever before is also noteworthy (Anderson and Epstein, 1995).

The lack of comprehensive mandatory standards and inadequate provisions to account for

social and environmental matters should not be seen as prescriptive or setting of precedent

for the development of future accounting standards. There is enough room for specific

guidance to be provided on environmental matters within the existing accounting standards

and within GAAP. There is already to some extent the provision in standards to bring in

some environmental impacts, mostly to do with site restoration and rehabilitation, but also

with disclosure of environmental contingencies. However, the extent to which mandatory

corporate reporting of environmental and social disclosures is warranted was questioned

quite some time ago by the SEC’s Advisory Committee on Corporate Disclosures (ACCD,

1977). In the Committee’s final report, they supported the SEC’s refusal (at that time) to

require companies to disclose more information on their social and environmental

activities. The Committee then went on to warn that requiring disclosures of such additional

information would “bury shareholders in an avalanche of trivial information” (ACCD,

1977, p. 24). Several decades latter and the validity of such a recommendation may have



lost some of its clout when we have experienced major environmental accidents and

considerable changes to social awareness.

These initial steps at attempting to include some environmental information in corporate

financial statements may be seem as steps in the right direction in terms of potentially

directing financial statements into a format that is more in line with TBL reporting. Yet it

should be noted that when it comes to the other prong of TBL reporting, social disclosures,

the accounting profession has made no similar strides. It may be that the issue of employee

welfare, employee wellbeing and employee health and safety is a matter for legislation and

has already been adequately catered for by requisite periodic reporting to government

bodies.

4.6.1 Theoretical framework for accounting

The fixation of the accounting profession with a theoretical framework for accounting, and

the development of a conceptual framework provides social legitimacy to the accounting

profession (Hines, 1991). Thus the actions of accountants are granted approval by the

existence of such a conceptual framework and a focus on financial matters, which means

that social and environmental matters have been ignored in financial reports11. Furthermore

both Gray and Bebbington (1992) and Hines (1988) argued that the accounting profession

can play a major role in influencing what types of social conduct are acceptable by

companies and if the profession is lackadaisical in its approach to non-financial disclosures

this will be reflected in the reporting undertaken. Indeed Hines (1989) argues that

accounting regulations are no more that the residue of a political process and whilst the

process is controlled by parties who do not place a high value on social and environmental

reporting, we are left with little guidance. A major set-back for the full adoption of

accounting for social and environmental may be the reticence of standard setting bodies,

yet this is a position that is not supported by many academics (Deegan and Rankin, 1997;

Gray, Owen and Adams, 1996; Rubenstein, 1992; Gray and Bebbington, 1992).

Drawing from the work by Owen (1994) the following conclusions may be made. Firstly,

the current climate of voluntary corporate environmental disclosures is not viable as it

results in the production of ad hoc, piecemeal and at times unreliable disclosures. The

11 Note that the FASB/IASB joint proposal to review the conceptual framework may see a change to this way

of thinking in the future.



accounting bodies need to address this and provide guidance to both practitioners and

corporations. Secondly, Owen (1994) stipulates that the distinction in environmental

reporting between ‘mild green’ and ‘dark green’ is quite patent and suggests that a starting

point for such disclosures is a mild green approach adopting non-financial reporting as a

start. This solution can only be feasible in the very short term for it does not advance

environmental reporting beyond what is happening at the moment. The timidity of such an

approach will mean that we limit disclosures to non-financial in nature, when

quantification of some amounts is possible, when industry indices can be calculated and

when monetary amounts are known in some instances. In connection with industry indices

and certain disclosures a standardisation process is possible and should be applied.

Although Owen (1994) gives some United Nations and UK reporting framework examples,

this can be extended to include GRI Guidelines that would be most suitable for application

by companies, and could be modified for specific industries.

The use of the traditional accounting system has been limited to portrayals of merely a

financial picture of a company’s actions. PAEC (1999, p. 81) argue that the use of

terminology such as ‘scarce resources’ in the existing accounting framework “tends to

recognise only those resources purchased by the organisation…(thus)… resources such as

air and ocean water have not traditionally been considered scarce so they have not been

valued within traditional accounting practices”. Gray et al. (1993a, p. 23) also make the

valid point that:

“the pictures painted by accounting must be incomplete – it can recognise only those things which can

be measured in prices, and which are exchanged for prices. In so far as accounting is an important

source of information … this incompleteness may be very dangerous. The information from the

accounting system is used in a whole range of management decisions and is a major source of

information to the external participants of the firm”.

Deegan (2005) is of the opinion that in light of the objectives of the Australian Conceptual

Framework, it may be concluded that the annual reports presented by corporations should

be primarily economic in focus. Yet he then impels us to consider whether such social

matters as an entity’s safety record, environmental performance and the like should not be

included in the annual report. It may be that the problem then lies not with the definitions

of accounting or the mechanics, but in the stubbornness of practitioners and standard-



setters to move with society. Gray and Bebbington (2000,p. 14) go so far as to say the

following:

“The financial statements have a dominant place in organisational performance. It is …. their very

primacy as the measure of organisational success and the way in which that measure is founded upon

fundamental assumptions we accountants make in our calculation of profit that is at the very heart of

the causes … of environmental degradation”.

Hence Deegan (2005) argues that accounting can both reflect and construct social

expectations. Yet those responsible for the development of the Australian Conceptual

Framework may deem that the reporting of social accountability is either not important or is

best provided for in places other than general purpose financial reports (Deegan 2005).

Thus a framework such as the GRI Guidelines, although not focussing only on the

financial aspects of a company, nor developed by accountants, is a viable working example

of what can be achieved with social and environmental information.

4.7 Conclusion

The discussion in this chapter has shown that much of the present accounting practice is

deficient in its treatment of social and environmental matters. The underlying social and

environmental transactions and implications have largely been ignored or under-

represented by accounting practice. Where there is any disclosure on social and/or

environmental matters, Alnajjar, (2000) found that the content of the disclosures tends to

take the form of qualitative rather than quantitative information. Furthermore, where there

are financial environmental disclosures, Bewley and Li (2000) found that these tended to be

less predictable than general environmental disclosures, and environmental information

included in the accounts tends to be down-played (Gray, Owen and Adams, 1996) or not

reflect the full impact (Deegan, 2005).

Yet, as the analysis in this chapter has shown, environmental assets, environmental

liabilities, and environmental contingencies, are encompassed in the standard ‘accounting’

definitions for each of the financial elements: assets, liabilities and contingencies – even as

they are tending not to be included in financial statements. Specifically, the detailed

evaluation of the accounting conceptual framework demonstrated that it is able to cope

with and even comfortably accommodate social and environmental matters in the existing



accounting framework – as was for example shown with the ‘environmental’ prong of TBL

reporting. The existing definition of the elements of financial reporting, the recognition

criteria and even such matters as materiality are robust enough and versatile enough to

allow for the inclusion of non-financial matters to be recognised and disclosed.

Accordingly, the conclusion that may be reached here is that it is not the theoretical

accounting framework that is the reason that corporate social and environmental

transactions are not reported with the same dedication as economic information, but it is

generally accepted accounting practice, or a grass roots notions of the supremacy of

economic information that has resulted in the virtual reporting silence of social and

environmental matters. Nevertheless in noting the flexibility of the accounting framework

to accommodate social and environmental transactions it is recognised that there are

several practical issues that may need to be addressed before the reporting of these items

becomes more readily instigated:

• A requirement for financial, monetary or an universally accepted quantification of

social and environmental transactions;

• The determination of whether the existing materiality guidelines are sufficient and

applicable to social and environmental transactions;

• A judgement as to where should social and environmental information be disclosed in

the annual report.

• Investigation into extending established accounting conventions to include external

costs and benefits of a company’s social and environmental impacts.

With consideration to the analysis in this chapter and after reviewing the voluntary

reporting behaviour of the companies, a reporting framework that includes social and

environmental transactions may become the norm in the foreseeable future. Companies

may very well be encouraged to undertake recognition and disclosure of social and

environmental matters because of societal expectations to do so, changing corporate and

accounting regulation, or even the emergence and growing acceptance of reporting

frameworks such as the GRI Guidelines.

Finally, the investigation of TBL reporting is not complete without an appraisal of the

metric or measurement requirements, which is undertaken in the following chapter.

Triple Bottom Line Reporting: A Study of diversity and application by Australian companies

Chapter 5: - Measurement Issues and TBL reporting - Page 112

Chapter 5

Measurement Issues and TBL reporting

5.1 Introduction

The main aim of this chapter is to report on measurement issues and the techniques used in

the accounting discipline as well the engineering discipline and environmental groups, and

then to undertake an assessment of their suitability to measuring environmental and social

goods. As part of the discussion into measurement, an outline of several alternative

environmental measurement techniques, which are useful when looking at the relationship

between business, society and predominantly the environment will be undertaken. There

are various techniques for valuation, those that have a market-basis and those were there is

no market, and prices are determined using a simulated market as an approach to ascertain

valuations and measurements.

The second part of the chapter includes a review the ethics of placing a monetary value on

the environment and concludes that a sustainability index or statistic may be a better means

of representing quantification. This is where TBL reporting and the GRI Guidelines may be

useful in showing the way, for many of the measurement requirements in the GRI

Guidelines necessitate that information be disclosed as indices, weights and numbers of

items1. In this way social and environmental items are quantified but do not have a dollar

value placed on them – showing that quantification does not only have to be in a dollar

value.

1 For example the GRI Guidelines specifies air emissions of CO2 should be disclosed as cubic metres; fatalities due to industrial accidents are given as a number; other indicators are shown as ratios, and so on.

This latter part of the chapter will contain an appraisal as to whether stakeholders and

reports preparers are ready to have traditional methods of calculating profitability open to

scrutiny and debate. Deegan (2005) notes that by including environmental costs and

benefits in profit calculations, organisations might be contributing to the ongoing debates

which question the validity of profit calculations that omit such important social costs as

damage to the environment.



5.2 Accounting concept of measurement

Watty and Evans (1997, p. 14) conclude their paper with the following statement:

“Many natural resources are non-renewable. If they are not accounted for in use then they are

forgotten and lost forever”.

This section starts with this quote because part of the problem in accounting for

environmental issues lies in determining an agreed index or measurement for the

environment. The concept of accounting for the environment (Van Dieren (editor), 1995;

Rubenstein, 1994; Gray, Bebbington and Walters, 1993a) and in measuring environmental

costs as part of the full cost of the product is becoming more acceptable as a means of

correctly costing products. However, in accounting the general issue of measurement is still

fraught with controversy in Australia and overseas. Part of the problem with measurement

has been that in Australia, the Accounting Conceptual Framework has not advanced

sufficiently to include a concept statement on measurement, nor is there any other overseas

definitive statement on the topic (see for example the US FASB Conceptual Framework2

and the IASB Conceptual Framework). There is the problem however that when dealing

with environmental matters, for example, monetary measures may not always be readily

identifiable or appropriate, meaning that a greater emphasis on integrating monetary and

non-monetary measures (PAEC, 1999, p. 82) might be more relevant in relation to social

and environmental accounting.

Nevertheless, if economic profits and associated financial data are presented as the best

measure of a company’s performance then society may focus on activities that affect this

measure, which might include social and environmental activities. As Deegan (2005) notes,

accounting can both reflect and construct social expectations, thus, if accountants adopt

other types of performance measures, then this may raise public expectations about

organisational performance.

There are a number of acceptable measurement methods available in current accounting

practice that have been successfully accepted and incorporated into the basic Historical

2 The FASB has released CON5 a concept statement relating to measurement, which deals mostly with issues affecting measurement such as reliability and relevance of information. CON5 also notes that various approaches to measurement may be acceptable depending on these qualitative criteria.



Cost (HC) System. At present, cost-based and current value-based methods are adopted by

many companies, and the HC based approach is often supplemented by additional

disclosures of present value (Godfrey, Hodgson and Holmes, 2003). Yet, amongst

Australia’s largest enterprises, Houghton and Tan (1995) identified a strong preference for

Historical Cost over Present Value or Market Value as the basis of measurement. Indeed,

Brenton and Taffler (1995) suggest that investors and financial analysts lack sufficient

accounting knowledge to interpret complex accounting information in decision-making

tasks. Whilst the use of multiple measures when reporting financial information may be

perceived as more useful than one measure, to the uninitiated and financially illiterate

report user, multiple measures can lead to information overload. Users are presented with

multiple returns, ratios and profits, thereby resulting in overlooking much of the content,

and leading to confusion (Henderson and Peirson, 2004).

Over the last three decades (1970 to 2000), the accounting fraternity has made attempts at

changing the base HC model to incorporate inflation effects and dwindling values of

money, but these were unsuccessful in either the conceptual stage or the implementation

stages. The 1960’s and 1970’s brought vigorous debate about alternative measurement

systems due to high inflation rates. These high inflation rates in the 1970’s saw accounting

standards requiring current cost methods introduced into the UK in 1980 and in the US in

1979. In Australia support for a current value system was apparent during the 1970’s

(Belkaoui and Jones, 2000) and during the period between 1974 and 1978 three different

exposure drafts on current cost accounting were released by the Australian Accounting

Research Foundation. The success of these current cost accounting proposals did not last

long and by 1985 the UK standard had failed and ceased mandatory status, and the FASB

withdrew its standard in 1986. (Belkaoui and Jones, 2000; Watts and Zimmerman, 1980;

Ro, 1980).

In Australia, the apparent lack of momentum in developing a Concept Statement in

Measurement means that we continue to flounder with varieties of measurement

techniques, which are either specifically applied as per the accounting standards or

generally applied by accounting practitioners. There is a renewed interest at present in

current value accounting, yet regulators could face significant implementation hurdles

(Belkaoui and Jones, 2000; Jones and Love, 1995; Blue, 1991).



Trends over the years have also produced new names and re-inventions of similar

measurement and valuation techniques, greatly confusing users and even practitioners. The

accounting system has been inundated with a number of measurement models and

developments suggests that Australia is moving away from a single valuation model to a

combination of values approach (Belkaoui and Jones, 2000). Yet there has been little done

by the accounting profession to recognise that social and environmental variables do have a

value and should be included in a traditional costing and accounting systems. Thus a brief

discussion of the more common measurement models used in accounting and their

potential application in valuing environmental and social variables is shown in Table 5.1.

It is assumed that the reader is conversant with these measurement alternatives thus

definitions are not included here, however, an overview is supplied in Appendix 3.

5.3 Application of measurement techniques to TBL reports

TBL reports extend the concept of corporate reporting to include other information or new

areas of reporting, thus the basic definition of financial reporting may need to be addressed,

and perhaps extended. The Australian Accounting Research Foundation (AARF) in its

Policy Statement 5: “The Nature and Purpose of Statements of Accounting Concepts” states that

consideration must be given to the types of activities or information that should be

embraced within the discipline of financial reporting (AARF, 1995a). This clearly is an

ambit statement allowing for the addition of new frontiers to reporting and can be used to

include environmental and social impacts. The importance of this should not be

undervalued, and it would be appropriate to reiterate that the inclusion of social

information could easily be incorporated into the present structures.

Alternative approaches that could also be taken when considering the value of

environmental and social costs relate to quantification rather than measurement in dollars.

There is considerable work being done on methodologies that are being developed to give a

value to the natural environment. Van Dieren (1995) notes that many of these latter

valuation models are complementary and not mutually exclusive, adding that it is virtually

impossible to identify one true value of the natural environment and the change that it is

exposed to. These valuation methodologies are outside the scope of this study, but a brief



discussion about valuation is included to assist in the debate about valuing social and

environmental goods.

Table 5.1 Summary of Measurement Methods (Source: Barut, 2006).

Measurement

Method

Useability for social and environmental goods

Historical Cost

• Used predominantly for most assets and liabilities. Major advantage is its verifiability

• Could be used for environmental fines and costs, short-term clean-up costs etc.

• May be suitable for clean-up or restoration costs, but not preferred for this

Replacement Cost

• Used predominantly for non-current assets Major advantage is its relevance to users, and capital maintenance concept Has applicability for some environmental goods, where replacement cost is viable. Cannot be used where environmental good has no replacement or substitute or where good is finite, such as depletion of the ozone layer.

Current Cash Equivalents

• Used predominantly for assets. Major advantage is its relevance to users, and capital maintenance concept

• Could be used to value environmental goods, but requires the existence of a market for these goods. Where no market exists, the current cash equivalent is not viable

Net Realisable Value

• Could be used to value environmental goods, but requires the existence of a market or a buyer for these goods. Where no market exists an estimated amount could be ascertained through a market proxy.

Recoverable Amount Method

• Value to the firm through the use of the item

• Could be used to value environmental goods

• It would be possible to ascertain the value of the item through its use rather than a market exchange. This method is highly applicable as all firms use environmental goods. This method may also be useful in giving a better costing and pricing of such basics as water and air.

Fair Value • Not a valuation base as such, but rather a technique requiring the use of market values for items. Requires an active market

• Based on a market transaction. Finding a market for some environmental goods would not be easy

Net Market Value

• Indicated for assets that can be sold on an active market

• Based on a market transaction. Finding a market for some environmental goods would not be easy

Mark-to-Market

• Highly suitable for financial instruments

• Not suitable and not viable for social and environmental goods. This method requires an active market and the good must be actively priced on the market



5.4 Internalising externalities and sustainability

Accounting information is premised on the foundation of historical cost accounting3, which

is both reliable and verifiable. It is a system that is used to record transactions at their initial

cost to the entity and has been used for centuries with few changes. For example the

valuation of inventory is considered acceptable at a valuation base that is the lower of either

cost or net realisable value (see AASB 102, para. 9). So too the valuation of fixed assets can

be either at cost, recoverable amount, fair value, market value, or replacement cost

depending on the accounting standard or the industry. Thus the notion of a value which is

not an “invoice” amount is not foreign to accountants or to users of financial information.

In accounting terms, a successful organisation is one that takes inputs such as materials,

labour and overheads and converts these into outputs to be sold and does this in an

expanding cycle of activity. The result is hopefully profit. In order to incorporate all costs

into management information systems, accounting should not ignore the social and

environmental consequences of the company’s dealings. Yet not all the transactions and

events that occur to or because of an entity are recognised in the traditional accounting

system. For example, where a company emits air pollution as a result of its production

process, the costs that may be accounted for are licensing costs, monitoring costs, fines,

clean-up costs, costs of plant modification to reduce waste and the like. Other matters such

as the impact on local fauna, the sight and smell of fumes, the residue deposited on the

surrounding area, the impact on global warming, and the costs associated with these are

not borne by the company. These costs are known as externalities. Godfrey, et al., (2003, p.

743), define an externality as

“a cost that arises from an organisation but is borne by other parties; e.g. greenhouse gas emissions

from an industrial estate”.

The current accounting approach to recording transactions poses a problem for TBL

reporting, as it does not take into account these externalities.

There is no generally accepted way of measuring externalities for accounting purposes, and

for this reason externalities are not commonly seen in financial statements (Magness, 2003).

3 A modified version is in place in current GAAP whereby certain items are valued at an amount other than



Yet mandated accounting standards, which require environmental and social disclosures of

externalities, are perceived to reduce or end negative practices (Lewis et al, 1995). The

development of a full cost method to account for social and environmental impacts would

seem to be the answer to implementation of a TBL reporting framework. A step in the right

direction is the recommendation by PAEC (1999) that the government should encourage

the accounting profession to develop methodologies to incorporate environmental costs

into the prices of goods and services. Yet, placing a value on items which, because of their

scarcity or irreplaceability, have no easily determinable value or are of such a high value

that it is too difficult to calculate may prove to be a hurdle.

Techniques to value for example, environmental variables, are espoused by the engineering

profession and by economic theories (for further details see Appendix 5 and a further

discussion in Section 5.5). Many such techniques to value environmental resources are not

that different to valuing other more traditional resources used by businesses (see for

example the travel-cost method and contingent valuation technique as identified in

Appendix 5). What is different however is that environmental and social resources have

traditionally been ignored by business since resources such as air and water have appeared

to be boundless, unrestricted and therefore costless.

As far as accounting for social and environmental externalities is concerned, there appears

to be a great deal of further work to be done (Elkington, 1999). Although in many cases, the

information about social and environmental costs is already captured by the existing

accounting system, it is not explicitly targeted or disclosed. A review of one of DuPont’s

product lines found that environmental costs accounted for more than 19 percent of the

total manufacturing cost of the product (Ditz et. al., 1995). The inclusion of many

environmental costs - such as clean-up of spills, restoration cost and recycling of materials -

are all easily identifiable and measurable. The inclusion of other costs - such as, the

extermination of a species because of the destruction of the local ecosystem or the burnout

of employees - are ignored by accounting because these transactions do not have a price

and because they are not related to the capitalist notion of business. “Accounting excludes

all non-priced activities and its ubiquity encourages us to ignore such ‘externalities’ and

historical cost.



even to consider them in some way heretical to business orthodoxy. Thus social and

environmental consequences become to a very large degree ‘free goods’” (Gray, 1999, p. 3).

From an economic viewpoint, it is argued that the full cost of a product should include the

materials plus labour, plus overhead costs and the public costs of the “waste product” that

is presently borne by society. If external costs (externalities) are ignored or excluded, then

over-production may be the result, which gives a false sense of reality about the impact of

the product on the environment and fails to send the correct signals to the market and

consumers. As Sathiendrakumar (1996, p. 1) observed, the “environment is a composite

asset … it provides various services … therefore the objective of development should be to

minimise the undue depreciation of this asset. Excessive waste generation, will lead to the

depreciation of this asset”. Furthermore, Jacobs (1993) notes that it is not the people who

suffer the pollution who decide whether it is generated or not, they are merely the third

parties to the transaction between the firm and its customers.

Those responsible for the waste product, whether it be the manufacturer or the consumer,

tend to be reticent in taking on the burden of the full cost of their actions, arguing that the

economy will suffer and hardship will be imposed on individuals. Yet Benston (1982) notes

that internalization of social costs would force management to include them with other

costs when making decisions about the company. Schaltbegger and Burritt (2000) warn that

a mixture of external and internal costs in the same accounts would result in a distortion of

financial results, and as a consequence users would not be able to make economic decisions

about the firm. Conversely, Hecht et al. (1999) advocate that internalising externalities is an

efficient and elegant way to allocate environmental services.

In the Australian timber industry for example, increasingly stringent codes of forest

management practice have led to the internalization of environmental protection costs in

their pricing regimes (Resource Assessment Commission, 1992). Yet, companies tend to

oppose the inclusion of externalities or environmental costs in the product on the grounds

that measurement is difficult and that a surrogate for the cost of the environmental effects is

already paid in the form of taxes and charges. Others argue that products are cheaper and

that a company may lose competitive advantage if it builds these expenses into its product.

Even when there is the opportunity to return bottles or containers, Hatch (1990) points out

that the return of containers does not guarantee that they will be refilled or recycled.

Moreover as Benston (1992) points out, the required reporting of data that purports to



measure the benefits or costs of social issues has little chance of being more than a public

relations or self-serving exercise.

As the unintended by-products or consequences of commercial activities, externalities are

difficult to measure in exact terms. Furthermore, their existence tends to be linked with the

inefficient use of the environment. By requiring that an entity place a value on public or

“free” property, entities are firstly forced to declare themselves as inefficient which has

negative connotations, and secondly to include information that is seen to be outside the

domain of accounting information.

The information content that can be derived from the mere disclosures of environmental

impacts, including resource usage, let alone the adoption of full cost accounting for the

environment, is undisputed. Although stock market participants ignored the environment

in the past, studies in this area testing for any information effects on share prices behaviour

are numerous as too is the proliferation of investment funds which specialise in ethical and

green investing. The important earlier studies from several decades ago, which are still

valid today, (Shane and Spicer, 1983; Ingram, 1978; Spicer, 1978) showed that investors

were using environmental information to discriminate between companies with different

pollution-control performance records.

Interestingly even when environmental disclosures are voluntary, as is the case in most

countries, and even when this type of disclosure lacks the reliability that is granted by an

audit stamp-of-approval, social disclosures continue. That the public is still concerned

about the environmental impact of the company’s actions is reflected in selected legislative

directives designed to mandate corporate disclosures (see Section 299 of the Corporations Act

2001). When these environmental and social matters are hidden or not disclosed, errant

companies tend to rely on the excuse of immateriality, thus following the letter of the law

but clearly not its intent. Even some social information is still perceived as being better than

nothing, and has been ranked by users as somewhat important (Belkaoui, 1984; Firth, 1984;

1979). On the basis of purely internal economic factors or even in a broader corporate

social responsibility base, environmental matters can be validated as an important part of a

company’s identity (Sharma et al., 1999; Greening and Gray, 1994; Wood, 1991). The

evidence from prior literature generally demonstrates that there is a common thread that

links environmental stewardship and firm value (Cormier and Magnan, 1997).



Many environmentalists would agree that the future of our economy is dependent on the

ability to restore and maintain the ecosystem – a concept that is yet to be grasped by many

businesses whose continued blinkered view of the world remains profit focussed. In this

way companies continue to externalise social and environmental costs, which are then left

to society to pick up. In a recent article in The Age newspaper, Robert Monks, a US

shareholder activist, was attributed with the following comment:

“A corporation is an externalizing machine in the same way that a shark is a killing machine.

Each one is designed in a very efficient way to accomplish particular objectives, there isn’t any

question of malevolence or of will. The enterprise has within it and the shark has within in those

characteristics that enable it to do that for which it is designed.” (The Age, August 2004, p. B6).

Describing a corporation in this way and attributing such behaviour to it, gets the message

across, but does nothing to resolve the problem. Advocates of TBL reporting argue that

sustainable and ethical operations are good business practice as positive performance in

these areas is reflected in increased profits and better share prices. Despite this, the ethos of

many companies still lies in the foundation of profits first and if sustainability happens on

the way, then so much the better. In their 2003 Environmental and Social Report (2003, p. 2),

Toyota reports the following:

“By balancing our social and economic initiatives, in addition to thorough implementation of ...

environmental management, Toyota hopes to contribute to the realization of a sustainable

society”

These are highly laudable comments that are then heavily devalued with the following

statement:

“Currently, the world population is said to be approximately 6.1 billion people, whereas the

number of automobiles is 740 million. Although there is developing automobile use in many

regions of the world, those who are able to enjoy the benefits of mobility still remain a minority.

Providing many more people with the convenience of automobiles ... will continue to be an

important mission for automakers in the 21st century” (Toyota, 2003, p. 2).

Toyota does not seem to understand the detrimental aspects of their product. There is no

explanation of how their vision of a more mobile world can be achieved without increased

fuel and production needs, the resultant elevated climate and resource depletion impacts,



and costs borne by future generations. There may be a plan for sustainably achieving this

vision, but it is not espoused in their reporting4.

In its current form, conformance with the GRI Guidelines will not guarantee that a

corporation is operating sustainably. In fact, it is worth observing that the GRI Guidelines

sit within a wider free-market ethos that corporations should be left to look after their own

affairs and that the markets, armed with disclosures provided in accordance with the

Guidelines, provide the best mechanism for improved environmental and social outcomes.

The danger is that, without the TBL paradigm and some form of framework that measures

the real performance of corporations, the holistic viewpoint will be lost. As noted earlier,

Toyota is reporting against the GRI Guidelines but appears incapable of seeing (or does not

want to see) the impact of their product – and they are not alone in this.

Continuing with Toyota’s vision as an example, only governments operating independently

of commercial interests will be able to assess whether resources would be better spent on

increased public transport and urban development that reduces society’s reliance on private

vehicles. This cannot be expected to be part of Toyota’s vision. Recognition that the culture

of the corporate sector needs to be independently managed and that the GRI Guidelines

need to be developed with an acknowledgment of the inherent conflict between today’s

businesses and environmental and social interests. Thus the GRI may meet its stated

objectives of improved and increased reporting, and eventually move to the ultimate aim of

producing more sustainable and responsible impacts.

5.5 Valuation models

Thus far this chapter has looked at measurement techniques that have been used/ are being

used in the accounting process. The following section will give a brief overview of alternate

valuation techniques that have been formulated to approximate a market valuation of

social and environmental transactions. The biggest advances in valuing these external

impacts have been in environmental valuation, with debate still occurring over the

valuation of social impacts (Richardson, 2004).

4 In direct contrast to this the company does however discuss that the main drivers for producing social and environmental report is to improve accountability in its 2004 Environment and Social Report (KPMG, 2005).



Most of these models apply the notions of willingness to pay/accept and opportunity costs.

Whilst researchers and users of these techniques have refined the procedures and

interpretations, it is noted that the techniques are theoretically valid but they require careful

and skilled management. Furthermore most of the techniques use actual prices and costs

from exchanges in the market or a simulated market, something that should satisfy even the

most cynical. Changing consumer perceptions of product and industry environmental

performance are leading to the increasing influence of the environment on business (Lent

and Wells, 1992). Adding value to a product or creating a product so that consumers are

willing to pay a premium for the product has been the primary way that businesses have

created profit. A more holistic approach is preferable, as business needs to realise that

environmental performance provides many of the same productivity gains that focussing on

eliminating defects provides in business (Lent and Wells, 1992). Thus valuing social and

environmental items can add value to the firm through the reduction of product costs.

At present the task of identifying and valuing environmental costs and environmental

damage is complex and tends to be surrounded by uncertainty. Techniques have been

developed to value environmental impacts with several relevant references and guides

including those produced by the Department of the Environment, Sport and

Territories/Department of Finance/Resource Assessment Commission (1995); Dixon et al.,

(1994); James (1994); Organisation for Economic Cooperation and Development (1994);

Hufschmidt et al., (1983); New South Wales Environment Protection Authority (1993) and

Sinden and Worrell (1979).

Appendix 5 contains a list of these models and some of their uses, but the valuation

methods are not specifically discussed in detail here as they are outside the scope of this

study. The alternative valuation models as shown in Appendix 5 are subdivided into the

following categories:

1. Market Value Approaches

• Change in productivity;

• Change in income techniques;

• Replacement cost technique;

• Preventative-expenditure technique; and

• Relocation-cost technique.



2. Surrogate Market Approaches

• Travel cost method;

• Property-value technique/ Hedonic property values;

• Wage-differential technique; and

• Proxy-good technique.

3. Simulated Market Approaches

• Contingent valuation method;

• Trade-off technique; and,

• Contingent ranking and contingent rating.

These valuation techniques have been developed specifically for the valuation of

environmental goods or for the loss incurred by society and users of these goods. These

techniques are based primarily on measurement of consumers’ “willingness-to-pay” for

goods or services that they now receive freely, or consumers’ “willingness-to-accept”

compensation for losing such environmental goods and services.

As its name would signify, the Market Value Approach employs a market method in valuing

the environment in terms of a consumer’s willingness to pay5 for an environmental good

and the opportunity cost of making certain decisions that will impact on the environment.

The amount that the consumer is willing to pay is dependent on a number of factors being

the wealth of the consumers, how important the product is to them (for instance the

importance of a zoo or national park) and the availability and price of substitutes. Market

value for many areas may not be appropriate or may be undervalued as in many cases the

calculation of a value takes into consideration the opinion of the public. Thus, aesthetically

pleasing places may have a higher value than places that are not as pleasant to look at but

have an essential biodiversity function.

A variation of market valuation is the Surrogate Market Approach, whereby the willingness-

to-pay valuation is gained from surrogate goods or services. In the absence of data on actual

5 The notion of willingness-to-pay looks at the value a consumer puts on a product which they presently do not have or are receiving for free and which they would pay for in the future.



markets for an environmental effect or a surrogate effect, the Simulated Market Approach

may be used.

Environmental experts and policy makers have put these alternative valuation techniques

into application at different intervals and for different situations. In this respect they may

achieve different resolutions, but these will be compatible with the different needs of the

individuals involved. For instance, different techniques are available to value rural housing

developments, positioning of a waste site, quality of river water, and recreational parkland.

All three approaches contain a number of methods developed for various situations, a

discussion of which is outside the scope of this work.

Most of the methodologies shown above, attempt to place a market valuation on the

natural environment that is not included in normal market exchange. Even this however

may not be good enough as none of the models values the function of the environment.

The valuation models focus on monetary compensation for the environmental goods or

services, that the individuals will gain, or which they already hold but which will be taken

away from them, as a result of a proposed project. From an economic viewpoint this would

seem plausible, however, it speaks volumes of our arrogance that we presume to take a

environmental “good” that is neither manufactured or produced by economics or human

intervention and attempt to value it.

Yet the use of such valuation models could be questioned on the basis of the ethics of

allocating a value on environmental and social goods. In the case of some environmental

goods, they may not be able to be extracted from their surroundings and adequately valued.

Environmental goods such as ecosystems and biodiversity should retain their

environmental status rather than become marketed commodities and this relates to their

basic characteristics. These goods cannot be created or replaced by the marketplace. Vatn,

(1998, p. 15) notes that “as a system of interrelated processes these services cannot merely

be divided into pieces and sold for what they may contribute at the margin. Division would

be too costly and/or it would destroy the very functioning of the good”

5.6 The merit in valuation

The majority of valuation techniques apply the notions of willingness to pay/accept and

opportunity costs with the use actual prices and costs from exchanges in the market or a

simulated market. The use of these models could be justified on two grounds. Firstly,



placing a market value on for example an environmental good will force consumers to

value that item, and take care to protect it from degradation or extinction. Secondly,

identification of valuation methods is a means of showing companies and producers that it

is possible to include externalities into the cost of their product. On the surface both

arguments would seem plausible.

The passing on of pollution costs from polluter to consumer occurs almost automatically,

with little regard for the diminution of clean air and water, eventually results in a cost to

society and a transfer of natural (ecological) wealth to corporates. Furthermore there is the

paradox that as technology advances, production becomes more efficient and output

increases which also affects or impacts on technological advance. With increased

production there is a tendency for the public to want the newest commodity, thus resulting

in a greater environmental impact. Figure 5.1 adapted from Van Dieren (1995) shows the

links between income of the population and technology and the multiplier effect on

environmental impact. As the affluence of the population grows, so too does demand for

products (see direction of arrow 1), leading to bigger and better production levels through

efficiency benefits (see arrows 2 and 3) resulting in a greater environmental impact from

increased production, usage and waste (see arrows 4 and 5).

Thus we have potential social and environmental degradation from over-production and

products that appear ‘cheaper’ because social and environmental costs have not been taken

into account when costing the products. Strategic decisions made by management will be

based on incomplete information and could lead to a mis-allocation of resources to

processes that have been undercosted from a social cost perspective (Kreuze and Newell,

1994).



Income ofPopulation Output

EnvironmentalImpactper unit

TotalEnvironmental

Impact

Efficiency ofIndustry =X XX

Better efficiencycauses growth in production

Better efficiencypromotes technology

Pollution control raises costs

Demand & Output changeas income grows

53

4

1 2

Figure 5.1 Economic Activity and Environmental Impact

Adapted from Van Dieren (1995)

Accountants, as the preparers of financial information, have for years used estimates and

judgements when producing financial information, the classic examples are depreciation,

goodwill and research and development expenditure. Yet when it comes to social and

environmental costs, the accounting profession has seemed to be reluctant to incorporate

externalities into product costings and into financial information. It could lead one to

conclude that these factors are seen as “non-financial” and therefore outside their scope.

Nevertheless “no accountant would suggest that changes to conventional accounting

systems are sufficient to solve the enormous environmental problems of today and the

future” (Schaltegger and Burritt, 2000, p. 83). Excluding social and environmental goods

from valuation may be the correct approach for a number of reasons. Firstly, there is the

issue of whether standard accounting procedures such as estimates for depreciation and

discounting are applicable for social and environmental matters. Secondly, even given the

theoretical and economic validity of many valuation models, none of them addresses the

ethical issues in placing a market value on social and environmental goods. This type of

valuation could be very controversial, as it seems that it results in information about the

social and environmental good being condensed down into one monetary value.



The market-type methodologies for environmental valuation have a common underpinning

that has been used in the development of a valuation for non-market goods. Their

fundamental assumption is that the value of all goods can be expressed in monetary terms

and that the value of a good is based on its utility to mankind. These models may go some

way in increasing the visibility of the environment but they are premised on an

anthropocentric, utilitarian approach. The design of the models is such that, if mankind

does not determine a use, exchange value or worth for the environmental good, then its

existence is inconsequential - as its worth is based only on what it provides to human beings

(Jacobs, 1993). This assumption has roots back to historical and religious philosophies that

the world and all species have been created to service the needs of man and are mere

instruments for mankind. These valuations do not look at the very complex features of the

environment such as eco-system, biodiversity and social effects of business. The benefit to

society of ecology/environment is too complex. The attempt to capture it into a single

neutral measure of money, dissolves its characteristics (Grasso and Pareglio, 2002), and

even if these costs can be converted into a monetary valuation, what does the single figure

that is added up into a profit really mean? (Richardson, 2004).

Regardless of the desirability and ethics of placing an economic measurement on

environmental and social issues, the valuation of these non-market goods poses a problem.

The monetary unit may be one way to bring attention to these goods. It is also easily and

readily understood by individuals, companies and policy makers who are charged with the

making of choices and decisions about trade-offs between environmental issues and

economic issues. The problem is that the trade-off is always considered in dollar terms,

which hides the complexity of the issues involved and thereby devalues the environment.

“In a democratic society, the more attentive public decision-makers are to choice-problems,

the more information they need to improve the decision process, and monetary valuations

increase the available information. Their usefulness consists in their comprehensible

methodologies and generally accepted rules to simplify all complex effects and activities

into “a one-dimensional measure, money” (Grasso and Pareglio, 2002, p. 5).

Trying to ignore environmental valuation because of ethical, philosophical, or

methodological issues, does not make the problem disappear, neither does hiding our

collective heads in the sand. Even in an imprecise form, a valuation made by individual’s

willingness-to-pay or willingness-to-accept may be better than a subjective valuation by



governments or companies. This is not to ignore that such valuations fall well short of a

knowledgeable decision made within an environmental forum, informed by technical

knowledge on the full impacts likely to occur.

5.7 Summary

Monetary valuation of social and environmental assets and liabilities is an issue that raises

difficulties in financial accounting. Traditional accounting generally recognises only items

that have a monetary value. The estimation of monetary values for environmental assets

and liabilities that do not have a market value is a difficult and controversial process, yet it

has proven to be ripe for research in appropriate valuation methods. Even without a dollar

value for environmental/social goods, there is an argument that it may be apt to include

non-monetary measures for environmental and social information within the traditional

financial accounting framework. Despite this argument, it would appear accountants have

limited experience in integrating monetary and non-monetary information in financial

statements.

There is acknowledgment of the severity of environmental problems and the need to protect

environmentally sensitive areas and to condemn ecology to a monetary valuation may be

perceived as irresponsible. Yet, in order to focus the concern of society on quickly

diminishing natural resources, it may be astute to adopt the capitalist model and assign

values to clean air, forests, access to clean water, zoos, parks and recreational areas. The

problem is that these approaches attempt to reduce highly complex interactive

environmental systems into a single measurement issue. The issue becomes how to

combine such valuations meaningfully into a single bottom line. Richardson (2004, p. 41)

makes a very statement:

“The power of converting environmental and social bottom lines into monetary values is that prima

facie they can be added or subtracted to the financial bottom line. But by converting social and

environmental impacts into monetary value, does it now mean that we can weigh up and trade off

what were otherwise ‘incommensurable’ values”.

This is where TBL reporting/GRI Guidelines may be useful in showing the way as they

provide a framework for showing how all the components fit together and what

measurement is valid, be it dollars, days, tonnes etc. However to what extent trade-offs



between safety, environment, culture and so on are made, across the triple bottom line

remains an issue. The development of voluntary reporting initiatives, and in particular the

GRI Guidelines and their impact on voluntary reporting is closely linked into the problem

of what gets reported and what measurement techniques are used. That the GRI Guidelines

have brought about some improvement in social and environmental reporting is seen as a

positive step (Deegan, 2005), yet the non-mandatory status of the Guidelines means that it is

possible for companies to be selective about the indicators they choose (and thus whether to

quantify or value an item), to report on and thus attain a level of ‘legitimacy’ (Deegan,

2005; SustainAbility, 2002).


Chapter 6: Global developments on the TBL front - Page 131

CHAPTER 6

Global developments on the TBL front

6.1 Introduction

Although TBL reports take a three-pronged approach, with equal weighting given to the

three components – economic, social and environmental – the content of this chapter will

be primarily based on a discussion of the environmental and, to a lesser degree, the social

components. The reasons for this are:

1. The economic components of annual reports have been well covered in the literature

and have been investigated by a multitude of studies. The economic/financial features

of TBL reporting and the GRI Guidelines do not stand out with any more complex

requirements than those traditionally reported and are, thus, taken to be more than

adequately covered by others.

2. The social prong of TBL reporting is important and much ground in work-related

legislation and practice has now passed into history. Although changes do still need to

occur to legislation and to our perceptions, most of the change in perceptions of

acceptable work-related practice has occurred. This chapter will undertake a discussion

of social factors such as human rights, labour rights practices, product matters and the

like but only in reference to a reporting framework, being the GRI Guidelines or one of

its precursors. A detailed discussion into the legislation in this area is outside the scope

of this study.

Thus, the non-economic components of TBL reports are the major focus of this chapter,

with emphasis given to factors that are forcing corporations and society as a whole to act in

a more sustainable manner. A major feature of this chapter is a review of the development

of voluntary reporting initiatives instituted by environmental or research bodies,

culminating in a review of the Global Reporting Initiative (GRI) Guidelines1.

1 The Global Reporting Initiative (GRI) was convened in 1997 as a result of a partnership between the United

Nations Environment Programme (UNEP) and the Coalition for Environmentally Responsible Economies (CERES). The resultant GRI reporting framework was established to bring sustainability reporting practices to a level equivalent to those of financial reporting and also to achieve comparability, credibility, rigour, timeliness, and verifiability of the reported information (GRI, 2002).



These GRI Guidelines are reviewed in this chapter, with an additional critique in Appendix

2 to determine their suitability as a possible framework for a globally-accepted reporting

standard for environmental and social matters (or TBL reporting).

Part of the process of the development of the GRI Guidelines has occurred because of

concern and exasperation over environmental matters. These have been important

components in political and social debates in Australia and overseas and the latter part of

this chapter will focus on environmental matters and identify the drivers and the key

participants in this area. The discussion in the chapter will predominantly focus on the

Australian scene, with overseas examples where appropriate. A review of environmental

legislation will also be undertaken, and although not a key component of the content of the

chapter, references to laws and regulations are made primarily for illustrative purposes and

are not meant to be an exhaustive treatise of environmental legislation in Australia.

6.2 History of the Global Reporting Initiative (GRI)

The progression of corporate social and environmental reports proceeded at a faster pace in

the 1990s. The early part of that decade saw a noteworthy increase in the practice of

voluntary corporate social and environmental reporting, particularly by companies based in

Europe and North America. The United Nations Environment Programme (UNEP) and

several accountancy firms tracked these changes and in the process a number of

publications were produced (KPMG, 1999; SustainAbility:UNEP, 1997; 1996).

Wheeler and Elkington (2001) believe that, at that time, the reasons for reporting varied

from region to region. They note that reporting in Europe had very little to do with pressure

from shareholders, customers or even campaign groups, but rather a duty to the

environment, public relations, competitive advantage and legal compliance were the most

frequently cited drivers for reporting. On the other side of the world, North American

reporters deemed legal compliance as less important and shareholder pressure somewhat

more relevant. Amongst the companies in Japan, the major reasons for reporting were

based on consumer and shareholder pressure, lobby groups, duty to the environment and

public relations interests. These factors ranked higher than legal compliance or competitive

advantage issues.



In a landmark partnership between the United Nations Environment Programme (UNEP)

and the Coalition for Environmentally Responsible Economies (CERES), the resultant

Global Reporting Initiative (GRI) was convened in 1997. The GRI was established to

“elevate sustainability reporting practices to a level equivalent to those of financial

reporting, while achieving comparability, credibility, rigour, timeliness, and verifiability of

reported information” (GRI, 2002). By developing a sustainability reporting framework on

a global basis and with multi-stakeholder focus and input, the GRI’s aim was to assist in

the further development of a common approach to social and environmental indicators,

measurement, accounting, auditing, reporting and verification (GRI, 2002).

The inception of the GRI reporting framework occurred in 1999 when the GRI released an

exposure draft entitled Sustainability Reporting Guidelines. The work resulted from support

and participation from many sectors of the community including major corporations,

NGOs, trade unions and professional accounting bodies. Indeed the GRI website describes

the whole process of developing the new framework as “an exhaustive period of drafting,

pilot testing, and further consultation” that took place before the GRI released the first

version of its reporting guidelines in June 2000.

Even so, the GRI was not the start of the TBL movement. Earlier predecessors of the GRI

Guidelines are found within CERES itself, having undertaken similar frameworks for social

and environmental reports. CERES, which was founded in 1989, had developed reporting

guidelines that, even with various revisions, were still only being used by 60 companies by

the year-end of 2001 (CERES, 2002b). With the spotlight now focussed on the GRI

Guidelines, the start of 2002 saw CERES release a document designed to assist companies

that had previously prepared reports based on the CERES Principles to make the transition

to the GRI Guidelines (CERES, 2002a). This period between the late 1990’s and early

2000’s had seen a significant amount of interest and research in the area of metrics for

measuring different aspects of sustainability performance (Fiksel et al., 1999; National

Round Table on the Environment and the Economy, 1999; Ditz and Ranganathan, 1997).

In terms of reporting social and environmental information Adams et al., (p. 23, 2004) note

the following:

Although there are international standards concerned with financial performance, there are no agreed

standards on environmental and social reporting … While there are some mandatory reporting



requirements such as in Australia … there is no comprehensive legislation concerned with accounting,

reporting and auditing of TBL. However, there are recommended guidelines such as the Global

Reporting Initiatives (GRI, 2002), outlining standards for accounting and reporting corporate

economic, social and environmental performance”.

The second version of the Guidelines, the 2002 GRI Guidelines, like its predecessor,

provides companies and other organisations with a template for TBL reporting. It

incorporates measures of performance from economic, environmental and social

performance indicators in a reporting framework, and is enthusiastically promoted by GRI

itself and by CERES and the United Nations Environment Programme (its co-convenors).

These bodies contend that the inclusion of the social and environmental component along

with financial information go further than any other guidelines and can greatly assist a

company and its stakeholders in determining the extent of sustainable practices.

Despite this, the idea of globally used environmental and social reporting guidelines

espoused by the GRI and its supporters are not universally accepted by corporations around

the world. Whilst the use of the GRI Guidelines is limited and the global uptake of the GRI

Guidelines is widely distributed (see Figure 6.1 showing the adoption levels in 2002), it is

however enthusiastically supported mainly in “champion” nations (GRI, 2002). The GRI

Guidelines tend to have better adoption levels in the more developed countries such as

Japan (with adoption by 78 companies), United Kingdom (49 companies), United States of

America (46 companies) and France (22 companies).

The improvement in the saturation levels of the GRI Guidelines and the efficacy of the

Guidelines remains speculatory due to the rather low numbers2 of companies that have

adopted this reporting standard. Yet with the help of the CERES network, based mostly in

the US, and with considerable support from large corporations and influential

environmental groups, the infiltration into a broadly based and accepted reporting

paradigm for companies may still be achieved by the GRI Guidelines.

2 According to the GRI website there are presently 885 organisations registered as preparing “in accordance”

reports based on the GRI Guidelines (http://www.global reporting.org.reportsDatabase/06searchDB.asp, accessed 01/09/2006).



The usefulness of the GRI Guidelines is also heightened because GRI permits a partial

implementation of the framework, and because the GRI is constantly undertaking

programmes to modify the framework to suit different businesses and industries and to

update the indicators (GRI, 2002). For example the GRI has developed sector-specific

guides purposely for the finance, mining, tourism (operators) and automotive sectors.

Austria ,Denmark 3

Finland 9Canada,

Sweden 13Germany 19

France 22

Spain 23

Japan 78United Statesof America 46

Australia 20

South Africa 19Netherlands 14

Italy,Switzerland 6

Brazil,New Zealand

4 Costa Rica,Malaysia,

Thailand 3Chile, China,

India,Hungary,Norway 2

UnitedKingdom 49Argentina,

Mauritius 1

Belgium,Ireland 2

Israel,Portugal 1

Total Number = 334

Figure 6.1 Global uptake of the GRI Guidelines in 2002

Number of companies using the GRI Guidelines within each country

identified (Source GRI, 2002)

Additionally, early in July 2004, the GRI announced that it would create guidelines for

sustainability reporting for small and medium size enterprises. From the initial release in

2000, the Guidelines have undergone modifications to suit current trends. The

environmental component of the Guidelines had initially received the greatest focus having

been subject to review, assessment and pilot-testing. The social component (particularly the

human rights area) is now been given substantial upgrading as a result of major criticisms

by commentators and charitable bodies (see Section 6.4 for more commentary on this).



6.3 The Global Reporting Initiative and TBL reporting

There are various methods or templates for environmental and social reporting either

individually or as a combination that may be used for TBL reporting. The 2002 GRI

Guidelines provide organisations with a template for TBL reporting, with measures of

performance from economic, environmental and social performance indicators. Table 6.1

lists the complete set of reporting indicators as required for a company’s economic,

environmental and social performance in accordance with the 2002 GRI Guidelines.

In the 2002 GRI Guidelines the reporting framework is structured to incorporate and

supplement data about traditional economic performance indicators with environmental

and social performance indicators (as seen in Table 6.1). Whilst the Guidelines provide a

valuable resource to companies in assisting them in preparing TBL reports, the GRI

acknowledges that in some cases the Guidelines may be only partially or incrementally

adopted, or that the Guidelines be modified to suit particular company circumstances.

GRI recognises that many organisations are still building their reporting capacity. These

organisations are invited to choose an informal approach consistent with their current

capacity, and, “they may choose not to cover all of the content of the GRI Guidelines in

their initial efforts, but rather to base their reports on the GRI framework and incrementally

improve report content coverage, transparency, and structure over time” (GRI, 2002, p.

14).

The 2002 GRI Guidelines include classifications for all indicators and separate the

environmental indicators into ‘core’ and ‘additional’ sections (GRI, 2002). The ‘core’

sections set the bounds on indicators that are considered to be important to all stakeholders

and should cover the conditions of corporate activity.



Table 6.1 2002 GRI Guidelines (Source GRI Guidelines 2002)

Indicator Category Performance Aspect ECONOMIC PERFORMANCE

INDICATORS

Direct Economic Impacts

Customers Suppliers Employees Providers of Capital Public Sector

ENVIRONMENTAL PERFORMANCE

INDICATORS

Environmental

Materials Energy Water Biodiversity Emissions, Effluents and Waste Suppliers Products and Services Compliance Transport Overall

Labour Practices and Decent Work

Employment Labour/management relations Health and Safety Training and Education Diversity and Opportunity

Human Rights

Strategy and Management Non-discrimination Freedom of association and collective bargaining Child labour Forced and Compulsory Labour Disciplinary Practices Security Procedures Indigenous Rights

Society

Community Bribery and Corruption Political Contributions Competition and Pricing

SOCIAL PERFORMANCE

INDICATORS

Product Responsibility

Customer Health and Safety Products and Services Advertising Respect for Privacy



The results from this series of disclosures can be used to evaluate the company under the

three possible sectors and aid in the future planning and decision-making of the

shareholder. It is possible that this form of reporting will have a significant sustainability

context (GRI, 2002), and may at least encourage sustainability reporting (Bennet and van

der Lugt, 2004).

This is all useful information for both the company and their stakeholders. The ‘additional’

sections are added on an as-needs basis by the company itself and are viewed by the GRI

(2002, p. 13) as having the following characteristics:

• represent a leading practice in economic, environmental, or social measurement,

though currently used by few reporting organisations;

• provide information of interest to stakeholders who are particularly important to the

reporting entity; and

• are deemed worthy of further testing for possible consideration as future core

indicators.

As noted earlier, in developing a consensus view of the GRI Guidelines there are still areas

that retain a high level of disagreement. The environmental component of the Guidelines

has received the greatest level of agreement having been subject to robust review, careful

assessment and pilot-testing, and the social component is now been given substantial

upgrading. Goldberg (2001) notes that the Guidelines are appealing because they:

• allow a partial implementation – as they are guidelines, companies may adopt the

sections that are suitable for their particular circumstances;

• involve a continuous learning process – as is envisaged from the two subsequent

releases of the Guidelines, showing that they are evolving and will change as this area

grows and as practitioners become more adept at using the Guidelines; and

• will be able to adapt to new demands.

While the GRI Guidelines are providing a more complete reporting framework, there have

been some other noteworthy examples:



• In Australia, Environment Australia issued a discussion paper in March 2000, entitled

A Framework for Public Environmental Reporting: An Australian Approach, which provides

detailed guidance as to the elements that could be included in a corporate

environmental report. This Framework is structured to be compatible with the GRI

Guidelines and, whilst focussing on environmental reporting, the Framework can be

extended and applied into all areas of TBL reporting.

• In the UK, the Institute for Social and Ethical Accountability launched the

AccountAbility 1000 (AA 1000) guidelines for organisations wishing to report on their

ethical performance. The AA 1000 guidelines is a process document, designed to assist

organisations in defining and setting ethical goals and targets and to measure progress.

• In the US, the Council on Economic Priorities Accreditation Agency developed Social

Accountability 8000 voluntary guidelines to assist with social and ethical accounting.

The objective of Social Accountability 8000 is to ensure ethical sourcing and production

of goods and services.

6.3.1 Implementation of TBL reporting through the GRI Guidelines

Implementation of TBL reporting, whether through the use of the GRI Guidelines or a

methodology developed specifically for the company, enables the identification of specific

aspects of social and environmental performance that may need modification. If these are

then modified there is an argument that this will lead to superior performance reflected in a

better overall financial performance. In a 2003 publication on sustainability and TBL

reporting, the Group of 100 contends that TBL reporting facilitates:

• the identification of opportunities to achieve additional revenue and to reduce costs

through a better understanding of material and energy usage, and sale or disposal of

waste products; and

• the enhancement of reputation through a clear awareness of regulatory breaches, along

with a broader understanding of the company’s risk profile and exposures.

The latter point is of particular interest as the risk profile and exposure of a company are

central to stakeholder concerns. Traditional measurement and quality assurance techniques

may not be suitable in assessing and managing the risk acquired from social and



environmental factors that can impact on financial performance. This is where TBL reports

based on the GRI Guidelines could assist companies.

6.3.2 Precursor to the GRI

In work done for the World Resources Institute (WRI), which is a member of the GRI

Steering Committee, Ditz and Ranganathan (1997) and Ranganathan (1998) undertook an

initial exploration (a precursor to the GRI Guidelines) on sustainability rulers designed to

measure the environmental and social performance of an entity. Whilst the disclosure of

corporate social performance is relevant, an area of critical importance to both stakeholders

and accountants is the measurement/quantification of social and environmental matters.

The review of the sustainability rulers for social performance and environmental

performance was undertaken to establish a link with a framework for TBL reporting. In

these models stakeholders who are likely to use TBL reports are defined as a much broader

stakeholder group, including shareholders; employees; local community groups; existing

and aspirant landowners; indigenous peoples; local, regional, national governments and

policy makers; local, national and international non-government organisations (NGOs);

and academics and research institutions.

The WRI sustainability “rulers” for the social (people) component are shown in Table 6.2.

As Table 6.2 shows the rulers look primarily at the performance of the company in its

dealings with the social world and the community around it. Specifics such as employment

practices and community relations are important for companies operating in sensitive areas

or products. Companies are conscious of how the public views their operations and

disclosures in these areas may be seen as an important strategy for managing public

perceptions (Deegan, 2005). Community perceptions of a particular event can trigger an

immediate response and reflect on the adoption of a particular reporting strategy — as was

ascertained by Patten (1992)3

Furthermore, issues such as ethical sourcing are also a matter of interest to the general

public and high-profile companies such as Gap, Levi Strauss and Sears have pledged

themselves to fight exploitative practices in the form of forced and child labour (Elkington,

1999).

3 The work by Patten (1992) looked into the environmental disclosures made by North American oil

companies before and after the Exxon Valdez accident in Alaska in 1989.



Table 6.2 WRI Sustainability Rulers: Social/Community

(adapted from Ditz and Ranganathan, 1997 and Ranganathan, 1998)

Ruler Explanation

Employment practices • Under this ruler, reports must show information about the provision of a safe working environment; financial and job security; freedom from discrimination on race, gender, colour or creed; and opportunity for professional development

• There may be some professional development linkages between the people and planet arenas that should be considered. Companies can have a significant impact on the environment through, for example, systematic maintenance of equipment and plant so as to diminish waste and noxious effluents as both an environmental and an OHS issue.

Community relations • This sustainability ruler deals with the contribution of a firm to community development, including job creation; taxes paid/tax breaks received; philanthropy; and employee volunteerism.

Ethical sourcing

• Engaging in fair trading practices with suppliers, distributors, and partners; ensuring that suppliers do not use child or forced labour; and providing safe working conditions and fair wages.

Social impact of product

• The company’s contribution of products and services to social welfare, equity are disclosed, along with the meeting of basic human needs (eg. food, shelter, water, and health care).

Thus the four rulers shown in Table 6.2 are important aspects in a company’s social theme,

and are the basis for the social indicators listed in the GRI Guidelines. The social

performance indicators in the GRI Guidelines have been somewhat expanded into the

various sub-groupings for the Social component, but they do not include anything vastly

different to the information detailed in Table 6.2. The other difference is that the Social

performance indicators under the GRI Guidelines have slightly different labels and are



broken down into sub groupings as was shown earlier in Table 6.1. For example one WRI

ruler is labelled Employment practices, whilst the corresponding GRI indicator is labelled

as Labour Practices and Decent Work. As the GRI Guidelines have evolved from the

WRI, the consultative process has manifested in name changes to some of the indicators.

The environmental implications of production are seen in the WRI survey of sustainability

“rulers” shown in Table 6.3. These Environmental rulers are particularly important in

tracking the intent and the commitment to TBL reporting, and confirming that a company’s

environmental policy is part of their overall business strategy. Under the Environmental

section, environmental contingent liabilities, fines for breaches of environmental laws

and/or regulations, the extent of land contamination, legislative compliance and waste

management constitute the major issues for reporting.



Table 6.3 WRI Sustainability Rulers: Environment

(adapted from Ditz and Ranganathan, 1997 and Ranganathan, 1998)

Ruler Explanation

Materials used • This ruler identifies quantities and types of materials used, track the resource inputs and distinguish their composition and source.

• The more detailed information on non-energy material usage may be too costly to produce

• Attempting to disclose all materials used in an entity would be overkill, and the sheer volume of information would actually distract from analysis by users.

• Agreement about the indicators is a move towards greater comparability, completeness, and credibility.

Energy consumption • This ruler deals with quantities and types of energy used or generated, with differentiation between material types

• For some companies and industries this may be difficult to assess. For example entities that have their primary business as the generation and trading of electricity and related products, an investigation into its own energy consumption in the standard sense may not be useful.

• A alternate may be a review of how their “product” is made and the extent of fossil fuels used to generate the power.

Non-product output (this indicator include waste quantity and type produced as well as the treatment/disposal of waste)

• The requirements for this ruler are to establish quantities and types of waste created before recycling, treatment or disposal, and to distinguish production efficiency from end of process pollution control.

Pollutant releases (pollutant quantity and type released into environment. This indicator includes information about greenhouse gases, solids etc)

• This ruler deals with quantities and types of pollutants released to air, water, and land and includes such items as toxic chemicals, greenhouse gases, solid wastes, and other pollutants

• Where effluent is leaked into waterways, dumped onto land or escapes into the atmosphere, creating pollution, the company may be liable to sanctions.



6.4 The GRI and human rights

One of the sections of the “Social” prong of the GRI Guidelines that many commentators

have specifically focused on is the human rights section. There has been considerable

comment and doubts as to its efficacy as a disclosure mechanism and a mechanism for

change.

Wesselink (2000), writing on behalf of Pax Christi Netherlands, comments that the GRI

single report format may be useful when it comes to financial and environmental

performance, but falls short in human rights impact reporting. He advocates that human

rights disclosures should address a regional approach and cites several examples dealing

with the areas and/or countries where there are problems created by the company:

• BP’s security policy differs significantly between their Colombian and UK operations;

• Philips’ policy on freedom of association similarly differs between Mexico and the

Netherlands; and

• Nike’s policy on the human rights problems created by its sweatshops is quite different

to the human rights and diversity issues faced in its USA headquarters.

The recommendation that the GRI Guidelines be modified to include regional human

rights matters may be a valid one, as reporting on the disruptions caused to local

communities is not something that is brought out by the GRI human right indicators at

present. There are many instances when the revenue generated by a company sometimes

exacerbates conflicts and increases disruptions in war torn regions. Voluntary reporting

approaches do not effectively address the full scope of corporate behaviour, nor do they

fulfil the greater need for sustainable business.

AusCID (2003, p. 26) notes that “reports alone provide little value unless they accurately

inform stakeholders and support a dialogue that influences the decisions and behaviour of

both the reporting organisation and its stakeholders”. Merely reporting on these matters

does not automatically confer acceptability to companies that perform badly in the social

and environmental arena, nor should it. Without a review and evaluation of performance

there can be no change in the actions of the companies and they will maintain practices



without using the data distilled into the TBL reports to help shape the future delivery of

their product.

As a response to the dialogue from the various parties the latest version of the GRI

Guidelines, the G3 Guidelines which are due for release in early October 2006 (GRI, 2006b),

has paid specific attention in the drafting of the new indicator protocols for human rights

(amongst other matters as well). The help of stakeholder involvement has meant that the

shortcomings in the present reporting of human rights may be addressed. Through their

TBL reports, companies will be able to show a greater level of responsibility for such

matters as human rights and “corporate social responsibility makes companies attractive to

both mainstream investors and to the fast-growing ethical investment sector”. Christian Aid

(2004, p. 11).

6.5 Rating the GRI Guidelines

As part of the evaluation of the GRI Guidelines the stated objectives of the guidelines

should be assessed to evaluate their efficacy and their application.

The first objective is to elevate environmental and social reporting into a routine practice

similar to financial reporting. How realistic this proposal is, will be ascertained over time,

yet at present the GRI is making steady if not fast inroads into the reporting procedures of

companies. The main area where there is likely to be setbacks is seen in the commentary of

the Guidelines, where the statement about reporting is made (2002, p. 21):

“The decision to report in accordance with the Guidelines is an option, not a requirement. It is

designed for reporters that are ready for a high level of reporting and who seek to distinguish themselves

as leaders in the field.”

Downing (2003b) specifies that the problem with this is that the ‘in accordance’ concept

“creates two classes of reporters, whereas financial reporting has only one, the serious

reporters”. He advocates that there be only one type of GRI reporter, the sustainability

reporter who is committed to relevance, credibility and transparency. The financial world

would be unlikely to accept financial reporters who have not adhered with strict

compliance to GAAP and financial standards. Furthermore the ‘in accordance’ criterion

stipulates that GRI reporters need to explain the reason for the omission of each indicator.

This implies that it is acceptable for companies to omit certain indicators as long as they



can explain why, which would seem a far cry from standards imposed on financial reports.

For example, under Australian corporations’ legislation companies are required to comply

with the applicable accounting standards (Section 296, Corporations Act 2001), and financial

statements must give a true and fair view of the financial position and performance of the

company (Section 297, Corporations Act 2001). This fundamental requirement may only be

deviated from where companies are allowed to provide additional, not less, disclosure if

they feel that the accounting standards do not present a true and fair view of the financial

picture of the company (Section 295(3), Corporations Act 2001).

The omissions permitted by the GRI Guidelines do not raise the bar to the standards

imposed by financial reports, but lower the level of sustainability reporting. GRI

sustainability reports that have not been prepared ‘in accordance’ with GRI Guidelines

could be branded as second-rate reports (Downing, 2003b) and possibly unfairly so.

Conversely, there is a danger that those reports that only partially comply with the GRI

Guidelines may be held in greater esteem than they possibly deserve.

A company can be GRI compliant whilst only reporting on the areas of their business

which make the least impact (SustainAbility, 2002), thereby disclosing more in areas which

are not as sensitive and disclosing less or even ignoring the sensitive issues. This is not

uncommon and there tends to be a positive correlation between ‘environmental sensitivity’

of the industry to which the company belongs and the level of corporate disclosure (Deegan

and Gordon, 1996).

As with the financial GAAP, there is a need for the GRI to evolve from guidelines to

mandatory reporting to provide security to corporations making disclosures and to ensure

comparability of information for stakeholders. Deegan (2005) believes that the GRI

Guidelines could be used as a basis for mandatory reporting if social and environmental

reporting was introduced. Only however, if the Guidelines are used unanimously,

consistently, completely and ‘in accordance’. Some companies feel that if the Guidelines are

followed by only a few reporters without assurance then they will be acceptable or sufficient

for the future, leading to the danger that the full GRI reports will become acts of self-

recrimination for those reporting, and thus unattractive to them (Downing 2003a). Without

this evolution to mandatory status, the GRI Guidelines are unlikely to meet their first

objective of becoming a routine practice for corporate environmental and social reporting.



The second objective of the GRI Guidelines is to undertake continual updates and

improvements. This is imperative for the proper functioning of a framework. A reporting

framework is not a static model but one that evolves over time to promote best practice and

to incorporate new structures. For example, the Guidelines have been modified for the

finance sector and the small business sector. This may mean that some of the universality of

the framework is lost, but it will add to comparability and relevance of the reports produced

by companies in these business sectors. Such limitations are recognised by the GRI, and, in

accordance with its second objective, the Guidelines are evolving to provide continual

improvement and relevance.

6.5.1 The uptake of GRI Guidelines

Much of the literature in the area of corporate social reporting supports the notion that

corporations are finally recognising that their continued existence in premised on a social

license to operate (see legitimacy theory discussions in earlier chapters). This then requires

a degree of transparency and accountability to stakeholders in relation not only to

economic factors but also as regards their environmental and social behaviour. Much has

been said earlier about how this can improve a company’s competitiveness and shareholder

value.

As stakeholder expectations become more complex, they want information that is accurate

(verifiable) and comparable and useful for decision-making, whether it be to invest in the

business, buy/sell to the business, work for the business and even enable them to reward

leaders or discourage laggards. In such a climate the GRI may find it difficult to fulfil the

needs of all stakeholders and, for companies, compliance with the Guidelines is the first

hurdle they will face.

The matter of compliance and adoption levels was investigated by Morhardt et al. (2002)

who undertook a study to evaluate the extent to which environmental reports met the

requirements of the GRI 2000 Guidelines and the ISO 14031 environmental performance

standards. In evaluating the 1999 reports of 40 of the largest global companies, they found

that current reporting practices were well below the standards reflected in the GRI and ISO

14031 guidelines. However, since inception in 1997, the GRI Guidelines have been a work

in progress, and a large number of the world’s largest companies have slowly taken it up in



some form (see GRI website), thus the adoption results of the Morhardt et. al. (2002) study

may show an improvement if the study was undertaken again.

6.6 The use of the GRI Guidelines as a standard

A single set of universally agreed and legally binding standards would reduce any

ambiguity resulting from the ad hoc reporting practices, it would alleviate stakeholders

concerns about lack of comparability and would set boundaries for corporate social

reporting. A reporting framework such as the GRI Guidelines is perfectly suited to take up

the position of a standard and standardisation in the area of TBL reporting is one with

several benefits:

1. The use of standardised reports increases comparability for users and reduces adhoc

reporting.

Owen et al. (2001, p. 271) found this problem to feature amongst the NGO respondents

in their study who supported standardisation of social reporting and commented that at

present there was a feeling that “chaos is our guide”. Stone (2001) asserts that a

regulatory solution will partly alleviate disclosure problems of corporate social

performance if companies are required to conform with social GAAP, just as they are

required to conform with financial GAAP. Stone (2001, p. 56) also notes that “political

power for all stakeholders is more effective than market power, which they will never

have in sufficient amounts to affect change in firms’ seemingly single-minded pursuit of

shareholder value”. A regulated standardised reporting framework will, thus, empower

users as they will be able to rely on information that is not the output of unequal power

over information.

Aeppel (1993) comments that social reports/publications re-package environmental

data that is already available elsewhere and put the best light on the company’s

environmental performance. Furthermore, many if not all the reports are periodically

issued at approximately the same time as the financial reports, but are usually

independent of these and do not generally conform to one standard reporting

methodology, thus leading to confusion amongst users. Such matters as the use of

differing terminology in reports can confuse users (Aeppel, 1993) as too, is the lack of

comparability between reports (Deegan, 2005; Frost, 2003; Beets and Souther, 1999).



2. Standardised reports make external verification much more cost-effective.

3. A standardised TBL reporting framework may also reduce the need for stakeholders to

hunt for information on their own (Berthelot et. al., 2003).

4. Standardisation and compliance with the GRI Guidelines would result in more

information being reported and would enable stakeholder dialogue (Adams, 2004).

5. Oakley and Buckland (2004) note several advantages of a standard for TBL reporting.

Such a standards would:

• allow good practice to be codified and shared,

• reduce the learning cycle and allow previous experience to be shared and built on,

• allow professionalization and help drive out bad practice,

• provide a mechanism for those who commit to follow them,

• help consolidation and focus,

• allow comparison underpinning accountability and allowing for benchmarking,

and,

• reduce entry and transaction costs by providing ready-made templates and

management systems, and can make those costs easier to forecast.

Further commentary on these advantages is in Table 6.4 along with additional

supporting claims as to the applicability of the GRI Guidelines as the reporting

framework that could produce these benefits.

The absence of a TBL reporting standard means that social reports differ significantly from

company to company in both format and in what is disclosed thereby “confounding

comparability” (Beets and Souther, 1999). The lack of comparability between corporations

may be seen as reducing the utility of such reporting.

Triple Bottom Line Reporting: An Exploratory Study of diversity and application by Australian companies

Chapter 6: Global Developments on the TBL front - Page 150

Table 6.4 Need for a TBL standard and applicability of GRI Guidelines

Oakley and Buckland Comments (Source: Oakley and Buckland, 2004, p. 132 - 133)

Applicability to GRI Guidelines

• The standard would allow good practice to be codified and shared

This is part of the mission of the GRI Guidelines. Continual updates and improvements mean that the reporting framework is not static and remains useful to a variety of organisations

• Reduce the learning cycle and allow previous experience to be shared and built on

The GRI Guidelines provide a ready-made reporting framework for use by organisations

• Allow professionalization The GRI Guidelines are gaining credibility with an adherence to external verification/auditing of the information. External attestation of the data is a recommendation of the GRI Guidelines (GRI, 2002).

• Help drive out bad practice The GRI reporting guidelines are very detailed and structured, and there is not much room to manipulate the information required for the individual indicators. Furthermore with the need for verification, bad practices, window-dressing and public relations commentary is vastly reduced

• Provide a mechanism for those who commit to follow them

Application of a ‘recognised’ framework unifies the preparers and affords a support system as well as enabling a form of legitimacy to the reports

• Help consolidation and focus The GRI Guidelines are an established framework, with adaptations for a number of industry groups and shared frames of reference. This then frees up organisations to report information rather than worry about structure and what to include

• Allow comparison: Comparison also underpins accountability, allowing benchmarking

The GRI Guidelines highlight the need to maintain consistency in the boundary and scope of the reports and disclose changes, and re-state previously reported information and policies (GRI, 2002)

This will allow for the benchmarking of comparable activities as Oakley and Buckland note.

• Can reduce entry and transaction costs by providing ready-made templates and management systems, and can make those costs easier to forecast

Templates of the 2002 GRI Guidelines are available in hard-copy or may be downloaded from the web. There are also sector supplements available for a variety of industries.



The matter of comparability weighs heavily on any social reports, as it does on financial

reports (see AASB Framework with regards to “comparability”). Such a lack of

comparability from company to company and even from year to year would be easily

solved with the introduction of a globally-accepted reporting framework, and this is where

the GRI Guidelines would be suitable. Stakeholders would benefit from outcomes that

involve a “standard” identifying a unifying format for content and measurement, which

would be issued by a regulatory body or with regulatory approval. Companies and users

would benefit as the parameters of the reports would be clearly identified, the reports would

be complete and unbiased, and the requirements would be universally applied, meaning

that no perceived or actual market imbalance would be created because some companies

reported whilst others didn’t.

Thus the use of the GRI Guidelines as a reporting framework for TBL reporting appears to

be viable. The fulfilment of several additional matters would make the GRI Guidelines a

prime candidate for a “standard”. Firstly, timely and regular revisions would be necessary

to avoid the potential problem of promoting accepted practice rather than “best practice”

and to enable the standard to evolve to suit changing societal needs for information. This is

a feature of the GRI Guidelines, which have thus far undergone two revisions, with a third

revision “G3” about to be released. (GRI, 2006b). Secondly, modifications or extensions to

the framework should be made to suit particular industry sectors. The GRI has released

several modifications to the Guidelines to suit specific industries.4 Finally, stakeholder

dialogue should be apparent in any change process. The GRI is already undertaking this

through stakeholder dialogue both from organisational stakeholders and other interested

parties.5 The benefits and advantages of having a TBL reporting standard outweigh the

disadvantages and the GRI reporting framework is well suited to this task

6.7 Environmental policies – pressures to disclose

In the very complex area of environmental matters there is an intricate network of

influences and linkages between the company’s stakeholders, the media, environmental

groups, corporations and government policy.

4 See the Sector Supplements section of the GRI Guidelines at http://www.globalreporting.org/guidelines/06sectorSupplement.asp 5 See http://www.globalreporting.org/getInvolved/06becomeAnOS.asp for organisational stakeholders and

http://www.globalreporting.org/feedback/forum.asp for other stakeholders (GRI, 2006c).



Unfortunately research into how influences from the various groups interweave into the

bigger picture is not prolific. To untangle the “Gordian Knot”, the various sectors are

discussed individually, although there will undoubtedly be references to the others within

the separate sections. That environmental regulation has gone through many

manifestations is unchallenged, with the pendulum swinging from government regulation,

to de-regulation and even further with voluntary regulation.

Corporate environmental policies fall under two categories, charters that are developed by

an outside body, either the government or environmental agency; or those developed in-

house and customised to the company. The latter alternative has the advantage that it is

designed to cater to the specific needs of the company. Feller (1995) is of the opinion that to

a certain extent, disclosure regulations are based on the premise that, if correct information

is made available to the public, market forces can accomplish governmental goals.

Where government regulation fails or is non-existent, companies have moved

“incrementally toward environmental management, but even the best ones are still far short

of ecological sustainability” (Shrivastava, 1995a). An in-house policy is fraught with

internal problems as well6. The policy can be costly to develop, it needs top managerial

support to work and it needs to be linked to the charter outlined at the onset. An

environmental policy developed by an entity must “permeate the whole organisation and

be a seamless whole rather than a series of fragmented initiatives” (Carey, 1992, p. 91), and

monitoring processes must be part of the system (Gray et al., 1993a). Yet it is also in the

interests of the company to be ecologically sound as it can lead to cost reductions, capturing

emerging ‘green’ markets and attaining the advantageous market position of being first in

the industry to be ecologically aware (Shrivastava, 1995a).

An environmental policy that is developed in-house will be customised to meet the needs of

the individual corporation, and several common characteristics7 have been identified in the

literature (Schimell, 1991; Burke and Hill, 1990). Even so, Matten et al., (2003) note that

6 See, for example Gray et al., 1993a for pros and cons of an in-house policy. 7 Generally the policy should be comprehensive and integrate with other policies of the company. The policy

should also include goals and programs that can be measured. It should be convenient to access, readable and comprehensive, inclusive and focussed. Responsible implementation, monitoring and review should be undertaken, and board commitment and adequate allocation of funds may be necessary to achieve the goals.



‘corporate citizens’ are progressively stepping in where governments fail to protect and

administer the social, civil and political rights of their constituents.

Although many organisations have perceived a need for practical guidelines in the area of

corporate environmental policies (Gray, 1994), an in-house program is likely to have a

greater level of compliance and commitment. A study of the corporate environmental

commitment by companies in Australia showed that approximately half the companies in

their sample had an internal environmental policy and had also implemented it (Polonsky

et al., 1992). In terms of disclosures of these policies, Coopers and Lybrand (1991, 1992,

1993) noted that of the limited amounts that have been disclosed, there had been an

increase over time.

6.7.1 Stakeholder activists

In order to manipulate or focus a company’s attention onto corporate environmental policy

an emerging trend is for the shareholders, the primary stakeholders of the company, to

become involved as shareholder activists and attempt to institute changes through their

relationship with the company (Graves et al., 2001). This trend has been particularly

noteworthy in the late 1990’s, since “by claiming that environmental and social issues have

a direct effect on shareholder value, shareholder activists are moving the rhetoric of their

activism out of the realm of ‘ethics’ or good versus bad … and into that of traditional issues

of profitability, risk and shareholder value” (O’Rourke, 2003, p. 230). When an

environmental issue is presented by using formal and businesslike language/terminology

rather than zealous/emotive environmental terminology it is more often associated with

championing success (Andersson and Bateman, 2000).

There is a pivotal change in company and shareholder relationships for the truly mystifying

issue in the agenda of sustainability and corporate disclosure of environmental impacts is

that society has forgotten that the institution of the corporation is simply that. It is an

artificial construct that has been given the right by societies and governments to exist. It

does not have dominion. Korten (1997, p. 276) reminds us that:

“Corporations have no natural or inalienable rights. The corporation is a public body created by a

public act through the issuance of a public charter to serve the public purpose. We, the sovereign people,



have the inalienable right to determine whether the public purpose is being served and to establish legal

process to amend or withdraw a corporate charter any time we so choose” .

Individuals as either shareholders or employees of companies are perfectly placed to initiate

some level of change in environmental policy. Innovations in environmental issues are

often formulated and promulgated by individuals (Morrison, 1991) and individuals can also

be the catalyst for mobilising support or confronting and resolving environmental issues

(Starik and Rands, 1995). Armed with the knowledge that companies are not sovereign,

some individuals and groups are working as shareholder activists to modify corporate

behaviour through resolutions voted on at general meetings and through continued requests

for more transparent governance. Taking the opportunity to modify the negative

environmental and social dealings of a company, some non-government

organisations/environmental groups are buying shares just to vote or launch a new

campaign (Miller, 2002) or lobbying shareholder groups to vote a certain way. Under

Australian corporate legislation, all shareholders, regardless of size of shareholding are able

to attend a general meeting and there have been instances when availing themselves of this

option, environmental groups or lobby groups have raised issues at the general meeting. A

recent example of this was at a general meeting of North Ltd, when a group from ‘North

Ethical Shareholders’ interrupted proceedings to voice concern over a controversial

uranium mine at Jabiluka in the Northern Territory of Australia (North Ethical

Shareholders, 2002). However, O’Rourke (2003) warns that such action may be costly and

could motivate the company to harden its position on the issue and shut down public

communication.

6.7.2 Media coverage of environmental issues

Media coverage of environmental issues has also prompted an interest in the environment

and has increased the visibility of a variety of problems. Through reports of environmental

accidents, public health and risk stories, and financial reporting on socially responsible

companies the media has been both a boon and a burden for corporations. The level of

media manipulation and usage by environmental groups has in the past 15 years matured

considerably and has become more advanced. These environmental groups now choose

issues that are likely to receive media coverage, which is important as it means that

‘unmediagenic subjects’ are limited in media coverage regardless of their importance

(Cracknell, 1994). This may denote that the media is highly likely to choose subjects that



are photogenic, graphic and only contain information that can fit into a two or three minute

media bite, and it may be argued that this occurs with the tacit approval of environmental

groups. Unfortunately environmental stories reported in the news are dealt with in much

the same way that other items are, they are meted out in small quantities, for short time

periods and cyclically in repeated bulletins (McGeachy, 1989) — just in case repetition will

make the difference. Elkington and Zollinger (2000, p. 6) are not so scornful of media and

technologies for they note that these “new information technologies and open borders

mean that companies now live in a ‘CNN World’ which renders most forms of economic,

environmental, and social abuse as increasingly visible”.

What would seem clear is that “mass media are likely to be of major importance in the

selection, transformation and circulation of environmental meanings in society” (Cottle,

1994, p. 108). The presumption is that media coverage of an issue could lead to marked

changes in consumer and individual behaviours. Awareness of major social and

environmental issues (for example, recycling, reduction in smoking, work health and safety

issues, green consumerism, changes to unleaded petrol, and the like) could be helped along

with media saturation. Yet evidence shows that although superficial changes may be made

through media coverage of an issue, deeper environmentalism is not guaranteed (Stearn,

1988; Draper, 1987; Sandman, 1974). Furthermore there is an expectation that negative

environmental information and outstanding environmental performance would be reported

in the financial press because these items are ‘newsworthy’ (Thomas and Kenny, 1997). Yet

this hypothesis was not proven in the study by Thomas and Kenny (1997, p. 70) who found

that there was a “paucity of reporting in the financial press, particularly regarding activities

that have a negative impact on the environment”. Nevertheless from a legitimisation

viewpoint several studies, (Deegan et. al., 2002; Patten, 2002; O’Donovan, 1999) have

shown that companies provide and at times increase social disclosure information as a

result of media or newspaper exposure.

The act of publicising environmental issues means that, as well as an educational or news

function, the media plays another important role in the legitimising capacity. “The very act

of achieving media coverage can result in credibility for the … (environmental) …

organisation” since the journalist in accepting the organisation’s research confers a degree

of legitimacy upon it (Cracknell, 1994, p. 7). However, Cracknell (1994) also warns that



environmental organisations may begin to see media space and time as a measure of

success rather than how politically effective they are.

Another role attributed to media is that of attaching symbolism and metaphor to the news

(Cottel, 1994; Corner and Richardson, 1994; Einsiedel and Coughlan, 1993). There are

countless examples of the media assigning hero and villain roles to environmental players

and using such war analogies and descriptors as “battle”, “defend” and “onslaught” to

describe and to show the importance of environmental issues. Yet, in the corporate world

where restraint and control are attributes that are highly prized and expected (Rafaeli and

Sutton, 1991), use of dramatic stories and emotional language may be considered

unsuitable and ineffective (Andersson and Bateman, 2000). When, for example, reporting

on nuclear matters is undertaken, it tends to focus on the non-naturalness of the technology

and terms such as “fission” and “radioactivity” give connotations of the “global terror of

mass destruction” (Silverstone, 1986). The simplistic themes chosen for environmental

matter means that important but less visual themes are not covered and two-dimensional

reporting tends to present opposite views, thereby missing the intricacies of the issue being

presented.

6.7.3 Community level influences

Classical economics tends to attribute firm behaviour as driven by the desire to produce a

profit. If this is true then managers are selected on their ability to produce results, usually in

the short-term to satisfy the needs of shareholders. In such a climate, environmental

concerns would not take up a large slab of an investment proposal designed to achieve

returns in the short term. Managers are then rewarded for this behaviour and shareholders,

the bulk of who are institutional investors (either insurance companies or superannuation

funds), keep up the demand for short-term cash flows in the form of dividends. In a system

that rewards the achievement of short-term profits and perpetuates their desirability, to

undertake environmentally sustainable practices may not be an easy task for companies.

A voluntary change to sustainability may be difficult as many companies either do not have

the capital structure to accommodate this, or are faced with such strong industry

competition that to redirect funds to the environment would be suicidal. In instances where

there is an industry wide reluctance to undertake sustainable practices, the government may

intervene with an environmental tax to mitigate the actions (Hamilton et al., 1997).



As part of community level influences on corporations, environmental groups can use

increasing social awareness to elicit support in making policy changes and new legislation

and even prompting companies to make changes in the way they do business. This grass

roots approach would appear to be successful in that it enables individuals to take back

some control over issues that concern them. Coercive strategies by governments forcing

people to change their lifestyles don’t generally have a high degree of success, whereas

voluntary strategies do much better (Beekman, 1997). There is however a fear that the

environmentalists may be perceived as just another lobby group and thus lose their clout.

Community expectations regarding social and environmental performance are now

providing a counter or balance to the purely economic driver. Henderson and Pierson

(2004) cite the Australian example of growing public awareness and interest in the

environment over the past 20 years. This is apparent in the increased membership of the

Australian Conservation Foundation, Greenpeace and Wilderness Society whose combined

memberships rose from 9,000 members in 1980 to 152,000 members in 1991 (Deegan and

Gordon, 1996). This increasing public awareness is explained by Elkington (2004) who

notes that a series of political pressure “waves” (p. 7-9) have shaped the environmental

agenda (as seen in Table 6.5). As many of these pressures have already been discussed in

earlier sections they will not be reiterated here.

Martin (1984) identifies four particular types of strategies that environmentalists use for

action about the environment. He identifies methods such as “appeals to elites”, “electoral

intervention”, “labour based movements” and “grass-roots approaches” which may be used

to facilitate the environmental agenda. He also notes that the problem in pushing

corporations to be more environmentally aware and become sustainable is sometimes lost

in the haze created by excessive politicking.



Table 6.5 Influences on the Environmental Agenda

(as adapted from Elkington, 2004)

Waves (Influences)

Details of political pressures

1. Limits During the 1960s a wave of environmental legislation meant that industry went into compliance mode.

By the late 1980’s the wave had peaked and was on the way down with a resurgence of conservative politics around the world, even after a major impact by acid rain on many European countries.

2. Green A pressure wave stemming from the Brundtland Commission Report which injected the term ‘sustainable development’ into the political mainstream.

The wave peaked with concern focussing on ozone depletion, rainforest destruction, climate change, and green consumerism.

There was also a down-wave with a falling trend in public concern even with media coverage of such issues as controversies around companies, including Shell, Monsanto and Nike.

3. Globalisation This wave began in 1999 manifesting as protests against such organisations as the World Trade Organization, World Bank, International Monetary Fund and the like, which called attention to the critical role of such institutions in promoting – or hindering – sustainable development.

The third downwave has recently (in late 2002) begun and will focus on corporate governance, security issues and access matters (such as access to clean water, affordable energy, medicine for HIV/AIDS and so on).

Note: Elkington (2004) also expects fourth and fifth waves, with possibly shorter time periods and less dramatic fluctuations in public interest.

6.7.4 Green alliances

Partnerships between environmentalist groups (or NGOs) and companies — green

alliances — provide a policy option that can be as successful as actual regulation for the

protection of the environment. Traditionally environmental groups have taken on an

adversarial role towards business, and have helped to shape and focus public opinion

against undesirable corporate behaviour. Many environmentalist groups may engage in

mixed tactics, using cooperative behaviour to encourage business compliance and

adversarial tactics so as to preserve their credibility with their members and the public



(Hartman and Stafford, 1997). What has become more commonplace is co-operation

between corporations and environmental groups (Lober, 1997) and alliances between

NGOs and large corporations in order to effect change from within the organisations

(Friedman and Miles, 2002; Hartman and Stafford, 1997). Accordingly, Danastas and

Gadenne (2005, p. 19) contend that “the role of NGOs is critical in prompting more

comprehensive corporate social reporting”.

Most of the literature in this area has emphasised the positive nature of such alliances

(Lober, 1997; Hemphill, 1994). There are advantages to be gained by such green alliances,

and Stafford and Hartman (1996) say that the primary one is that it allows corporations the

opportunity to do good. There is also the fact that companies can gain ecological expertise,

and a promotional advantage as programs developed in liaison with an environmental

group appear more credible than those developed solely by the company (Hartman and

Stafford, 1997; Stafford and Hartman, 1996). Another advantage of such collaboration is

that the environmental groups can act as brokers or agents to access a wider range of

stakeholders (Polonsky, 1996) to build better social networks between the company and the

wider community.

Even so, the theory does not always work and does not always result in companies

becoming better citizens or in polluting less. Nor are relations between companies and

NGO’s always amenable. In their study O’Dwyer et. al., (2005, p. 34) found that “in certain

cases, the NGO leaders were quite hostile towards companies they had engaged with and

evidently mistrusted some of these organisations, especially given evidence of poor

attempts at CSD8”. Furthermore, whilst attempting to appear amenable to the arguments of

the opposing team, environmental groups (and NGOs) and certain companies are allowing

their players to mix. What then occurs is that members from environmental groups are

invited to sit on the boards of companies bringing with them an environmental conscience

and effectively placing an environmental stamp of approval on the dealings of the

company. Environmentalists on the board of Union Carbide had no influence on the

company’s refusal to respond satisfactorily or to adequately compensate the accident

victims after the gas leak from the company’s plant in Bhopal, India (Donahue, 1990). A

significant number of board members of the World Resources Institute (a major

environmental research body) have affiliations with companies, either through board

8 CSD stands for corporate social disclosures.



representations or through advisory positions. That there is a degree of capture is

manifested by these and many other examples. Yet “the NGO is …an increasingly

important phenomenon and its rise is both a reflection of profound changes within human

experience and a source of the change” (Gray et. al., 2006, p. 328).

Unfortunately close ties with corporations can lead to increased scrutiny and criticism of

the program (Stafford et al., 2000) with a resultant reduction of public trust in the social

advocacy role of the environmental agency. Environmental groups argue that their people

acquire management and negotiation skills in the corporate world and are then able to

bring an air of knowledge and sophistication to subsequent dealings. Alternatively

corporate board members sitting on the boards of environmental bodies may be perceived

as affecting decisions to the extent that the environment becomes a secondary issue to the

corporate or economic interests. Kanter (1994) stresses that successful alliances involve

‘collaboration’, which creates strategic value in a synergistic sense, rather than mere

‘exchange’ where the partners to the alliance merely reap their individual rewards.

A prominent historical partnership between the corporate sector and civil groups is the

Coalition for Environmentally Responsible Economies (CERES), a leading U.S. coalition

consisting of corporations, investor groups, trade unions, environmental groups and even

religious groups. The alliance was formed in 1988 when the Board of Social Investment

Forum (a group of socially responsible investments firms and pension funds) undertook to

form a partnership with major environmentalists to find a way that investment monies

could promote the environment (CERES, 1989). CERES was formed shortly after. As a

result of the Exxon Valdez accident in 1989, the members of CERES formed the Valdez

Principles (later re-named the CERES Principles in 1992), a declaration of 10 principles for

better corporate environmental conduct (see Figure 6.2). The CERES group considered

these principles important enough to warrant an official declaration of them.

The Principles run through the whole gamut of possible environmental matters. Beginning

with reductions in energy consumption, reduction of emissions to the biosphere, recycling

of waste, consideration of risk associated with the product right through to alerting the

public about problems with the product and/or environmental accidents.



1 Protection of the biosphere Reduce and eliminate emission of pollutants, which may cause environmental damage; protect biodiversity.

2 Sustainable Use of Resources Ensure that there is sustainable use of land, water, forests etc. Conserve non-renewable natural resources through efficient use.

3 Reduction and Disposal of Wastes

Reduction and recycling of waste where possible, and employ safe means for the process.

4 Energy Conservation Conserve energy and employ energy efficient methods for internal operations and in the production of goods; use of environmental safe and sustainable energy resources.

5 Risk Reduction Minimise environmental, health and safety risks.

6 Safe Products and Services Reduce and eliminate the manufacture and sale of unsafe or environmental damaging products; inform customers of environmental and safety impacts of products.

7 Environmental Restoration Prompt and responsible restoration of environment and correction of conditions endangering health or safety.

8 Informing the Public Disclose information about accidents and hazards; seek advice and dialogue from community; protect employees who report dangerous incidents.

9 Management Commitment Board of Directors & CEO fully informed and responsible about environmental policy; selection process for board members to include environmental commitment criteria

10 Audits and Reports Conduct annual self-evaluations to ascertain progress in implementing Principles; create independent environmental audit procedures.

Figure 6.2 The CERES Principles

(Source: CERES - CERES Principles 1989)

The CERES Principles also pre-empted some corporate governance practices with the need

to keep governing bodies informed and responsible about the company’s environmental

actions.

The CERES Principles are wholly voluntary, despite involving an element of accountability

to non-corporate interests (Humphreys, 1997). Furthermore the growing worldwide

environmental movement along with the dominance of multinational firms and the



escalating attention paid to international accounting standards all demonstrate that this

phenomenon knows no international borders (Stevens, 1991).

The impact to the accounting profession comes from the inclusion of CERES Principle 10

requiring the undertaking to create environmental audit procedures. As a response to the

lack of clearly formulated standards and the apathy by the accounting fraternity in

developing standards regarding environmental matters, it clearly hit the mark. The recent

linking of the CERES reporting model into the reporting principles of the Global Reporting

Initiative has promoted and helped the move towards a worldwide, standardised reporting

framework. This Coalition, as a successful model for voluntary regulation, has gained

considerable support over the more than two decades since its inception and is testament

that governments can legislate, but environmental and social matters may be alleviated

when there is better support for sustainability from private sector initiatives.

Many countries, Australia included, not only have the problem in controlling the

environmental impact of their resident companies, but they also feel the global and

financial influence of trans-national corporations (TNC). As TNC power threatens national

eco-systems and social structures on a global scale, it is imperative to discover a mechanism

whereby the TNC will comply with environmental goals set by the government of the

individual country. Communities and governments of individual countries have a right to

control their own economic destiny, yet globalisation has wrested control of economic

development out of government hands into the hands of large corporations that are neither

elected to do so and are not accountable to local constituents (Humphreys, 1997). It has

been argued that requiring the TNC to comply with national environmental policy may be

a difficult requirement (Lasch, 1995; Humphreys, 1997). A large multi-national corporate

tends to have a very defined corporate culture that promotes a managerial elite. This elite

managerial group of the TNC is a different breed of managers in that they do not have a

local or national loyalty, which makes them wholly indifferent to local or national interests

or concerns (see for instance Lasch, 1995). This then does not bode well for national

governments attempting to put into place environmental legislation whilst trying to

promote international investments into the country. Lasch (1995) notes that the new group

of management elites, who are not bound by national borders, concentrate on acquiring

wealth for themselves and their corporations, evade local taxes and laws were possible and

take refuge in privatised structures, instead of supporting local social and environmental



interests. The issue is then how to manage such behaviour so that national and local

communities are not compromised.

Voluntary codes of conduct setting guidelines for acceptable corporate behaviour are the

most democratic, but may be prone to manipulation or capture if these codes are

determined by the TNC’s themselves. Khor (1992) calls for more regulation and monitoring

to overcome the shortfalls and failure of market forces and self-regulation. Voluntary codes

of conduct as a means of monitoring corporate environmental behaviour are not as

effective as regulation since the efficacy of the codes is compromised when corporations

refuse to adopt them. What is eminently more suitable is the formation of voluntary codes

determined by both the corporate sector and by civil groups, or so-called green alliance.

These types of alliances are becoming increasingly more important to companies as they

“must have established trust and relationships with local stakeholders to allow them to

efficiently operate without negative interference by the local and broader stakeholders”

(Greenall and Rovere, 1999, p. 4). No company will want to reduce its profitability and no

company will enter into a situation where its competitiveness is compromised. The TNC

entity is no different. An individual TNC is unlikely to take solo action to solve an

environmental problem, yet they are more likely to take action to conserve the environment

if their business rivals are bound by the same rules and economic loss is relative for all the

entities in the cartel (Humphreys, 1997).

In Australia the cut-back in direct government regulation from the 1990’s onwards and the

increased stakeholder awareness of green issues provided a stimulus for the corporate sector

to initiate self-regulation programs with environmental group partnerships. Realising that

improving environmental performance will lead to increased returns, a new game is being

played by corporations who are beginning to get on the green bandwagon or ‘greengold’

phenomenon. Gunningham (2002, p. 24) notes that

“it is the “carrot” of better market performance rather than the “stick” of threatened regulation, that it

the main inducement for industry to participate in such partnerships. Many of the best opportunities

for green alliances come when they promise to open up market opportunities for green products, and

are principally concerned with environmental group endorsement of existing or new products, which in

turn may provide improvements in products or product sales.”



Some of these partnerships can lead to a competitive advantage through the introduction of

green technologies and products (Hart, 1997), but not all of them have such a result (Esty

and Porter, 1998; Walley and Whitehead, 1994).

6.8 Environmental protection - Australian Government initiatives

“A basic function of government is to protect citizens and their quality of life from harm. In

advanced industrial societies it is the corporation that can harm most people” (Turnbull,

2003, p. 4). Modification to achieve sustainable behaviour by individuals and organisation

is achieved through voluntary actions or as is often the case through government

intervention. Governments can use their power to legislate (on environmental matters),

monitor the level of compliance, apply the imposition of penalties and affect the market

mechanism through taxes levied or tax concessions to dissuade/promote various rights

(Burritt, 1994). There is some debate as to whether government intervention and legislation

has been a major feature of environmental protection or whether the requirement to protect

the environment has come from common law or other roots. Bates (1995) is of the opinion

that the Industrial Revolution, with its massive overcrowding in cities, poor labour health

and conditions was the catalyst for government involvement resulting in legislative activity

to improve public health and protect the environmental. He states that:

“the relatively narrow approach and scope of the common law has lacked flexibility in the face of

rapidly accelerating and expanding technology which has created threats and dangers to the

environment hitherto unimagined by common law, transcending the boundaries of private property

rights” (p. 75)

In Australia, the Federal Government has had an environmental role for approximately

30 years. The first noteworthy instance arose from conservationists defeating in the courts a

proposal to mine Ellison Reef for coral (limestone) in the late 1960’s. This was subsequent

to a long history of unrestrained development promoted by the Queensland State

Government in relation to oil drilling rights on the Great Barrier Reef (environmental

impacts) and onshore mining developments (social and indigenous impacts). The Federal

Government, in 1975, used its powers to declare the Great Barrier Reef Marine Park in

order to protect this area for future generations (Bowen, 1994). In 1901, Federation

imposed a federal and state structure on Australia, which makes formation of legislation a



difficult and convoluted process. Furthermore, the several layers of government9 in

Australia have the potential to intervene and deal with environmental issues. Indeed, Close

(1994) contends that the States and local municipal governments are hampered in their

attempts to be ‘green’ through conflicts of interest between the various government levels.

Thus a diverse commentary exists about the distribution of legislative powers between the

Commonwealth and State governments for the protection of the environment (Crommelin,

1987; Harris and Perkins, 1985).

Australian federal powers are directly curtailed due to the absence of an

environmental/ecological agenda in the Commonwealth Constitution Act enacted in 1900.

Thus the Australian Government does not have any direct legislative powers to pass

environmental laws. However that is not to say that it cannot legislate with respect to these

matters, with for instance other powers granted to it under the Constitution. Generally, the

States may legislate on all matters that are not specifically reserved for the Commonwealth,

and this would mean that the States have jurisdiction over environmental protection policy.

The Federal government, however, has formidable power under the Commonwealth

Constitution that it can use to undertake legislation for the environment. Although there

has been some historical reticence in legislating, the non-use of these powers may have

resulted in the idea that the Federal Government did not have the powers to do this

(Crawford, 1991). Yet Crawford (1992) notes that we cannot rely on the existing

Constitution for the protection of the environment, as this document was drafted at a time

when the concerns of the legislators would have been with the difficulties in

administering the vast Australian continent rather than dwelling on its natural uniqueness.

“The drafters of the Constitution would have emphasised the immensity of the continent,

the difficulties in ‘overcoming’ it, rather than the fragility of its ecosystems” (Crawford,

1992, p. 2).

There are a number of powers that the Commonwealth can use and has used for

environmental protection. The Federal Government has availed itself of the following

particular powers to promote the environmental objective (see Figure 6.3). As the list shows

there a number of constitutional powers granted to the Federal government and examples

9 There are nine governments in Australia, which consist of 1 at the federal level, 6 at the state level and 2

territory governments, all with legislative authority.



of environmental legislation enacted under these powers. The list is by no means

exhaustive10. Under these powers the Federal Government has been able to undertake

environmental protection legislation, even though the power granting validity to the Act

was for example the Trade and Commerce Power.

Thus there are several Acts that have been enacted with reliance upon a number of powers

for validity (Crawford, 1992, p. 27) or to hedge its bets (Bates, 1995). Such reliance on

several powers will hopefully increase the breadth of the legislation. Bates (1995) notes that

the volume of environmental legislation in Australia has increased dramatically in the last

decade. Three major factors for environmental legislation were identified by Barbera

(1994): the extension of liability and personal responsibility provisions for companies; lower

thresholds for emissions and stronger enforcement of emission levels; and the introduction

of ‘polluter pays principle’ linking market forces with environmental protection.

Environmental laws and strategies affect business by imposing restrictions in some cases on

materials used, production processes undertaken and waste produced. As legal

requirements become more onerous, so too does the sophistication process of detection

agencies and individual companies. Government agencies are able to detect trace levels of

pollutants in the environment and impose the requisite penalty, hopefully deterring future

illegal practices. Environmental protection agencies are empowered to impose costs or fines

on businesses, and some of these costs include compliance costs which ensure that business

activities are carried out in an environmentally responsible manner and fines or penalties

for non-compliance (Annual Report, Environment Protection Authority of New South

Wales, 1995).

10 Appendix 4 contains further commentary as to the environmental policy development in Australia.



Constitutional Power Example of Environmental protection legislation

External affairs powers World Heritage Properties Conservation Act 1983 Wildlife Protection (Regulation of Exports and Imports) Act 1982 Ozone Protection Act 1989 Antarctic Mining Prohibition Act 1991

Trade and Commerce powers National Parks and Wildlife Conservation Act 1975 Wildlife Protection (Regulation of Exports and Imports) Act 1982 Export Control (Unprocessed Wood) regulation 1986 (environmental controls for wood chips)

Corporations power World Heritage Properties Conservation Act 1983

Financial powers powers over taxation, bounties, customs and excise and specific

purpose grants

States Grants (Air Quality Monitoring) Act 1976 Australian Heritage Commission Act 1975

1992 Amendments to the Income Tax Assessment Act allowing a deduction for expenditure incurred to prevent or rectify pollution of the environment, or for clean-ups, storage or removal of waste.

Power with respect to the people of any race for whom it is

deemed necessary to make special laws (Section 51(xxvi))

Aboriginal People and Torres Strait Islander Heritage Protection Act 1984

World Heritage Properties Conservation Act 1983

Sovereign powers Implied power of the national government, power given to a

national government to engage in activities required of a

government

Environment Protection (Sea Dumping) Act 1981 Protection of the Sea (Prevention of Pollution from Ships) Act 1983 Historic Shipwrecks Act 1976 These Acts may* rely on the sovereign power of the Australia to protect and control its offshore territory

*Some commentators claim that they may fall also under the External Affairs Power

Power in relation to off-shore areas

Seas and Submerged Lands Act 1973

Fisheries in Australian waters beyond territorial limits

(Section 51(x))

National Parks and Wildlife Conservation Act 1975

Figure 6.3 Constitutional Powers and Environmental Protection Legislation

(Source: Bates, 1995)



6.8.1 Pattern of government legislation

Linking market forces with environment protection may sound feasible, but with fines that

are small in comparison to damage done or revenues earned, the signal sent to companies

is that to pollute is more affordable than the cost of clean-up or proper disposal (Beaucamp

and Girgensohn, 1992). Management plays a vital role in the company’s choice and extent

of environmental policy and adherence to external environmental regulations. If

management perceives that they will be rewarded or sanctioned for their handling of

environmental issues, then it is possible to use the market as a compliance tool. The Stock

Market is ideally situated to take on such a role, and Thomas (2001) argues that it can be

used as a cost-effective way of encouraging compliance with government environmental

policy. “If it can be demonstrated that managers will be regraded by the Stock Market for

enforcing a successful environmental policy, the need for explicit monitoring by

government is lessened” (Thomas, 2001, p. 133). Brunner (1992) believes that, for as long

as governments pursue corporate officers for environmental offences rather than employees

who may have done the damage, the courts will remain lenient in imposing sanctions and

sentences on persons who until now had been upstanding citizens.

By their very nature corporations must advance their own welfare and in so doing are

destroying this planet (Korten, 1997). It may not however be in the financial interest of

corporations to take the lead in environmental activism, in which case the responsibility

rests with governments after some prompting for community groups. Proops et al. (1996)

are of the view that the role of the government is to lead the market rather than follow the

market. Government action is then seen to be the only deed that will reflect the public

interest and will lead major system changes.

Pursuing an ecologically sustainable economy is not always consistent or a major

component of a government’s agenda for a viable economy. Crosthwaite et al. (1997) note

that there are several dimensions to this:

• Dominance of narrow economic priorities – Governments tend to be concerned with the

economic growth as a policy priority, focussing on efficiency and competitiveness as

goals to be achieved. Social and environmental considerations are sometimes given a

lower priority or left off the agenda completely, due to an electoral cycle of 3 to 4 years

that may hamper policies that do not have an economic immediacy.



• Inhibiting government policies and programs – Although there has been a concerted effort

to increase environmental strategies in the past 10 years, these are not primary policies

and any legislation tends not have the clout that is initially threatened. They argue that

subsidies to industry sectors are at times misdirected, not having the effect of

encouraging sustainability but misguidedly encouraging more consumption of

resources. For example, the 1998 proposals for “competitive payments” for Nathan

Dam in the Fitzroy basin of Queensland, Australia were touted as uncompetitive

subsidisation of inappropriate new irrigation schemes (Australian Financial Review,

1998). Roodman (1996) also states that even as it makes good environmental and

economic sense that we enact the “polluter pays principle” this is not generally the

case. He argues that in most societies the converse “paying the polluter” is the order of

the day where governments offer a myriad of subsidies for activities that end up

harming the environment, wasting money and thus weakening economies.

• Inhibiting institutional structures – Government bodies do not have the expertise to bring

about environmental policy, focussing as they traditionally have on economic goals

and policy. Any environmental departments tend to be ranked lower in the ‘pecking

order’ and tend also to have little or no influence over other departments.

6.9 Voluntary versus regulatory adoption of a TBL reporting

standard

Encouraging enterprises to take up some form of TBL reporting is a herculanean task and

involves encouragement from governments, prompting from media and guidance from

environmental groups via a conglomeration of all these bodies. Corporations are feeling the

momentum that has been gaining force, and are finding it necessary to substantiate claims

of being clean, green and ethical to stakeholders. The responsiveness of companies is

important, as too is the integration of business decision-making with considerations of the

social and environmental impacts. A reporting framework such as the GRI Guidelines will

hopefully address the wider accountability argument and promote an aspect of ethical

corporate behaviour. Irene Khan, Secretary-General of Amnesty International ascertains

that:

“For companies to take accountability seriously and, and indeed, many corporations do take

their principles and values seriously, our message is: accountability does not only mean well-



produced and sleek social and environmental reports … It means mainstreaming human

rights, labour rights and environmental concerns throughout the operations.”

In the words of two large corporations:

The AT&T Corporation, a major telecommunications company in the USA, had the

following to say in its 1998 EH&S Report. “At AT&T, we believe the time has come to think

more globally about our various stakeholders – including of course, our shareholders, but also the

communities in which we work and the Earth itself, whose health our business depends on. If we

don’t, we believe that eventually our stock price, our profits, and our entire business could suffer.”

The company commented that it has made important social contributions through its

business units and employee activities before these notions were labelled ‘triple bottom

line’. What it didn’t report back, however, were the trade-offs it had made between the

three pillars of sustainability and these are factors that may influence decisions in

capital and consumer markets.

In 1999 Shell wrote that, they “have responsibilities to a wide range of interested parties, such

as shareholders, employees, customers and others in society. And the responsibilities relate to our

financial, environmental and social impacts on each of these groups. Living up to their

expectations demands a long term perspective, embraces many non-financial considerations and

calls for balance when requirements conflict” (Shell, 1999).

Thus the need for a wider social and environmental perspective of company dealings is

becoming apparent. Yet for the implementation of TBL reports there must be a significant

commitment by practitioners and these types of reports must be supported by the business

dealings of the company. Merely reporting green news, and motherhood statements about

being fair and ethical whilst not changing the basic business dealings of the company will

not contribute to the future goal of sustainable and ethical business. Schaltegger (1997)

indicates that the main reasons for environmental statements being of low quality are

different and varying sources of information, uncertainty about accuracy,

representativeness and aggregation. Synnestvedt (2001, p. 167) notes that “it may

reasonable to assume that the firms use the opportunity to do some ‘window dressing’

because of the lack of extensive, detailed and comprehensive standards”. Whilst there is an

increasing volume of disclosure, it would appear that there are no corresponding gains in



the quality of disclosures or the accountability discharged (Adams et al., 2004; Adams,

2004; Wilmhurst and Frost, 2000; Synnestvedt, 2001).

Although the voluntary adoption of the GRI Guidelines may reduce many reporting

problems and produce many positive factors, for better efficacy, it would need to be linked

to a regulatory framework such as the approved accounting standards through the

Corporations Law. The need for regulation is highlighted by Bebbington et al. (1999, p. 50)

who note that:

“if one wishes to engage seriously in social and environmental accounting one starts from concern with

the injustices in society and the degradation of the natural environment and then looks for ways in

which to either expose accounting and finance’s complicity in this and/or looks for ways in which …

accounting and finance might ameliorate the worst excesses of corporate and accounting activity”.

The introduction of regulation involving a standard for social reporting could ameliorate

the wider social problems such as truth and equity issues, create a level playing field, and

take into account such matters as human rights issues and the rights of the environment:

6.9.1 Truth and equity issues

There is a need to increase stakeholder confidence in the ‘truth’ content of the reports. This

would facilitate and expand accountability and a legally enforceable standard would enable

redress by affected parties. Self-regulation may not be the answer as the public agenda is

vastly ignored. The GRI Guidelines, through legally enforceable application, the clear

identification of stakeholders and the requirement for external verification statement should

address these matters.

6.9.2 Creation of level playing field

National laws will not control transnational corporations, thus a global pact is needed. This

is where legally enforceable standards have clout and can force errant or misbehaving

companies into compliance. A global framework would be useful for developing nations

that do not have the resources to develop their own standards. The GRI Guidelines are

recognised as a global, multi-party initiative, thus would be more readily acceptable as a

reporting standard.



6.9.3 Human Rights

Human rights transgressions and misconduct (which have been well documented in the

media) means that human rights must be protected. Again legally enforceable standards for

social reporting in conjunction with international human rights treaties should see a

reduction in human rights transgressions. The GRI Guidelines would be well suited as they

are a global, multi-stakeholder initiative, and thus more readily acceptable as a reporting

standard.

6.9.4 Rights of the environment

The continuing damage to the environment and depletion of natural resources requires that

they be protected from further degradation. A legally enforceable standard for social

reporting highlighting environmental impacts, waste, product footprints, moves towards

corporate sustainability etc., in conjunction with international environmental protection

pacts, and national environmental protection act should see an amelioration in

environmental degradation.

The possible integration of social and environmental information with the economic is a

development that will affect many companies in the future. At present however, many TBL

reports tend to be more aspirational rather than reporting past performance (as traditional

financial statements do), but even these reports are well received (Browne, 2000).

6.10 Conclusion

The discussion in this chapter has looked at global and Australian attempts to create

reporting guidelines which have generally been unsuccessful in achieving a viable

penetration in the business world. The various agencies list ‘success’ stories of adoption and

acceptance by major corporate and multinationals, yet reporting is piecemeal or

incomplete. The GRI Guidelines appear to be the only major body of work that is more

widely accepted than any other framework. This is undoubtedly due to the number and

type of participants involved in developing the guidelines and due to their all-encompassing

nature. These guidelines are a major step towards successfully embracing the sustainability

concept of TBL reporting.



As noted in the introductory chapter of this study the fundamental objectives of the GRI

are (CERES, 1999; CERES, 2002):

• to design globally applicable guidelines for preparing enterprise-level sustainability reports; and

• elevate enterprise-level sustainable development reporting to the level of general acceptance and

practice now accorded financial reporting.

The GRI Guidelines are quickly achieving what accounting bodies around the world have

not been able to achieve or have not wanted to do. The reconciliation of demands by

shareholders for profitability and the concerns for social and environmental issues by

individuals is a perplexing dichotomy and one that will hopefully reach a mutually

acceptable stage.

The role of government in Australian environmental legislation and has found government

regulation lacking. Other key participants in the environmental regulatory framework such

as environmental groups and the media have been pivotal in driving public participation

and expectations of better social and environmental corporate behaviour. In spite of the

paucity in government leadership in environmental matters, corporations have in some

instances taken the initiative in joining with environmental groups to create and adopt

voluntary guidelines. Companies that do not engage with their stakeholders are at risk of

putting their competitiveness, sustainability and their reputations in danger (Turnbull,

2003).

The lack of effective laws and regulations in this area has meant that progress to sustainable

and ethical business has been impeded. Reporting is a viable way to communicate social

and environmental information about company practices but the process of developing

sustainability indicators, and formats for TBL reports is not one that can be undertaken by

only one participatory group. It is not for governments, nor is it for corporations, nor is it

for NGOs alone to take the lead, but it is imperative that the process be inclusive of key

stakeholders to enable a well-rounded and comprehensive structure and format.

Furthermore the social and environmental components of business performance are central

to overall good business performance, and assessment of the business as a whole should

involve the three elements of TBL reporting, economic, social and environmental. The

suite of indicators in the GRI Guidelines is a good starting point for this process and one



that allows organisations to focus on their areas of operation and the conditions under

which they do business.

The ensuing sections of this work will be an investigation of the social and environmental

disclosures of Australian companies to determine what types of information are included.

The analysis will use the GRI Guidelines as the preferred reporting framework to make an

assessment into the TBL reporting practices of the companies and to ascertain whether they

availed themselves of the Guidelines in form and content and whether they have included

verification statements in their reporting suite. The research methodology of the

investigation will be included in the following chapter, whilst the content of Chapter 8 will

be the detailed findings of the investigation and Chapter 9 is reserved for the conclusions of

this work.


Chapter 7: The empirical landscape and research methodology - Page 175

CHAPTER 7

The empirical landscape and research methodology

7.1 Background and aims

Non-financial reporting has evolved over the past three decades (1970’s – 2000’s) to be

presently dominated by a plethora of disclosure formats and adhoc practices. There has in

the past been a tendency for such disclosures to take the form of mostly textual

information, completely under the control of the individual company doing the reporting.

The discussions in the preceding chapters have looked at the progress of corporate social

reporting, looked into why this reporting is undertaken, the forms that the disclosures take,

the reporting formats and the content of the disclosures. This study adds to this rich and

diverse field of research by examining the corporate social disclosures of Australian

companies and comparing them to the GRI Guidelines as a framework by which to assess

their quality.

The aims of this chapter are to justify the research methodology used to analyse the

corporate social disclosures of the companies, and to develop the criteria by which the

reports will be assessed for quality against the GRI Guidelines. This chapter will also

contain the specific research questions that will be investigated in this work. This work is

undertaken to better understand the form of voluntary TBL disclosures by Australian

companies, how they are made, whether the form and content makes them comparable

across firms, and whether any patterns emerge in the disclosure across the sample or across

industry groupings.

7.2 The questions under investigation

As the push for corporate social and environmental disclosures steadily progresses, the

breadth of companies reporting, the depth of their reporting and, in some instances, their

actual environmental performance improves. The manner in which corporate social and

environment information is disclosed and the evolution and success of voluntary

disclosures has been a matter of discussion in earlier Chapters.



The major focus of this study rests on the analysis of the form and content of the corporate

social disclosures of the top 100 Australian companies over a two-year reporting period,

2002 and 2003. These disclosures will be investigated via the use of content analysis, and

compared against the 2002 GRI Guidelines, which is used as a framework for TBL

reporting.

There is already a growing body of literature on corporate social reporting as detailed

throughout this study. This work expands on this field of research by looking specifically

into the 2002 GRI framework, specifically, its use as a TBL reporting tool and the level and

content of the reporting undertaken by Australia’s largest companies (based on revenue)

compared to this framework.

This work is an investigation of the following research questions (RQ):

Research Question 1

Are the GRI Guidelines being adopted as a reporting framework for TBL reporting?

Although there are no mandatory disclosure requirements for TBL reports, the GRI

Guidelines provide a quasi-mandatory framework. In the absence of legally binding

requirements, such as accounting standards, companies look to other persuasive sources on

how to prepare TBL reports.

Some of these persuasive sources come from industry-based norms, board inter-locks and

even a bandwagon effect, yet a focus on the GRI Guidelines may help with content and the

structure of information for the reports.

As a result of the preceding literature review showing that several studies (Morhardt et al.,

2002; Kolk et al., 2001; Kolk, 1999; and Morhardt, 2001) in this area are using the GRI

Guidelines as a basis for analysis of the content of corporate social reports, this RQ will

expand the research into the application of the GRI Guidelines as a reporting framework.

As part of this examination, adoption of the Guidelines as a preferred reporting framework

by the companies under investigation should become apparent.



As part of the investigations for this RQ will there will also be an examination into the

numbers of companies that include verification of assurance of their TBL reports.

In order to address the concerns of stakeholders with regards to the credibility of the

information reported about economic, environmental, and social performance, GRI

recommends the inclusion of a statement of independent assurance about the full report.

This is one way that the reporting company may enhance the credibility of its TBL report.

It should also be noted here that presently Australia has several Auditing Standards1 that

can be applied or be of assistance to the audit and review of sustainability reports but there

is nothing specifically earmarked for the audit of social and environmental information.

Research Question 2

Are companies providing equal weighting to the three aspects of TBL reporting?

Building on from RQ1, the investigation here is specifically targeted at the levels of

disclosure and the breadth of topics (the reporting rates2 ) and whether these will be

significant across the whole TBL report.

For the two disclosure groupings – social and environmental – previous studies (KPMG,

2005) have shown that reporting tends to be higher for the environmental indicators. It

could be concluded that the reasons for this are based on legislative changes and societal

and media attention which have for some years now been focussed on environmental

issues. Research has shown that many companies have a tendency to disclose more

1 The Auditing Standard, AUS102 par 44 states that “Australian Auditing and Assurance Standards, while developed primarily in the context of financial report audits, are to be applied, adapted as necessary, to all audits of financial and non-financial information, to all other assurance engagements, and to all audit related services”. The audit procedures listed and described in AUS 502 are of relevance in designing audit programs. These are inspection, observation, inquiry and confirmation, computation, and analytical procedures. Additional Auditing Standards that could also be of assistance are: AUS 108: Assurance engagements; AUS 402: Risk assessments and internal controls; AUS 512: Analytical procedures; AUS 514: Audit sampling and other selective testing procedures.

2 “Reporting Rate” is the label which is used to identify the numbers of companies that undertook

reporting for the GRI indicators. For ease of use the number is converted into a rate or percentage and is shown on all the graphs in Chapter 8 as “Reporting Rate”. The term “reporting rates” is also discussed in greater length in Section 7.5.7.



environmental than social information (see for example: KPMG, 2005; Jones et al., 2005;

Australian Government, 2005; Morhardt et al., 2002; Stratos, 2001, Guthrie, 1982).

This reporting preference was noted by Gray (2002, p. 703) when he wrote that “we need to

stop this foolish running around after the latest fad — why is ‘environment’ the hot issue?

Whatever happened to employees? Are they unimportant these days?”.

Thus, the expectation is that companies will tend to have a greater level of content in their

environmental disclosures and will have more disclosures against a wider range of

environmental indicators than the disclosure of social matters.

Research Question 3

How are the TBL disclosures of Australian companies faring – via the development of a Disclosure

Score based on their conformity with the GRI Guidelines? ‘Walk the walk’ v ‘Talk the talk’

This research question will determine or rate the overall level of conformity of the

companies with the disclosures in the GRI Guidelines. The overall level will be ascertained

via a rating system3 that will be applied in this study and is used to determine an overall

Disclosure Score for each company evaluated. The Disclosure Score is then a measure of

whether the company is undertaking a shallow form of TBL reporting or is in fact taking

the TBL reporting as a serious reporting tool to assist in understanding and enhancing good

practice.

Research Question 4

Are response rates similar within industry sectors?

RQ4 tests whether there is any commonality within industries in the reporting procedures

adopted for economic, social and environmental disclosures. Past works have shown that

industries with the potential to have the highest environmental impact (petroleum refining,

3 The term “rating system” will be explained in Section 7.5.7



hazardous waste management, steel works etc) provided the highest quality of

environmental disclosures (Gamble et al., 1995). Along these lines Graves and Waddock

(1994) found that different industries displayed different levels of social performance (and

assumedly disclosures) as the issues faced by different industries could differ considerably in

a social area. Furthermore disclosures of social and environmental information have been

associated with the pollution propensity of the firm’s industry and firm size (Bewley and Li,

2000).

Research Question 5

Is the TBL Disclosure Score (as determined via the rating system) closely related to the company’s

performance as measured by total income?

Given that there may be a relationship between social and environmental performance and

investment returns (Hart and Ahuja, 1996; Cohen et al., 1995; Feldman et al., 1997), the

question then arises as to whether any correlation can be found between another

performance variable – that of the company’s income and its focus on the “green and

social” aspects of its business. Griffin and Mahon (1997) found that net income (earnings)

had been used by several studies to determine any relationship between corporate financial

performance and corporate social performance.

Extrapolating from this, net income/revenue will be used to assess financial performance

and the corporate TBL reports will be used as a surrogate for social performance. Thus this

investigation will explore any link/relationship between these two factors by undertaking a

correlation analysis of the two variables - overall Disclosure Score (or rating) given to the

company’s TBL report and the company’s reported income/revenue, Total Revenue.

The expectation is that there will be a significant positive correlation.

The choice of revenue as one of the variables in the RQ is based on two presumptions:

1. Reporting businesses consider economic considerations as the major driver for social

and environmental responsibility (KPMG, 2005). Economic considerations/reasons



represent increased market share and better opportunities, and these can then be

extrapolated out as resulting in more revenue.

2. Larger corporations will have the resources to commit to social and environmental

issues and their subsequent disclosures. The resultant benefits are thus better reporting

and better revenue as the company sends the correct signals to the market.

Other combinations linking TBL reporting (specifically social and environmental

disclosures) to say CEO remunerations were rejected for this study due to the mixed results

in other studies. A very weak negative relationship was found between the level of CEO

remuneration and environmental performance in a study by Barut and Greilach (2004)4,

which is in line with a US study by Stanwick and Stanwick (2001) that showed a significant

negative relationship between CEO salary and environmental reputation.

7.3 Introduction to the methodological framework

The methodological framework adopted in this analysis is outlined in this chapter. The

study has been based on the collection of TBL disclosures (economic, environmental and

social disclosures) from the top 100 companies in terms of revenue (with some of these

listed on the Australian Stock Exchange). The reports were assessed against the 2002 GRI

Guidelines for Sustainability Reporting, which were used as the preferred TBL reporting

framework. The reports were evaluated using a ranking system developed for this purpose.

As a result of the analysis the expectation of the contribution to the corporate social

reporting literature is twofold:

1. This study will give a measure or benchmark of the current TBL reporting of large

Australian corporations. The measure is ascertained via the use of a scoring system

based and framed around the 2002 GRI Guidelines. Comparability in reporting content

was assessed on a company-to-company basis as well as via an industry breakdown.

4 Furthermore, from an investigation (see Barut and Greilach, 2004) into the remunerations paid to CEOs and the narrative disclosed in corporate annual reports about their performance incentives, it is apparent that environmental excellence is not yet a hurdle for CEO performance in Australian companies. The company’s shareholders, appear to maintain a focus on capital gains and returns and judging by the incentive packages approved for CEOs, they believe that these returns are purely derived from financial excellence and not an overall excellence, which would incorporate the environmental as well.



The results of this analysis are useful in determining any industry propensity towards

TBL reporting.

2. The study undertook an investigation into the applicability of the GRI Guidelines as a

universally-acceptable reporting framework to be adopted as part of suite of reports

comprising the environmental, social and financial reporting of companies.

7.4 Research assumptions

The TBL reports under investigation in this study were sourced from a list of the largest 100

companies based on total revenue. The reports selected for analysis were those that are

produced for external use or publication, thus they must have been available in the public

domain. No attempt was been made to access specialised information or information that is

not publicly accessible. The rationale for this is detailed later in this chapter. As these

reports are a specific type of external report, the qualitative requirements applicable to these

are similar to general-purpose financial reports (FEE, 1999b; GRI, 2002). The reporting

principles listed in the GRI Guidelines (see Figure 7.1) rank closely to the FEE

requirements (which are in brackets): transparency, inclusiveness (conciseness and

materiality), auditability (reliability), completeness (completeness), relevance (relevance),

sustainability context, accuracy neutrality, comparability (comparability), clarity

(understandability) and timeliness. Some of these characteristics, for example, the

characteristic that reports are expected to be complete and concise, will result in choices

being made by the preparer as to the ranking of one criteria over another (Kolk, 1999).

Having made the assumption of similarity, it is imperative to understand that these TBL

reports are not actual financial reports and there is lack of consensus as to what should be

included in them. There is no GAAP as justification for inclusion, recognition, and

valuation, as such the added difficulty of what to measure and what values to attach to the

various categories can plague report-preparers.

Environmental and social disclosures although becoming more frequent are not linked into

any universally or nationally accepted standards, and the 2002 GRI Guidelines would be a

viable means of bringing about a greater level of harmonisation to TBL reporting. As such,

the 2002 GRI Guidelines are the focus of this investigation.



TransparencyTransparency

InclusivenessInclusiveness

Tim elinessTim eliness

Susta inabilityContext

Susta inabilityContext

RelevanceRelevance

Com pletenessCom pleteness AccuracyAccuracy C larityC larity

Com parabilityCom parability

NeutralityNeutrality

Decisions about what to report

Decisions about what to report

Quality/re liab ility of reported info

Quality/re liab ility of reported info

Accessib ility of reported infoAccessib ility

of reported info

AuditabilityAuditability

INFORM S

Figure 7.1 GRI Reporting Principles (adapted from GRI, 2002)

The issue of materiality may not be a matter of consequence where information relating to

environmental disclosures is concerned, as users may require that any environmental

information regardless of size is significant in their decision-making. (ICCA, 1998).

Significance attached to environmental matters goes beyond the accounting concept of

materiality and the criterion of financial size of numbers does not suffice here (Kolk, 1999),

thus distancing corporate social disclosures from materiality is a major issue in the

reporting/disclosure of environmental matters (Deegan 2000).

It may be suggested that the primary consideration in securing a TBL Reporting model in

the present situation should be the selection of a framework that is able to be put into

universal use by firms, whilst enabling any specific adjustments to suit the particular needs



of the individual firm. The difficulty with models that exist at the moment and whose

development has occurred with only limited input of industry, professional and government

representatives is that such models commonly lack the functionality and acceptability of a

collectively produced model. Such a model would include a high level of validation, even

though the achievement of validation of the model may have to be modified to be useful in

industry specific scenarios. Even so, some of the existing frameworks/models have received

reasonably intense scrutiny but their full utility has only recently begun to be tested by

companies reporting in Australia and by transnational companies. As such, the choice has

been made not to consider other frameworks/models developed as most of the earlier work

has fed into the development of the 2002 GRI Guidelines and focussing assessment on this

one model is considered sufficient to encompass earlier frameworks or less complete

existing frameworks. (See Chapter 6 for a discussion of earlier work.)

The applicability of the GRI Guidelines, as a global reporting framework, may be

questioned. The framework is aspirational, and may be seen as somewhat anglocentric and

may put too much pressure on firms in developing countries to be environmentally and

socially aware. This is refuted in the GRI document itself, which recommends partial

adoption of the Guidelines to suit the requirements of the entity. To alleviate national

peculiarities, a home-grown model or Australian model may be achieved via the

incorporation of country-specific criteria in the GRI Guidelines, leading to a wider

acceptance of the framework as a result of a greater allegiance with a local product. Yet,

any such advantage would be significantly offset by the time required to develop a

framework for adoption by Australian companies. The financial commitment to develop

such a model is not likely to be insignificant and consideration should be given as to who

should be lumbered with the burden of bearing the cost or with the process of modification.

Given that the necessary processes for environmental and social reporting can be reliably

developed form a particular model or framework, the first stage of the process is an

assessment to determine whether such a framework has the functionality required by the

preparers and the stakeholders. This is to some extent dependent on what outcomes are

expected from the framework. Prior models and frameworks (see Chapter 6) do not

encompass all the three prongs of TBL reporting being either separate modules addressing

the individual units for either environmental or social ramifications, and as such in being

used to determine sustainable performance of the company are not highly successful. The



use of a framework that has all the three systems linking into one major functional report

should have various operational applications to suit most instances. Frameworks without

these components suffer from limitations, as it places a greater onus on ensuring the quality

of the reporting in other areas to supplement for the missing sectors and on scientific or

specialist advice into any sustainability planning exercise.

7.5 Description of data collection procedure and techniques of

data analysis

This study is an analysis of TBL reports of the top 100 Australian companies (in terms of

revenue), some of which are listed on the Australian Stock Exchange. The data collected

for this study was sourced from the top 100 public companies (based on total revenue5 as an

indicator of size) for the 2002/03 and 2003/04 financial years. Table 7.1 presents a list of

these companies and the data is presented in descending order of net revenue, with BHP

Billiton as the company with the highest net revenue down to the Compaq Computer with

the lowest net revenue on the list. To identify which reports to study, it was considered that

companies listed on the stock exchange would be the first priority.

Justification for this is that they are firstly reporting entities and will have published annual

reports accessible by the general public as a minimum and, secondly, these companies are

likely to have a large group of stakeholders and accountability and governance factors

would play a role in what gets disclosed.

5 In this study the information about the size in terms of revenue was sourced from the BRW annual list of the 1,000 largest listed enterprises (The BRW1000 List). The list is published by the BRW magazine on an annual basis and is based on research from IBISWorld.



Table 7.1 Top 100 Companies (Ranked by revenue – balance date in parenthesis)

Rank Company (Balance Date) Net Revenue ($M) 1 BHP Billiton (6/02) 30,200.00 2 News Corporation (6/02) 29,014.00 3 National Australia Bank (9/02) 28,500.0 E 4 Coles Myer (7/02) 26,737.40 5 Woolworths (6/02) 24,984.80 6 Telstra (6/02) 20,802.00 7 Rio Tinto (12/01) 20,187.00 8 Commonwealth Bank (6/02) 15,961.00 9 Westpac (9/02) 15,280.00

10 Tattersall's Holdings (6/02) 14,663.50 11 Mitsui & Co (3/02) 13471.4 # 12 Lend Lease (6/02) 12,478.00 13 ANZ Banking Group (9/02) 12,007.00 14 Shell Australia (12/01) 11,355.30 15 Qantas (6/02) 11,322.60 16 Brambles (6/02) 9,925.00 17 ExxonMobil (12/01) 9,873.00 18 QBE Insurance (12/01) 9,492.00 19 Amcor (6/02) 8,532.20 20 Wesfarmers (6/02) 7,385.70 21 Toyota Motor Corporation (3/02) 7217.8 # 22 CSR (3/02) 7,194.80 23 Futuris Corporation (6/02) 7,134.50 24 Metcash (4/02) 6,177.70 25 Coca-Cola Amatil (12/01) 5,904.40 26 BP Oil Australia (12/01) 5,820.60 27 Holden (12/01) 5,806.60 28 SingTel Optus (3/02) 5,292.10 29 Axa Asia Pacific (12/01) 5240 # 30 Leighton Holdings (6/02) 5,220.20 31 Foster's Group (6/02) 5,164.00 32 Mayne Group (6/02) 5,110.40 33 Foodland (8/02) 4,905.30 34 Caltex (12/01) 4,896.40



Table 7.1 Top 100 Companies (Ranked by revenue – balance date in parenthesis) (Continued)

Rank Company (Balance Date) Net Revenue ($M)

35 Telecom NZ (6/02)* 4,779.90 36 BHP Steel (6/02) 4,593.00 37 Suncorp Metway (6/02) 4,508.00 38 AMP (12/01) 4,359.00 39 Orica (9/01) 4,187.40 40 Queensland Health (6/02) 4,185.50 41 Insurance Australia Group (6/02) 4,138.00 42 MIM Holdings (6/02) 4,037.10 43 St George Bank (9/02) 3,916.0 E 44 Air New Zealand (6/02)* 3,838.70 45 Australia Post (6/02) 3,758.30 46 WMC (12/01) 3,676.20 47 Flight Centre (6/02) 3,613.60 48 Boral (6/02) 3,525.90 49 Alcoa World Alumina Australia (12/01) 3,456.90 50 Goodman Fielder (6/02) 3,419.70 51 IBM (12/01) 3,345.20 52 Medibank Private (6/02) 3,280.20 53 Ansell (6/02) 3,190.40 54 PaperlinX (6/02) 3,186.40 55 AGL (6/02) 3,148.40 56 Visy Industries (6/02) 3,100.00 57 OneSteel (6/02) 2,986.50 58 Smorgon Steel (6/02) 2,967.90 59 Ford Australia (12/01) 2,913.00 60 Southcorp (6/02) 2,822.30 61 BAT Australasia (12/01) 2777.3 # 62 Reserve Bank of Australia (6/02) 2,727.00 63 Australia Meat Holdings (5/02) 2,714.30 64 Mitsubishi Motors (12/01) 2,694.00 65 Woodside Petroleum (12/01) 2,686.80 66 CGNU Australia (12/01) 2,672.30 67 Macquarie Bank (3/02) 2,597.00 68 Carter Holt Harvey (12/01)* 2575.2 # 69 Fletcher Building (6/02)* 2,552.60 70 Publishing & Broadcasting (6/02) 2,534.00



Table 7.1 Top 100 Companies (Ranked by revenue – balance date in parenthesis)

(Continued)

Rank Company (Balance Date) Net Revenue ($M) 71 ING Australia (12/01) 2,478.00 72 Downer EDI (6/02) 2,442.40 73 Origin Energy (6/02) 2,428.80 74 Royal & Sun Alliance Australia (12/01) 2,389.00 75 EnergyAustralia (6/02) 2,333.00 76 Roads and Traffic Authority NSW (6/01) 2,259.50

77 Spotless Group (6/02) 2,187.40 78 Nestle (12/01) 2,187.20 79 Queensland Rail (6/02) 2,184.40 80 Lion Nathan (9/01) 2,143.10 81 Toll Holdings (6/02) 2,086.10 82 Commonwealth Super Scheme (6/02) 2,076.70 83 Australian Taxation Office (6/01) 2,055.30 84 Invensys (3/02) 2,024.60 85 Murray Goulburn Co-op (6/02) 2,000.00 86 Allianz Australia (12/01) 1,990.00 87 Tabcorp (6/02) 1,967.70 88 AWB (9/01) 1,956.80 89 API (4/02) 1,918.20 90 Victorian WorkCover (6/01) 1,912.80 91 State Rail NSW (6/01) 1,888.30 92 Energex (6/01) 1,870.50 93 DaimlerChrysler (12/01) 1,770.20 94 Hanson Australia (Holdings) (12/01) 1,730.0 E 95 David Jones (7/02) 1,724.60 96 Newmont Australia (6/02) 1,705.5 E 97 Sigma (1/02) 1,704.60 98 Crane Group (6/02) 1,668.90 99 Vodafone Australia (3/02) 1,659.20

100 Compaq Computer (12/01) 1,658.80 # Non-standard accounting period

E Estimated Revenue

Source: BRW Top 1000 Australian and New Zealand Companies 2002 Adjusted to exclude New Zealand companies not listed on the Australian Stock Exchange



7.5.1 Choice of large companies

There is the expectation that large companies are more aware of environmental and social

issues, are more visible and more scrutinised (Mobus, 2005). In fact a common motivation

for the relationship between size and disclosure is that larger firms are politically visible and

therefore are more likely to adopt measures to reduce that visibility (Watts & Zimmerman,

1986). Thus one such measure to reduce political costs could be the inclusion of social and

environmental disclosures in the reporting regime of the firm. Furthermore large companies

are at a higher maturation level causing them to be more considerate and accepting of

international changes in this field. The selection of large companies is further justified

because it has been found that there are size effects in social and environmental reporting

(Mobus, 2005; Yongvanich and Guthrie, 2005; Barut et al., 2003; Kent and Chan, 2003;

Orlitzky, 2001; Adams et al., 1998; Hackston and Milne, 1996; Blacconiere and Patten,

1994; Patten, 1991; Guthrie and Parker, 1990; Cowen et al., 1987; Trotman and Bradley,

1981).

The Australian study by Trotman and Bradley (1981) examined the link between corporate

characteristics and social responsibility disclosures. Their results indicated that corporations

that supply social responsibility information are on average larger, and are more concerned

with longer-term events. The study by Cowen et al. (1987) was based on 134 companies

across 10 industries. The variables tested by the authors were for company size, industry

group, profitability and the presence of a corporate social responsibility committee. Their

findings suggest that firm size is a significant positive factor in explaining the relationship to

total environmental disclosure, in that the larger the firm, the more disclosure there is likely

to be.

Although this study looked at Australian companies, there are several companies in the

sample which are subsidiaries of large overseas parent companies. Thus an international

flavour to the size issue was also relevant. For instance Adams et al., (1998, p. 5) looked at

the social disclosures of “the largest 25 companies in each of the six Western European

countries for which English language annual reports and accounts were available”. Their

findings were that larger companies disclose more, and this held true both across Europe

and across all three types of social information: environmental, employee and ethical

disclosures.



Thus along with an analysis of the three components of TBL reporting, the association of

these disclosures against the industry sector of the companies in the sample was examined.

In this area of research, observations of nationality, sector and size have been found to

matter in environmental reporting (Kolk, 1999). Sector specific issues may be addressed

through a breakdown into industry sectors providing some answers and similarities. Sector

specific guidelines have been recognised as problem areas by major environmental groups

(CERES, 2000a; CERES, 2000b) and are also being addressed by the GRI, which is

presently modifying the GRI Guidelines for industry specific requirements (GRI, 2003).

The environmental disclosures of transnational organisations (TNOs) have been of keen

interest to researchers due to their size, high visibility and the widespread influence of

TNOs. Their effect is felt in their ability to coordinate resources and data, and their

perceptions and capacity to communicate environmental issues, which has then a major

impact on other entities (Kolk et al., 2001, Tsai and Child, 1997). The issue of country of

incorporation of the ultimate parent company/entity has not been considered in this study

as the focus is on companies listed on the Australian Stock Exchange. Large companies

tend to be exposed to a greater level and degree of understanding of international impacts.

Furthermore even if these large companies have considerable overseas activities, their

significant profits are remitted back to mostly Australian stakeholders. Thus the ranking

based on revenue reflects the impact the companies have on the local economy and

employment market. Other means of selecting companies for the study, for example market

capitalisation were not considered appropriate for this study. Market capitalisation

indicates the valuation of the company according to the market prices at which the shares

are traded on the Australian Stock Exchange. This valuation results in a different ranking

of the companies and is based mostly on perceptions of the stock market rather than on

actual sales and revenues derived by the company. As such this method was rejected as a

ranking technique.

Even with companies that have an ultimate parent company that may not be domiciled in

Australia, the research implications are centred on the present Australian financial

reporting requirements supplemented with GRI Guidelines. Thus any financial data

presented by these companies is in Australian monetary units, and any other disclosures

should result from Australian economic impacts and considerations. There are a number of

studies analysing the environmental and social disclosure of large firms in the US (Alnajjar,



2000; Davis-Walling and Batterman, 1997; Lober et al., 1997; Gamble et al., 1995; and

Radtke, 1995) the UK, Europe and even Japan (Gray et al., 1995; Roberts, 1991;

Yamagami and Kokubu, 1991). Studies relating to the environmental and social disclosures

of Australian companies have concentrated mainly on counting lines of text or looking at

news reported (Deegan and Gordon, 1996; Mathews and Davey, 1996; Guthrie, 1982).

A research project into sustainability reporting was undertaken by Jones, Frost, Loftus and

van der Laan in July 2005 to look into the sustainability/TBL reporting practices of the top

500 companies in Australia. The study investigated such general characteristic in the

reports of the companies as the use of a recognized non-financial reporting framework,

such as the GRI Guidelines. Jones et al., (2005) note that their sample size consisted of 24

companies and the sustainability disclosures of these companies were analysed against the

GRI indicators. However, their analysis “only considered whether or not a GRI category

was addressed, not the extent or level of detail provided” (Jones et al., 2005, p. 9)

As such, no study thus far has evaluated the content of the TBL disclosures of large

Australian companies against an acknowledged framework, the GRI Guidelines. The

resultant findings could potentially function as a justification for the application of such a

mandated framework/model to a standard on corporate social reporting.

7.5.2 Sources of information

The information for the study was derived from three sources.

• Separate published TBL/corporate social reports. These reports are generally stand-

alone publications clearly focussing on the social and environmental aspects of the

company, and act as a supplement to the traditional financial reports.

• Annual reports that include TBL/social and environmental information. The reports

targeted are those that contain sections about the company’s social and/or

environmental dealings. The traditional financial reports that are purely financial in

nature were not considered for the analysis, as they do not fit into this study.

• TBL/Corporate social and environmental information published on the company’s

website. This information was at times able to be downloaded as hard-copy reports, or



conversely able to be accessed only as a web document. In the sample of the

companies analysed there were several such ‘pure’ web reports that were available.

No specialised information or information that is not publicly accessible had been used, nor

has there been any distribution of questionnaires. The reports that were accessed from the

company websites were variously described as sustainability reports, community and

environment reports, environmental and social reports, environment and wellbeing reports and the

like. The reports were either downloaded from a file available on the company websites, or

a hardcopy document or CD version was sent out to the researcher.

The search for information was primarily undertaken for stand-alone TBL reports, but was

not limited to these. Where no discrete TBL report existed, an investigation for social and

environmental information in annual reports and web-based sources was also undertaken.

The Guidelines (GRI, 2002, p.17) makes specific comment about various reporting formats:

“Most organisations publish separate financial and sustainability reports; however, a few

corporations have begun to experiment with publishing a single annual report including

financial, economic, environmental, and social information. GRI believes that both financial

reporting and sustainability reporting serve parallel and essential functions that enrich each

other. GRI encourages the coordination of both reporting processes and expects that over time

financial performance measurement increasingly will benefit from the measurement of

economic, environmental, and social performance.”

7.5.3 Size of the population

As specified earlier, a collection of the TBL/environmental and social reports/disclosures

were sourced from companies, all of which were available in the public domain. Table 7.1

(seen earlier) shows the Top 100 entities listed on the Australian Stock Exchange, which

have formed the basis of this study. Use of the GRI Guidelines as a framework against

which to evaluate the TBL report of the companies in the sample has meant that some of

the companies were not suitable for further analysis. The major criteria for excluding

companies were:

1. The companies did not produce any social and environmental information or reports,

or where any commentary exited is was limited to a few sentences about employees and

about the community in the annual report. Thus the decision was made to exclude



these reports from the analysis on the grounds that they did not fit the selection criteria

of disclosures that had at least one indicator in each of the environmental and social

sections for the both years so that the information could be evaluated against the GRI

Guidelines. There were a couple of exceptions to this where the company had no

environmental disclosures in one year, but included some information in the second

year. In other instances the information was a web-based format and the types of

disclosures increased in the second year along with some comment about the

environment/sustainability in the annual reports.

2. The companies had information that could not be matched against the GRI indicators,

and at times the information that was included was so limited as to be non-viable in

either or both categories for social and environmental disclosures. Such information

tended to be disclosed on web pages were the company merely listed the names of

community programmes they were involved in, and gave no quantifiable data. Included

in this group were companies, which had several lines of commentary about “valuing

their employees” and “caring about the environment” whilst making no attempt to

explain these statements.

3. The companies merely reported limited commentary about community programs or

product information on the websites that did not link back to the economic components

of the company.

The focus of this work is on reports produced by companies that give information about the

ecological and social impacts on the environment. To this end the types of data identified

as useable take the form of individual hardcopy reports, individual web sourced reports or

as supplementary information within the traditional annual reports or financial statements.

Where the information was published on the company website and it displayed some

conformity to the GRI Guidelines, then the information was downloaded and became part

of the study. Of the Top 100 companies as listed in Table 7.1 only 37 companies were

suitable for this study and had some from of ‘complete’ TBL reports6.

6 Although there has been increase over the past few years there are at present 54 Australian companies presently listed on the GRI website as using the GRI Guidelines (GRI, 2005). Of these companies there are 10 companies classified as “public energy” or utilities companies denoting a public sector influence in the adoption of the GRI Guidelines.



Table 7.2 shows the list of the companies used in the study. Thus, these 37 companies

roughly forms the entire population, at this point in time, that fits the definition of the focus

of this study.

Table 7.2 List of companies used in the Study (ranked alphabetically)

1 5Alcoa Inc2 9Ansell Ltd3 5ANZ Banking Group Ltd4 Australian Gas Light Company5 Aviva Corp Ltd (formerly CGNU)6 BHP Billiton7 9BP PLC8 8Brambles9 British American Tobacco - BAT10 8Caltex Australia Ltd11 5Carter Holt Harvey Ltd12 5CSR Ltd13 1DaimlerChrysler 14 0Energex 15 5Ford 16 General Motors - Holden 17 2Hanson PLC18 Hewlett-Packard Co19 7International Business Machines Corp- IBM 20 4Leighton Holdings Ltd21 0Mitsubishi Motors Corp22 2Mitsui & Co Ltd23 4Orica Ltd24 1Origin Energy Ltd25 7Queensland Transport & Rail 26 1Rio Tinto Ltd27 2Royal & Sun Alliance Insurance Group PLC28 6Royal Dutch Petroleum Co - Shell29 2Singapore Telecoms Ltd (formerly Optus)30 8Telstra Corp Ltd31 Toyota32 3Wesfarmers Ltd33 6Westpac Banking Corp34 1WMC Resources Ltd35 2Woodside Petroleum Ltd36 1Woolworths Ltd37 Xstrata PLC



The companies in the sample were also classified on industry sector, and this was based on

their Global Industry Classification Standard (GICS), which is a joint Standard and Poor

Stanley Capital International product aimed at standardising industry definitions6. There

are 10 Industry Sectors, of which the Top 100 companies represented 9 sectors, and these

sectors are further divided into 23 Industry Groups. The Industry Sector classifications were

used to test for similarities within industry sectors (RQ 4), but the Industry Groups were not

used for this analysis due to the small population size (37 companies) (see Table 7.3).

Table 7.3 ASX Industry Sector Classification of the Data

Industry classifications of Data

Industry Sector No of Companies Energy (Code 10) 7

Materials (Code 15) 9

Industrials (Code 20) 4

Consumer Discretionary (Code 25) 6

Consumer Staples (Code 30) 2

Healthcare (Code 35) 1

Financials (Code 40) 4

Information Technology (Code 45) 2

Telecommunication Services (Code 50) 2

Utilities (Code 55) 0

Total 37

7.5.4 Reporting years used

The data for this research was gathered from information on the environmental and social

disclosures or reports and was collected for the 2002/03 and 2003/04 financial years. As

noted earlier, the reports were sourced either directly from the companies or via reports

accessed from company websites – that is, only public domain information readily

accessible by stakeholders was considered. Some of the data in this study were sourced

6 Has been adopted by the ASX effective 1 July 2002



from corporate social reports and in some cases from the annual reports. This was not

perceived to be a problem. The separate corporate social reports are seen as extension of the

annual report and, although not directly attached to the annual report, still form part of the

information that the company is disclosing and has discretion over. Guthrie and Parker

(1989) note that the annual report is a source of communication medium over which the

firm has complete editorial control and is therefore not likely to be tainted with journalistic

interpretations and distortions that at times occur through the media. This could therefore

extend to corporate social reports.

The choice to source publicly-available data was made on the basis that, as this information

was available to all stakeholders, it would be representative of what the company wanted to

‘show’ to the world. Some of the information from the company annual reports shows the

content of annual reports has changed over time, containing more voluntary information

than ever before (Anderson and Epstein, 1995). Annual reports may be vehicles to

manipulate opinions as they tend to include messages designed to “construct reality” by

communicating managers’ interpretations of reality (Hines, 1988). This use of the

company’s version of reality is likely to manifest itself in any environmental and social

reports as well, as these form part of the reporting requirements of the company.

Community and environmental groups see the annual report as the major source of

information about social and environmental matters (Tilt, 1994b). Although the annual

report is viewed by many users as a major source of communicating environmental

information and few users seek information from other sources (Rankin 1996), the use of

additional environmental and social reports are theorised to have the same impact.

A large number of researchers (see below) have used the corporate annual report to conduct

research into the social and environmental disclosures of companies. The annual report is

seen as the predominant source of corporate communications to investors and even as far

back as the 1980’s (Rockness, 1985; Wiseman, 1982) widely used by companies for social

disclosures. The annual report is also considered to be an appropriate source of a

company’s attitudes to social reporting and its own social imagery (O’Donovan, 2002;

Deegan et al., 2000; Gray et al., 1995b). Campbell et al. (2003, p. 566) support the use of the

annual report, noting that the “permanent record nature of the annual report (compared to

other communications whose content maybe considered to be ephemeral)” acts in its

favour.



As noted earlier, the collection of information for this work was undertaken from corporate

social and environmental reports and also from websites. The use of websites as

information sources is considered to be a viable source of data (Andrew, 2003), because

websites are generally updated more frequently than an annual report and because

information can be linked to many other sources. Ideally in an analysis of corporate social

disclosures all forms of data reaching the public should be used (Gray et al., 1995b). Thus

the proliferation of the activity by companies in the use of web-based dissemination of

company information enables a wider source of data.

Other forms of reporting available in the public domain, such as disclosures in brochures

may give more information about the social activities of the companies but are of generally

poor quality (Zeghal and Ahmed, 1990), and were excluded from this study. Whilst

traditionally there has been a proliferation of ad hoc reporting in the area of social and

environmental disclosures, an increasing exigency is compelling companies to move away

from reporting intentions and visions statements to reporting quantifiable, comparable,

verifiable and even audited reports.

7.5.5 The focus of the research

The analyses focused on those companies using TBL reporting or producing a social and

environmental report. All the reports were analysed for their individual components for the

three systems underlying the GRI Guidelines and aspects of TBL reporting, ‘economic’,

‘environmental’ and ‘social’. Even as the data in the sample was analysed for compliance

with the GRI indicators, it was conceivable that there would be components in the

company sustainability or TBL reports that would either be industry-specific, or be of such

import that they are highlighted and reported by the company. Where this is the case, the

analytical framework has provisions for additional disclosures.

7.5.6 Analytical techniques used

The corporate social and environmental reports were analysed using content analysis

(Krippendorff, 1980), which has been widely used in studies of annual reports in the areas

of social and environmental reporting (Yongvanich and Guthrie, 2005; Kent and Chan,

2003; Tilt, 2001; Hackston and Milne, 1996; Guthrie and Parker, 1990; Zeghal and Ahmed,

1990; Guthrie and Mathews, 1985; Abbott and Monsen, 1979).



The reports in this study were analysed for their content in the three TBL areas of

disclosure, economic, environmental and the social components of the reports. The content

of the reports was compared and evaluated against the requirements of the 2002 GRI

Guidelines (see Chapter 8 for a detailed listing of indicators in the economic, social and

environment sections), and scored for their observance with the disclosures outlined in that

document. One objective of this study was to evaluate the reports for their compliance with

2002 GRI Guidelines. The Guidelines were chosen because:

• at present they represent the best practice and the most complete and up-to-date

reporting framework that exists (Deegan, 2005; Stratos, 2001),

• they have a high international profile and influence (Adams, 2004, p. 733),

• they are widely used and widely accepted in the commercial world (Weber et al., 2005),

• they cover economic, social, environmental and governance issues, (Weber et al., 2005),

• the GRI indicators can be categorised and quantified (Weber et al., 2005), and,

• they recommend external attestation of the data (GRI, 2002).

Some purists would argue that such objectives neglect the financial needs of the investors,

since the GRI disclosures are not overly financial in nature and may lack complete

information about profitability and financial stability. Yet financial reports are required

under corporations’ legalisation, thus the ‘financial information’ needs of users are not

neglected. The information that is therefore provided to investors under the GRI

framework,

1. enables users to assess the effect of environmental and social concerns on the risk to

company cash flows and timing of cash flows,

2. may been perceived as acting as affirmation of the financial information already

produced by companies, and,

3. as acting as a response to stakeholder interests and demands.



Page proportion counting and line/sentence counting of social disclosures, although

successfully used by other researchers to ascertain the level of voluntary disclosures (see

Jupe, 2005; Campbell, 2000; Unerman, 2000; Jantadej and Kent, 1999; Grey et al., 1995b;

and Gibson and O’Donovan, 1994, to cite a few), was not appropriate for this analysis. An

important aspect of this study is the evaluation of the quality of disclosures about the

company’s commitment to TBL matters and reporting. As such page count/line count

methods and page proportions (which may include pictorial content showing pipelines

being laid, or mines sites being rehabilitated) are not an adequate means to evaluate

content. The alternative is to use a word count method (Wilmhurst and Frost, 2000;

Deegan and Gordon, 1996; Deegan and Rankin, 1996), which some authors believe is

more viable as it records only those disclosures in which an intellectual investment has been

made (Campbell et al., 2003). However, prior studies have also assumed that a greater

quantity of disclosures implies higher quality disclosures (Gray et al., 1995; Zeghal and

Ahmed, 1990).

Kent and Chan (2003) undertook a study of the corporate social disclosure of 102

Australian companies in order to provide a theory to explain voluntary social disclosures.

As part of the study, they assessed the quality of disclosures by means of the number of

sentences disclosing environmental information. The social disclosure passages were

extracted from various sections of the annual reports then rated after reading to reflect the

quality of the disclosures as a whole and not the individual sections. To assess the elements

of “good environmental disclosure” the authors used components adapted from the ACCA

Environmental Reporting Award Criteria for 1994 that only considered environmental

aspects of non-financial reporting.

The results of the Kent and Chan (2003) study showed that quality of disclosures and

quantity of disclosures are highly correlated, suggesting that counting sentences of

environmental information is a reasonable estimate of quality of disclosures. Although their

study produced a strong correlation between quantity and quality, methods of counting

words or lines were rejected in this study in favour of an analysis to assess the quality of the

disclosures against a pre-determined framework. Greater quantity of disclosures has not

always been found to imply higher quality disclosures (Gray et al., 1995b; Zeghal and

Ahmed, 1990). Finally, the 2002 GRI Guidelines were used as the framework for

assessment as they are more current that the ACCA Environmental Reporting Award



Criteria for 1994 and the Guidelines recommend disclosures in all three areas; economic,

social and environmental.

In this study, the environmental and social disclosures of the companies were analysed and

rated against the specific disclosures required in the GRI Guidelines with the general

format consisting of the following:

• Policy statements about the environment and community impacts;

• Statements regarding information about environmental and social impacts;

• Information about dollar amounts spent on environmental and social matters;

• Statements about legal compliance, remediations, improvements etc., and,

• Quantitative information (not monetary or financial in nature) about emissions and

employee-related data

7.5.7 The scoring system used in the analysis

In the analysis a number of terms are used as descriptors and applied as labels in the

various graphs (see Chapter 8 for graphs). These terms are:

1. Reporting Rate

This label is used to identify the numbers of companies that undertook reporting for

the GRI indicators as shown in each section. For ease of use the number is converted

into a rate or percentage and is shown on all the graphs as “Reporting Rate”.

2. Average Score

This label is used to identify the average score given to the content of the

disclosure/reporting by the companies for each of the GRI indicators. The content of

the information was given as score7 of 0 to 5 and is shown on all the graphs as

“Average Score”.

7 The scoring system is discussed in detailed in Table 7.4



3. Disclosure Score

This label is used to identify the total score attained by the companies in the analysis

for the amount and content of the disclosure/reporting undertaken by them against the

GRI Guidelines. This is shown on the graph in Figure 8.9, (Chapter 8) as “Disclosure

Score”.

The term “Disclosure Score” is not unique to this study but has been used in other

studies to rate various types of disclosures (see for example Barut et al., 2003a;

Foreman et al., 2003; Eng and Mak, 2002; Warsame et al., 2002).

Detailed information about how the Disclosure Score was developed follows.

7.5.7.1 Ascertaining the TBL “Disclosure Score”

To construct a scoring system for the GRI Guidelines, the individual disclosures required

by the Guidelines were systematically listed and then allocated a score – the Disclosure Score.

The general strategy for assigning scores was based on a Likert System with a rating of 0 to

5. Table 7.4 shows the rankings given to the quality of disclosures and gives and

explanation of the quality parameters for each score.

The explanation of the scores and relativities of the scores allocated which were allocated

for each level/detail of disclosure are loosely adapted from Barut et al. (2003a), Foreman et

al. (2003) and Warsame et al., (2002), however the explanations in Table 7.4 are more

extensive.



Table 7.4 Disclosure Score for each item of disclosure

Score Explanation of Score

0 No Disclosure, the item is not mentioned in the report. No information is present that would approximate what the GRI Indictor stipulates.

1 – 2 Anecdotal information or briefly mentioned in the report. A low score is given if no metrics disclosed where these are required. Where the indicator requires information about policy, monitoring and results, the score of 2 is given if the information is merely about the policy.

3 More detailed information and an attempt at explanatory comment. The information here is characterized only by selected activities, or metrics (where required/used in the report) are basic. The score of 3 is given where the report content would normally only disclose information about policy and perhaps an example, where the GRI indicator had required, implementation and monitoring information as well.

4 Comprehensive information with company-wide data and extensively supplemented with metrics or values (where required).

5 Outstanding, markedly comprehensive information giving a full and clear account of the aspects and giving detailed metrics enabling comparison with industry measures or other companies.

Rating of 5 is given where the information is organized clearly, sequentially and not scattered or hidden in other parts of the report. Some of these disclosures may be additionally linked into future company goals.

Note a score of 5 is also given where the GRI Indicator requests only nominal information, for example some of the economic data did not require extensive verbiage.

The process of scoring disclosures is a difficult one and one that requires a standard to

evaluate the desirable features and thus the effectiveness or ineffectiveness of social

disclosures. The scoring system used in this study is similar in its approach to others

(Clarkson et al., 1999; Warsame et al., 2002), and the analysis has been cross-checked over a

period of time to confirm initial evaluations and ratings given. External verification of the

scores was not possible, barring some external media reports that rated some companies as

better social and environmental performers than others. In these instances, externally rated



top-scores were assessed against those determined in this analysis and a close correlation

was found.

Scoring systems are not unusual in evaluation of corporate social disclosures (Clarkson et

al., 1999; Warsame et al., 2002; Davis-Walling and Batterman, 1997; Abbot and Monsen,

1979). In a study of the environmental disclosures in the annual reports of Canadian

companies between 1985 and 1997, Warsame et al. (2002) indexed the information into

four sub-groupings and then rated each item. The numerical rating that was assigned

depended on the existence and specificity of the disclosure. “A score of 0 was assigned for

no disclosure; 1 was assigned for the mention in general terms; a score of 2 was assigned if

disclosures were company specific but not quantitative, and 3 was given for disclosures that

were company — specific and described quantitatively” (Warsame et al., 2002, p. 27).

Upon analysing the data, Warsame et al. (2002) noted that some companies had clearer

presentation style with well-organised data making the information clear for readers. To

recognise this “superior style of presentation”, the rating system the authors then used was

modified slightly, by giving a rating of 4 if information being disclosed was company-

specific, described in quantitative terms and appeared under a heading such as

“environment”.

The detailed scoring system developed for this research is shown in Table 7.5. The scoring

system applied to each indicator is based on the range 0 to 5 (as shown in Table 7.4 earlier).

The individual indicators as listed in the 2002 GRI Guidelines are shown in Table 7.5 with

the maximum score of 5 for each indicator. As the indicators are made up of ‘core’ and

‘additional’ indicators, the table shows a ‘base’ score of 5 for each ‘core’ indicator and a

‘bonus’ score of 5 for each ‘additional’ indicator.



Table 7.5 Scoring System for GRI Performance Indicators

(Indicators sourced from: 2002 GRI Sustainability Reporting Guidelines)

Indicator Performance Aspect Number of Core

Indicators

Number of

Additional Indicators

Base Score for core

Bonus Score

ECONOMIC Customers 2 0 10 0 PERFORMANCE Suppliers 2 1 10 5

INDICATORS Employees 1 0 5 0 Providers of Capital 2 0 10 0 Public Sector 3 1 15 5 Indirect Economic Impacts 0 1 0 5

ENVIRONMENTAL Materials 2 0 10 0 PERFORMANCE Energy 2 3 10 15

INDICATORS Water 1 3 5 15 Biodiversity 2 7 10 35 Emissions, Effluents, Waste 6 3 30 15 Suppliers 0 1 0 5 Products and Services 2 0 10 0 Compliance 1 0 5 0 Transport 0 1 0 5 Overall 0 1 0 5

SOCIAL Employment 2 1 10 5 PERFORMANCE Labour / Man. Relations 2 1 10 5

INDICATORS Health and Safety 4 2 20 10 Training & Education 1 2 5 10 Diversity and Opportunity

2 0 10 0

Strategy and Management 3 1 15 5 Non-discrimination 1 0 5 0 Freedom of association etc 1 0 5 0 Child labour 1 0 5 0 Forced & Comp Labour 1 0 5 0 Disciplinary Practices 0 2 0 10 Security Procedures 0 1 0 5 Indigenous Rights

0 3 0 15

Community 1 1 5 5 Bribery and Corruption 1 0 5 0 Political Contributions 1 1 5 5 Competition and Pricing

0 2 0 10

Customer Health & Safety 1 3 5 15 Products and Services 1 2 5 10 Advertising 0 2 0 10 Respect for Privacy

1 1 5 5

Totals

50 core indicators

47 additional indicators

250 core score

235 bonus points



In recognition of clearer and sequentially presented information, the rating of 5 is awarded

to those pieces of information that are found in this study and comment will be made

where the corporate social reports were lacking or disorganised. As the GRI Guidelines are

made up of core and additional indicators, the scoring system has been set up to reflect this

and the information as to base and bonus scores is shown in separate columns. Table 7.5

shows that there are 50 core indicators and 47 additional indicators for the GRI based

reports.

Using this breakdown of ‘core’ and ‘additional’ as a guide to the scoring system, reporting

entities can achieve a maximum score of a 250 points rating for the ‘core’ indicators (50

indicators) and 235 points for the ‘additional’ indicators (47 indicators). The scores for each

of the disclosures on the economic component, the environmental component and the

social component will then be represented as a single total for the disclosures, with a

possible maximum of 485 points giving a Disclosure Score.

Total disclosure scores have been used in several studies to test environmental involvement

and to assess governance disclosures (Barut et al., 2003a; Foreman et al., 2003; Abbott and

Monsen, 1979). In their study, Abbott and Monsen (1979) were of the opinion that firms

outlay resources so as to create the impression of being socially sensitive, which could be of

use in the longer-term interests for shareholders. To test the theory they constructed a social

involvement disclosure score, which gave a total measure of social disclosure by using the

content analysis of annual reports and Ernst and Ernst 1978 corporate social reporting

studies. The disclosure score was correlated with economic performance that was based on

return on equity. The authors found no association between economic performance and

social involvement.

7.5.8 Alternative scoring systems

Scoring systems allocating points to the various disclosures in environmental and social

reports are not new, yet evaluating the corporate disclosures of firms against a reporting

framework is not so prevalent.

7.5.8.1 Morhardt et al. System

Morhardt et al. (2002) developed a scoring system and used three existing systems to

evaluate the environmental and sustainability reports of 40 of the largest global companies.



They warn however that the scoring systems used in their study evaluated the intensity of

discussion, and content, rather than the quality of environmental performance. Indeed two

major consequences of such systems are that:

• environmentally-benign companies with nothing major to discuss may end up with

low scores; and

• companies wishing to improve their scores may do so merely by adding topics and

including an extensive discussion, irrespective of their environmental performance, or

without improving their environmental performance (Morhardt et al., 2002).

Some work has also been done elsewhere using similar scoring systems and methodologies

with the application of either GRI reporting guidelines or other environmental and social

reporting frameworks (Morhardt et al., 2002; Morhardt, 2001; Kolk et al., 2001; and Kolk,

1999). Using 50 UNEP/SustainAbility criteria along with other accounting and business

guidelines Deloitte Touche Tohmatsu in 1997 developed a corporate environmental

reporting scorecard. The scoring method is based on eight categories: corporate profile,

report design, environmental impact data, environmental management, finance and

ecoefficiency, stakeholder relations, community relations and third party statement/audit.

Although this method looks at environmental and community matters it is more focused on

business factors than on the links with sustainable development. It may have made a viable

scoring system for the environmental and social effects on the financial aspects of the firm,

had not the 2002 GRI Guidelines been released.

As the 2002 GRI Guidelines are more comprehensive and are especially closely aligned to

Elkington’s notion of TBL reporting, then the scoring system as seen earlier in Table 7.5

developed especially for the GRI Guidelines was used.

7.5.8.2 Environmental and social reputation indices

There are two major reputation indices used in Australia to rank Australian companies: The

Age/Sydney Morning Herald Good Reputation Index (The Age Index) and the RepuTex

Rating. Both these reputation measures rank companies on their social responsibility

ratings based on corporate governance policies, environmental impacts, social impacts and

workplace practices. The Age Index also includes financial measures along with

management and market focus measures. Companies are rated on their responses given in



questionnaires sent out to them and the appropriate interest (stakeholder) groups then

assess the information. These types of reputation indices are looking at a number of factors

not just TBL reporting, thus the method was not used in this study.

Table 7.6 shows a summary of methods used in The Age Good Reputation Index along with

highlighting some of the problems with this approach. This method was not used in this

study to evaluate the TBL reports of the companies, as it did not use the GRI Guidelines as

a basis for the evaluation.

In terms of social impact as determined in The Age Good Reputation Index 2003, the

companies with the best overall social ratings were Shell Australia (ranked first) and Rio

Tinto (ranked second), with outstanding ratings for:

1. human rights policy, commitments, reporting processes and external verification;

2. policy and commitment to supporting community arts and cultural programs;

3. commitment and policy to community integration, corporate citizenship and youth

programs; and

4. positive impacts on reduction of global poverty.

As is shown later, these results are consistent with the rankings given to the Shell Australia

in this study. The ratings for Rio Tinto did not rate as closely, denoting perhaps that the

company gave information in The Age Index questionnaire that it did not then replicate in its

social and environmental reports.

These indices are useful because they show that as a society we are concerned about the

performance of companies beyond the financial and into the social, environmental and

ethical areas. An alternative and more cynical explanation is that this is not entirely a

societal measure fuelled by social pressure but is instead driven by the media, the

companies themselves or even by NGOs.



Table 7.6 Summary of The Age Good Reputation Index

(adapted from the The Age Index, for the 2003-year)

Index Methods used Groups participating Problems

The Age Index

Ranking of Australian Stock Exchange’s top 100 companies

RESULT = final overall ranking

Questionnaires are sent out to companies by the stakeholder groups across a range of areas: • employee management, • environmental performance • social impact • ethics • corporate governance • financial performance, • management and • market focus

Stakeholder groups score each company against their own nominated performance criteria

Rankings are determined by each stakeholder and then aggregated into a final overall ranking for that category.

22 groups representing community stakeholders and expert organisations

• Each stakeholder body ranks performance quite differently

• Potential for quite different results.

• The Australian Conservation Society considered that most companies were actually going backwards when compared to previous years (The Age, 4 November 2002).



RepuTex Rating

Similar structure to The Age Index.

Questionnaires are sent out to companies by the stakeholder groups.

Where the organisations being assessed did not directly contribute to the data collection process, the research groups were required to assess information from such sources as are available in the public domain, for example, websites, annual reports, other company publications.

Similar groups to The Age Index.

• Each stakeholder body ranks performance quite differently

• Potential for quite different results.

NOTEWORTHY EXAMPLES:

The Age Index: The best performing company in the environmental component was Visy Industries, with scores ranging from 73.3 to 90.8 that were allocated on questionnaires completed by the company.

RepuTex Rating

Interestingly, Visy Industries topped the environmental impact category, (similar to The Age Index) and the best performer in the social category was Alcoa, with Shell Australia being ranked third.

This Study: No comparative score was possible for Visy Industries, as this company does not produce external social and environmental reports. Visy does have some content on the company web pages however, this is limited to a few pages giving information about community programs/activities but was insufficient for an analysis against GRI Guidelines.



This consideration merits a further investigation because it is premised on the notion that

some parties may be using the legitimate and heartfelt concern for social welfare, caring for

the environment and need for fairness that many people have, as a marketing and

positioning ploy. Nahan (2003) notes the following:

“Corporate social responsibility may be couched in the language of reasonableness and fairness, but in

reality it is a racket that threatens many shareholders and workers. This racket is illustrated by the

RepuTex Rating System…”

Nahan (2003) states that the system appears independent but the rating groups are chosen

for their “influence in the media and their desire to get something from the corporations

rather than their technical expertise”. The main concern is that large corporations are

susceptible to negative branding (called “brandmail” by Nahan) and in order to protect

their reputations will try to placate these groups with donations and pacifying statements

about their policies. A RepuTex representative stating that “the RepuTex Rating is a

product of a privately owned company that is in the business of producing information to

assist businesses to mange their reputations” (reported by Anderson, 2003), which seems to

show concerns about negative branding. Interestingly, environmental campaigners have

taken a positive slant, observing that RepuTex empowers a “range of social, labour,

environment and governance groups in the CSR debate (West, 2003, p. 4).

7.6 Conclusion

This chapter contained a discussion of the research methodology used and provided

justification for the parameters of the research methodology, such as the selection criteria

for the companies employed in the sample, and in detailing the ranking criteria of those

companies against the 2002 GRI Guidelines. The investigation into industry specific

relationships was as noted earlier, based on the opinion that there would be components in

the corporate TBL reports that would be either industry specific, or of such importance to

the whole industry as to warrant being highlighted and reported on by the company.

As specified earlier the choice of the GRI Guidelines as a framework to assess the TBL

reports of the companies in this study was made for a number of reasons. Along with these

reasons, the corporate disclosures/reporting of correctly formulated sustainable policies can

provide valuable information for investment, response operations and or cost benefit



planning for both the company and its stakeholders. In a scenario when a firm is required

to respond to undesirable operations there is a necessity that strategies are developed for the

proper implementation of the policy and inclusion into the reporting framework, even

when this may not be a ‘core’ or ‘additional’ indicator. This then ensures that a simplistic

“point and shoot” procedure is not used. Without a proper reporting framework in place,

applicable for universal use, any environmental and social information accompanying

traditional formats may lead to lack of comparability in the information and erroneous

interpretation of the information, with the danger that stakeholders will lose faith in such

reports. Monaghan (2004, p. 142) notes that in respect of “ large companies based in the

developed world, the question is not whether to report, but when and in what manner”.

Thus the GRI Guidelines have the potential to provide an excellent framework for these

reports, as long as the caveat for continual revisions of the Guidelines is not ignored, and as

long as companies are willing to report against the indicators. The assessment of such

compliance with the GRI framework and the individual indicators is the focus of this study.

The results of the investigation into the content of the TBL reports of the Australian

companies are shown in Chapter 8.

Triple Bottom Line Reporting: A study of diversity and application by Australian Companies

Chapter 8: TBL Reporting by Australian Companies: The research findings- Page 211

CHAPTER 8

TBL Reporting by Australian companies: The research

findings

8.1 Introduction

A comprehensive account of the results of the research into the TBL disclosures of the Top

100 companies are reported in this chapter. The dialogue in this chapter will detail the

findings for each indicators in the 2002 GRI Guidelines1, and the discussion on these

findings will be based on a description of the reporting practices of the companies whilst

linking these back to both practical and theoretical considerations. An overall summary or

overview of the major findings linked back to the research presented in earlier chapters will

also be contained in Chapter 9.

As was noted in Research Question 1 (see Chapter 7), it was expected that the corporate TBL

reports in the study would not show marked differences as the disclosures were expected to

follow the reporting framework outlined in the 2002 GRI Guidelines. This expectation was

also based on the evidence from other sources and studies (GRI, 2004; Morhardt, et al.,

2002; KPMG, 2002). Furthermore it was expected (see GRI Guidelines2) that there would

be quite common classes/amounts of information for certain indicators, and any deviation

would also be due to distinct matters that are relevant only to an individual firm (such as a

newly corporatised government authority).

For ease of comprehension, the results of the study are reported in three separate sections:

1 The GRI Guidelines were discussed in Chapter 6.

2 The Guidelines make the following observation about reporting similarities and differences: “GRI seeks to move reporting on economic, environmental, and social performance in a similar direction by creating a generally accepted framework for economic, environmental, and social performance disclosure” (GRI, 2002, p. 23). Additionally, “while GRI seeks to enhance comparability between reports, also it is committed to supporting flexibility in reporting. Legitimate differences exist between organisations and between industry sectors. The GRI framework must have sufficient flexibility to allow reports to reflect these differences” (GRI, 2002, p. 14).



• The first section comprises a detailed analysis and evaluation of the content of each

company reporting, for each type of indicator as per the GRI Guidelines. A complete

list of the individual entities and their disclosure results is appended to this document

in Appendix 1. Tabulated data and graphical representations of the reporting levels

with the disclosure requirements for all core and additional GRI Indicators are

included in this section of the Chapter.

• The second section consists of an analysis of the statistical information, detailing

largest and lowest ranking values for each sub-grouping for economic, social and

environmental indicators along with standard deviation information. The overall

‘Disclosure Score’ for each entity in the sample underwent a correlation analysis

against Total Revenue to ascertain any relationship and the strength of such a

relationship. Commentary on the results and assessment of the validity of the research

question is included in the latter part of the chapter.

• The third and final section deals with an analysis of the findings based on an industry

analysis of the Disclosure Scores and any disclosures common to the industry. As part of

this analysis a review of any omission of disclosures which may be either irrelevant or

not applicable to the specific industry are discussed.

The final parts of the chapter give an overview of the major findings and also summarise

the problems confronted in undertaking this type of research.

8.2 General comments on the reports

The environmental and social reports of the 37 companies in the population varied greatly

in length and in quality. It was very rare to find that the reports fulfilled the two functions

of being both the statutory financial report of the company and the report of environmental

and social aspects of the company. It would appear that the companies prepare the legally

required statutory reports as a means of reporting financial performance to shareholders,

and the environmental reports are prepared for use by the wider stakeholder group and to

generally report non-financial information. Indeed in many cases the introductory

comments in the reports alluded to the this wider stakeholder group along with the

corporate perceptions of accountability for social and environmental matters in

concurrence with the economic.



For example the then-Chairman and CEO of Hewlett-Packard, Carly Fiorina, wrote:

“I honestly believe that the winning companies of this century will be those who

prove with their actions that they can be profitable and increase social value –

companies that both do well and do good. In fact, business leaders will no longer

view doing well and doing good as separate pursuits, but one unified pursuit. And

increasingly, shareowners, customers, partners and employees are going to vote with

their feet – rewarding those companies that fuel social change through business …

This is simply the new reality of business – one that we should and must embrace.”

(as reported in the 2003 HP Social and Environmental Responsibility Report).

The Managing Director of British American Tobacco, Gary Krelle noted:

“By introducing social reporting into our company I do not imagine that the

pressures of our business will reduce, what I hope is that we become less reactive and

more proactive in meeting the realistic expectations that the community has of us …

I hope we achieve from this inaugural social report…the chance to state our views,

our beliefs and even our expectations. One of these expectations is that we continue to

operate a business centred around the manufacture and sale of tobacco products. In

doing so we will inevitably have to change and adapt to the dynamic and

challenging economic and social environments …”

(as reported in the British American Tobacco Australia Limited Social Report

2001-2002).

The majority of the reports were quite lengthy, with sizes mostly in the range of 50-plus

pages. The bulk of the reports began with a welcoming or introductory comment from the

Chairperson along with a message from the CEO. These initial comments were generally

formatted to:

• give a overview of what the report was expected to achieve,

• focus on notifying the reader that the company was aware of social issues,

• include commentary about the implementation of some from of environmental

management system,

• introduce the formal environmental/social policy of the company,



• confirm the assistance of stakeholders in the development of the report, or request the

assistance of stakeholders in producing a better report, and

• detail information about some form of verification, audit, and/or compliance with

global reporting principles.

With the exclusion of some reports that were obviously divided into three sections clearly

identified as the three facets of TBL reporting (being generally in keeping with the reporting

sequence of economic, social and environmental disclosures as identified by the GRI

Guidelines) the majority of reports lacked such a consistent sequential format for the

presentation of the information. In many instances the information disclosed was arbitrarily

arranged or placed in unexpected parts of the reports or web pages. Where the disclosures

were web-based, the information was not adapted to the Internet (a phenomenon also

reported by Andrew, 2003), but was either shown as reports available for downloading, as

separate web pages with numerous links to other web pages3, or as presentations or

webcasts that were merely rehashing the hard copy reports available for downloads and

under-utilising the web facility (Andrew, 2003; Patten, 2002c). Many companies also used

these TBL reports to include additional sections dealing with the company’s business

interests, strategic directions, corporate governance issues, case examples and interviews

with experts, making for quite lengthy reading.

On a preliminary perusal, the TBL reports were professionally produced incorporating

colour pictures, charts, tables, highlighted comments and issues boxes with tightly packed

text. Interestingly all the reports had sections attesting to the environmental beliefs of the

company yet in some instances these plus other comments within the reports gave the

appearance of a marketing exercise rather than a factual statement, as there was little by

way of other environmental disclosures.

3 So as to guarantee that no useful and meaningful disclosures were missed on web sites being viewed, the entire web sites of the companies were examined. Where some disclosures were buried back beyond 4-5 links or on other company or centralized/global web sites, the content of this information was also evaluated but as Patter (2002c, p. 252) notes “the lack of easy access would suggest that the information was not being made readily available to users”.



8.3 Identifying the terminology used

The ensuing analysis will look at the numbers of companies, which undertook reporting of

the GRI indicators, and also exhibit and examine the scores allocated for the company

information disclosed for each indicator. The latter part of this chapter will also look at an

overall ‘company Disclosure Score’ for each company.

An explanation of the terminology used in the graphs is necessary to assist in understanding

the data presented:

1. Reporting Rate

This label is used to identify the numbers of companies that undertook reporting for

the GRI indicators as shown in each section. For ease of use the number is converted

into a rate or percentage resultant number is shown on all the graphs as “Reporting

Rate”.

The “Reporting Rate” is calculated as:

2. Average Score

This label is used to identify the average score given to the content of the

disclosure/reporting by the companies for each of the GRI indicators. The content of

the information was given as score4 of 0 to 5 and is shown on all the graphs as

“Average Score”.

4 The scoring system is discussed in detailed in Chapter 7

number of companies reporting for the indicator

total number of companies in the sample X 100Reporting Rate % =



The “Average Score” is calculated as:

3. Disclosure Score

This label is used to identify the total score attained by the companies in the analysis

for the amount and content of the disclosure/reporting undertaken by them against the

GRI Guidelines. This is shown on the graph in Figure 8.9 as “Disclosure Score”.

Detailed information about the Disclosure Score was discussed in Section 7.5.7.

8.4 Analysis of conformity with the economic component

There is a general acceptance that the primary goal for most companies is to attain and

maintain a level of profitability. Investment in social and environmental programs will also

impact on profitability and will be of interest to stakeholders. Given that external factors5

will influence corporate management decisions that will affect profitability, performance

and risk levels associated with the investment, then information that will assist stakeholders

in understanding the decisions should be disclosed to enable an assessment of management

and corporate accountability.

The GRI Guidelines propose that part of the disclosures for TBL reporting include an

‘economic’ component, and these economic indicators “as articulated in the Guidelines have

a scope and purpose that extends beyond that of traditional financial indicators (GRI, 2002,

5 Factors that influence decisions by management to disclose information about corporate social responses are legitimacy, growth in public awareness and general community concern for environmental and social issues (see Sections 3.4 and Appendix 6).

Total Scores given for each indicator

Number of companies in survey

Average Score =



p.45). The Guidelines (GRI, 2002, p. 46) make the distinction between financial

performance and economic performance as it is used in the Framework:

“Financial indicators focus primarily on the profitability of an organisation for the purpose of

informing its management and shareholders. By contrast, economic indicators in the

sustainability reporting context focus more on the manner in which an organisation affects the

stakeholders with whom it has direct and indirect economic interactions”

Under this section the “economic dimensions of sustainability concerns an organisation’s

impact on the economic circumstances of its stakeholders and on economic systems” (GRI,

2002, p. 45). These Economic indicators fall into five categories of impacts on the

organisation’s stakeholders as specified in the 2002 GRI Guidelines:

• Customers

Under this section the information required is for the disclosure of ‘Net Sales’ and

geographic breakdown of market share and revenue for various product lines. These

are core indicators and the information enables all stakeholders, not only customers, to

determine the extent of the organisation’s influence and market penetration.

• Suppliers

Disclosure of two core indicators are promulgated here, being the cost of goods

purchased (as opposed to cost of goods sold which is a traditional accounting measure)

and proportion of contracts paid within the agreed terms. Along with this there is an

additional disclosure for a breakdown of suppliers by organisation and country. These

indicators show the impact that the reporting entity has on its suppliers and is valuable

in determining the extent of the reliance placed on a group of suppliers or a particular

geographical sector. Where this reliance is on suppliers situated in politically or

economically volatile areas, stakeholders are able to assess the firm’s impact on the

area and any counter-effect of the impact on the organisation.

• Employees

The Guidelines propose one core indicator in this area being the total amount paid to

employees for salaries, benefits etc, but would not include future commitments, such as



for example long service leave provisions. It would be optimistic to say that the

disclosures here should assist in determining whether the entity is adequately

remunerating its employees, however the Guidelines do not make this clear. Apart from

a country and region breakdown, it is up to the individual reporting entity to disclose

that the amounts are within standard industry awards and in keeping with basic wage

levels in the region. This lack of clarification would appear to be a shortcoming in the

framework. Later in the GRI Guidelines there is an additional indicator required under

the Social section for the disclosure of any benefits contributed to employee schemes for

health care, maternity and retirement. Even though this indicator relates to the social

aspect of a company’s dealings, it would be better positioned with the earlier employee

indicators under the Economic banner.

• Providers of Capital

Disclosure of two core indicators is based on what appears to be the liquidity of the

organisation, reviewing the capital structure commitments and assessing the

profitability. The first is for an indication of monies distributed or appropriated as

dividends to shareholders and any distributions or payments to providers of debt

capital. The second indicator relates to information about changes to retained earnings

and proposals for the calculation of various appropriate ratios are recommended.

These types of accounting information could be useful in evaluating the liquidity,

financial structure and profitability of the entity. Yet, if the information is already

reported as part of the financial reports of the entity, is duplication necessary?

Advantages of having the information here is that it is easily accessed by the user who

may not have read the financial reports, and also that it reinforces the link between

financial information/outcomes and a firm’s environmental and social activities.

• Public Sector

Under this sub-heading the GRI Guidelines propose the disclosure of three core

indicators and one additional indicator. Two of the core indicators are based on

amounts paid or transferred to the public sector and the wider community through

taxes, donations and support given. The third core indicator works is the reverse

disclosing any subsidies, grants and/or tax relief received by the company from the

public sector. The one additional indicator is meant to increase the disclosure of any



amounts spent by the entity on ‘non-core business infrastructure development’ in the

form of support given to the establishment or continuation of schools, hospital

facilities, crèche facilities etc for employees or their families. This non-core indicator is

an extension of the data disclosed about the support given to the community. By

stipulating that the information be divided into support given to the employees and

their families and support given to the wider community this assists in the evaluation

of the extent of the company’s regard for its employees, their families and society.

The Economic Indicators listed by the 2002 GRI Guidelines are shown in Table 8.1. The

text in Table 8.1 has been slightly modified from the identical wording in the GRI

document however the meaning of the content is the same.

Table 8.1 GRI Economic Indicators for both Core and Additional requirements

(Source: GRI Sustainability Reporting Guidelines, 2002)

ECONOMIC Grouping

Question Number

Specifics of Indicator

Core Non-core

Customers EC1 Net sales

EC2 Market Share for each product if >25% ALSO if market share is > 5% country GDP

Suppliers EC3 Cost of all goods sold

EC4 Percentage of contracts paid on time

EC11 List of Suppliers IF purchases >10% ALSO if show country if purchase >5% of GDP

Employees EC5 Monies Paid and payable

Providers of Capital EC6 Monies paid as dividends all share classes AND interest to debtholders

EC7 Changes to Retained profits, INCLUDE Ratios ROACE etc

Public Sector EC8 Taxes paid by country

EC9 Subsidies received by country/region

EC10 Donations

EC12 Expenditure on non-core business infrastructure, eg, schools, creche etc for employee benefit

Indirect Eco EC13 Any other indirect economic impacts



Under the Economic component, there are 13 items of disclosure with 11 of these being

core indicators and 2 being additional. It would seem that the final additional indicator

EC13 requiring the disclosure of “any other indirect economic impacts” serves the purpose

of being a final catch-all of information enabling entities to give disclosure here what may

not really fit into the other indicators.

8.4.1 Results of “Economic Indicators”

The results of the study into these indicators showed a mixed level of reporting amongst the

companies in the sample. Figure 8.1 depicts two graphs showing the company Reporting

Rate for the GRI Economic Indicators (Graph 8.1a) and the average scores attained for the

information presented on each of the GRI Economic Indicators (Graph 8.1b). The graphs

in Figure 8.1 have been extracted from the detailed data shown in Appendix 1.

As is seen in Figure 8.1a, the percentages of companies undertaking any reporting for the

GRI Economic indicators amongst many of the individual indicators are low. In 2002, only

two of the thirteen indicators showed that at least 50% of the companies in the sample

undertook any reporting. In 2003, six of the thirteen indicators showed at least 50%

compliance. The top three indicators with the greatest level of reporting in 2003 are for

Questions EC1 (Net Sales), EC6 (Dividends and Interest Paid) and EC10 (Donations), with

this last question (EC10) achieving a level of 85.7% of the companies undertaking some

disclosure. The core indicator, EC10, was generally found in the foremost sections of the

TBL reports typically with information about how much of the funds generated by the

company were directed to the government in the form of taxes and how much was directed

in the performance of community service.

As depicted in Graph 8.1a in Figure 8.1 there were three economic indicators which had

very low or close- to-zero levels of companies reporting against these indicators.

Specifically, these were the economic indicators EC4, EC9, and EC12 for both the 2002

and 2003 years. None of the companies in the sample made any such disclosure in their

reports for the GRI Indicator EC4 - a core indicator, dealing with the amounts of supplier

contracts paid on time.



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

EC1

EC2

EC3

EC4

EC11 EC

5

EC6

EC7

EC8

EC9

EC10

EC12

EC13

GRI Indicator

Repo

rting

Rat

e

2002

2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

EC1

EC2

EC3

EC4

EC11 EC

5

EC6

EC7

EC8

EC9

EC10

EC12

EC13

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.1 Level of Reporting Rate with GRI Economic Indicators (8.1a)

and Average scores for GRI Economic Indicators (8.1b)

8.1a

8.1b



This may imply that information about contracts being paid on time is not considered

important enough to divert resources to or to merit disclosure. Interestingly when

performing an external financial analysis of a company using ratios to determine

profitability and liquidity it is quite appropriate to calculate creditor turnover ratios,

indicating an average time taken to pay creditors or suppliers. Although this does not

address the proportion of supply contracts paid on time by the company it does indicate the

average time taken to pay creditors and may be compared to normal trading periods.

Fewer than 10 percent of the companies reported information against the EC9 core

indicator (on subsidies received) and for the non-core indicator EC12 (spending on non-

core business infrastructures). There are several possible explanations for this:

• many Australian companies do not receive government subsidies and grants and thus

have no information to disclose,

• government grants may be received for research or exploratory undertakings and are

thus covered under the applicable accounting standards, AASB6 Exploration for and

Evaluation of Mineral Resources and AASB138 for Intangible Assets (research and

development activities). In such instances the information would be disclosed in the

financial reports of the companies and may not have been replicated again in the

sustainability reports,

• additional facilities for employee welfare have not become the norm for Australian

companies, even for the Top 100 companies, and as such expenditures would be

justifiably low thereby explaining the low level of disclosure. There however are a

growing number of employers who operate/subsidise company creche facilities for the

children of employees, although this was not something that was reported upon in the

TBL reports.

Overall in terms of the comparison of the data from 2002 to 2003, it would appear that

there is some increase in the indicators relating to market share, and information in regards

to distributions to providers of capital and tax payments.

The average score given for each economic indicator is shown in the Figure 8.1b, and as

would be expected the content of the disclosures when they were apparent was of a

generally very good quality. It is again apparent from the Graph 8.1b that content of the



disclosures for sales revenue, distributions to shareholders rated highly. Interestingly,

amongst the few companies that disclosed information about the percentage of contracts

paid on time (EC4) and expenditure on non-core business (EC12) the content of the

disclosures was rated highly as it was informative, contained excellent commentary, gave

information about values and fulfilled the rating criteria (see Table 7.4).

8.5 Analysis of the conformity with the “Social” component

Under this Social indicator, TBL reports should show information about the provision made

for labour in a safe working environment; financial and job security; freedom from

discrimination on race, gender, colour or creed; and opportunity for professional

development (Ranganathan, 1998) along with wider community concerns. Although the

structure nominated by the GRI Guidelines implies a clear-cut distinction between each of

the parameters in TBL Reporting this is not always the case when the user views the

information. There may be some professional development linkages between the

people/social and planet/environmental arenas that are considered in the analysis here and for

which it was not be possible to completely insulate each section from the other. Some firms

are aware of these linkages, and comment similar to those made in the CGNU Corporate

Social Responsibility Report for 2002 were found. The CGNU Report notes “it would be

apparent to all who have concerned themselves with these subjects that it is not always easy

to classify matters under simple headings” (Aviva Corp Ltd, - formerly CGNU, 2002, p. 8).

Examples of classification issues abound: companies can have a significant impact on the

environment through, for instance, systematic maintenance of equipment and plant so as to

diminish waste and noxious effluents and this is then reported as both an environmental

and an OH&S issue. Here, disclosure of professional development programs, in-house

training in the latest abatement methods etc would be worthwhile as users may be

concerned that these actions fall within the ambit of a responsible company’s employment

and environmental practices and should not simply be a response to government

regulation. Furthermore, dissemination of information may lead to confusion as important,

useful and measurable information such as employee remuneration, accidents and health

issues may compete against and be lost amongst other data. It would be better incorporated

in one section of the report, when the disclosure is first undertaken. The need to search to

find linked data reduces the useability and understandability of the report.



The Social disclosures recommended under the GRI Guidelines fall into 4 categories

(Labour, Human Rights, Social / Community and Product Responsibility indicators) and

for ease of use they have been divided into the following separate sub-sections. The

numbers of companies undertaking reporting for each of the sub-groupings in the Social

Indicator are shown separately as incorporation into one graph would be meaningless,

since each sub-section has a number of indicators and the numbers vary amongst each of

these. The first of these sub-sections, Labour, is shown in Table 8.2:

Table 8.2 GRI Social (LABOUR) Core and Additional Indicators


SOCIAL Grouping

Question Number


Core Non-core

Employment LA1 Breakdown of workforce, FT, PT, Contract etc

LA2 NET Employment creation by country/region

LA12 Extra benefits paid above legally imposed…eg healthcare, maternity, education etc

Labour / Man. Relations

LA3 Percentage of employees in unions, OR % covered by collective bargaining agreements

LA4 Policy etc to involve employees in organisational decisions re: restructure etc

LA13 Provisions for formal inclusion of employ rep in decision-making, Corp governance etc

Health and LA5 Recording OH&S accidents / diseases

Safety LA14 Evidence of compliance with OH&S laws

LA6 Description of joint worker and manager OH&S committees and coverage of such committees

LA15 Trade union involvement in OH&S agreements

LA7 Number of lost days from injury, accident, absenteeism, number of work fatalities

LA8 Company policy on AIDS/HIV

Training & LA9 Average hours of training per year per employee category

Education LA16 Info about programmes supporting continuing employability and/or retirement of employees

LA17 Info about programmes re lifelong learning skills

Diversity and Opportunity

LA10 Information about Equal Opp programmes, monitoring, results etc

LA11 Composition of senior management and BofD, PLUS male/female ratio & other indicators of diversity



8.5.1 Labour

The information in Table 8.2 is extracted from 2002 GRI Guidelines. Table 8.2 shows the

indicators for the Labour element of the Social component and focused on the issues that

affect the workforce of the company.

The 17 questions in this section are made up of 9 core and 8 non-core or additional

disclosures. As has become apparent in the GRI Guidelines, the non-core indicators are

designed to give additional information where the core issue merits6 further information.

Figure 8.2 depicts two graphs showing the number of companies reporting against the GRI

Social-Labour Indicators (Graph 8.2a) and the average scores attained for the information

presented on each of the GRI Social-Labour Indicators (Graph 8.2b). The graphs in Figure

8.2 have been extracted from the detailed data shown in Appendix 1

Figure 8.2a shows that at least 50% of the companies for both years reported on the

following four questions:

• Question LA5 (core) - Recording OH&S accidents / diseases

• Question LA14 (non-core) - Evidence of compliance with OH&S laws

• Question LA7 (non-core) – Number of lost days from injury, accident, absenteeism, and

number of work fatalities

• Question LA9- Average hours of training per year per employee category.

The expectation was that the three questions, LA5, LA14 and LA7, relating to

occupational health and safety (OH&S) issues, and workplace accidents would be well

reported, as these matters relate to legislatively enforced requirements on Australian

companies. It was thus expected that companies would be able to show evidence of

6 The ‘additional’ or ‘non-core’ indicators are defined in the GRI Guidelines (GRI, 2002, p. 13) as those that have one or more of the following characteristics: • represent a leading practice in economic, environmental, or social measurement, though currently used

by few reporting organisations; • provide information of interest to stakeholders who are particularly important to the reporting entity;

and, • are deemed worthy of further testing for possible consideration as future core indicators.



compliance with OH&S laws with a comprehensive in-house policy, and that the

companies would be recording any incidents related to this area. Thus disclosure as

stipulated by the Guidelines would not be an onerous task for a matter that is already

collected for legislative compliance. The resultant outcome shows that disclosures relating

to OH&S policies and incidents were adequately reported.

There was also a considerable improvement in the numbers of companies reporting on

indicators LA10 (equal opportunity information) and LA11 (male/female ratios in the

workforce). This could be attributed to greater awareness of such programmes, plus the

increased media focus on boards of directors starting during this time, with attention being

drawn to governance issues and director remunerations.

Figure 8.2b shows the average score achieved for each question, and where a company

disclosed information for the indicator, a score was given assigned ranking the information

in the range between 0 to 5. The score of zero was applied where no disclosure existed.

Where disclosure was merely policy descriptions with no attempt to explain

implementation and any outcomes of the policy implementation, the score of 2-3 was

allocated. The indicators with the highest levels of disclosure (indicating that the content of

the disclosures was given a rating of 4 to 5) are LA5, LA14, LA7, LA8 and LA17 in the

2003-year. Thus, identifying that companies disclosed information against these indicators

that conformed closely if not completely to the GRI Guidelines.

Question LA7, (the number of lost days from injury, accident, absenteeism and the

workplace fatalities) had a large percentage of companies reporting and the quality of the

information disclosed was rated highly with a score of 4.7 for 2002 and 5.0 for 2003-year.

In achieving such a high Disclosure Score all the companies included some form of

measurement in the disclosures. The attempt at disclosing the rate of accidents/deaths is

informative and valuable content for users of corporate social reports. As Frost (2003) notes

a quantitative measure cane be more meaningful than financial data in certain situations,

and more relevant to non-financial stakeholders.



0.0%

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40.0%

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60.0%

70.0%

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90.0%

100.0%

LA1

LA2

LA12 LA

3

LA4

LA13 LA

5

LA14 LA

6

LA15 LA

7

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LA9

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LA17

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LA11

GRI Indicator

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2003

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LA2

LA12 LA

3

LA4

LA13 LA

5

LA14 LA

6

LA15 LA

7

LA8

LA9

LA16

LA17

LA10

LA11

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.2 Level of Reporting Rate with GRI Social (LABOUR) Indicators (8.2a) and

Average scores for GRI Social (LABOUR) Indicators (8.2b)

8.2b

8.2a



Yet one is reminded that even with 73.0% of companies reporting on these incidents in the

2002 year (78.6% in 2003) this is not a common disclosure practice amongst the overall

Top 100 companies, as 78% x 37 companies = 29% of all companies reporting on this

information. Amongst those companies with a low disclosure score, along with reporting

accident rates, made some attempt at explaining policy or reiterating motherhood

statements about purported strategies.

Quantification is not an attempt at perpetuating orthodox views that accountability

relationships are predominantly entwined with finance or monetary representations.

Nonetheless, the use of quantification or measurements in these reports means that these

reports are better able to stand up to scrutiny from stakeholders and to facilitate a level of

assurance in the information at hand, even if such assurance has no external verification.

Understandability of the information is greatly assisted when quantifiable data is available

for a number of periods to assist in an analysis of trends and to better ascertain

improvements or degradations. Where external verification is available either through

audit/verification statements or through government audits then the trustworthiness or

reliability of the information is vastly superior.

That absenteeism, sickness and workplace-related deaths are crucial matters for companies

does not go without notice, and the GRI Guidelines require that actual numbers for these

matters be reported. Information about programmes that had been set up to reduce

accidents and injuries in the workplace was reported by many of the disclosers in the

sample. For example Shell disclosed that the company had 53 fatalities and a large

proportion of these, 45%, was due to road accidents (Shell Report, 2002). The disclosures

made here, as well as providing quantification of the incidents also show a human side to

the company. The Shell report is peppered with statements such as: “we deeply regret”,

“Shell staff throughout the world were saddened by the loss of 11 people in a tragic

helicopter accident” and “our performance has been disappointing” (Shell Report, 2002, p.

32). As the company’s long-term target is zero (Shell Report, 2002), the increase in

fatalities from the previous year is not a promising indicator about the success of the

company’s’ strategy. The conclusion to this section in the Shell Report finishes on an up-

beat note of improved performance overall on work safety and health.

Another noteworthy example in this area of disclosures and one that potentially could

cause problems for companies is absenteeism, whether for sickness or for other reasons.



Such is the case for Australia Post which ranked 45th in the list of the Top 100 list (as seen in

Table 7.1,). The disclosures of Australia Post were not rated, as the extent of its TBL

reporting consisted solely of information about community programs and employee

regulations that was accessible on their website. The incompleteness of the report and the

substantial slabs of information omitted mean that the report was not appropriate for this

analysis. Yet Australia Post recently (on 11 December 2003) made news with its policy on

“sickies”. The Age newspaper reported that the new policy to be adopted by Australia Post

for monitoring sick leave days would anger both the Australian Medical Association

(AMA) and the workers’ unions (Robinson, The Age, 11th December 2003). The new policy

tagged, “Attendance Improvement Management System Policy” involves targeting workers

who take 10 days sick leave in one year or who take six days of leave in one month. The

targeted employee’s performance is monitored and reviewed twice in a period of 8 months,

then the worker is sent to a doctor nominated by the company.

The AMA which reportedly labelled the system as disrespectful and questionable, noted

also that it is a policy that tampers with the ethics and honesty of doctors by seeking a

second opinion on medical certificates given for sick leave. The slant taken by Australia Post

is that the system has been designed to help employees by counselling them and managing

matters so as to assist them in an improvement in their health. Interestingly Australia Post

makes only a minor mention of problems with staff attendance rates, in its social report of

2002. Under the heading of Health and Safety the company notes that “further improvement

occurred in staff attendance rates in the six months to December 2001 before levelling out”

(Australia Post, 2002, p. 36). Although the social report comes one year earlier than the

media report, it is doubtful that these problems with “sickies” only manifested themselves

in the period following the report. The company highlighted the low disputation rates and

commented that consultation with external groups was a major strength.

8.5.2 Workplace safety and training disclosures

In the area of workplace safety, typical textual commentary that could assist the reader in

ascertaining the company’s performance in workplace matters are detailed in Table 8.3 The

reader’s attention is particularly drawn to the conciliatory and general statements made by

some of the companies in the table. For example, the first statement by Alcoa says nothing

about what it is doing, but appears to be attempting to create a sense of wellbeing through

the connection of home, safety and work.



Table 8.3 Extracts from TBL Reports

Name of Company

Information of a general nature without specific outcomes

Information of a useful and specific nature

Hewlett-Packard “Providing a safe and healthy work environment for our employees is an integral commitment of HP. Our goal is simple: to enable employees to work injury-free” (HP, 2002, p. 15)

“Our workplace ergonomics program educates employees on the importance of healthy work practices and proper adjustments of their equipment and work area” (HP 2002, p. 15).

Energex “We voluntarily engage external auditors to monitor work practices and have an internal OHS Compliance Committee and Independent Safety Operations Group” (Energex, 2003)

IBM Corporation “The IBM Corporation has a long standing commitment to employee wellbeing”

“IBM…health promotion programs received excellent feedback on employee surveys and were valued as a very positive influence on morale” (page 9)

CGNU “The group is committed to providing a consistently safe and effective environment for all staff, including contractors as well as customers and members of the public” (page 12).

“We offer an ‘Employee Assistance Programme’ which is a free, confidential personal support service available 24 hours a day, every day of the year to all employees and their immediate family” (page 12).

Alcoa (in Australia)

“Being safe and healthy is just as important at home as it is at work” (page 31)

“Safety statistics are currently kept separately for the Western Australian and Victorian operations, but both have a target of zero lost work days injuries and illnesses by 2003. No fatalities were recorded at Alcoa’s Australian operations in 2002” (page 32).



The other indicator that was well represented was LA9 (core indicator - relating to training

available to employees). The disclosures and information content for this indicator did not

comply closely with the GRI Guidelines. In the sample of companies that responded to this

indicator, the average score for the disclosure (maximum of 5) was a score of 2.5 in the

2002-year and 2.7 in the 2003-year.

A review of the content of the disclosures indicated that the information content was

deficient when evaluated against the disclosures indicated in the GRI Guidelines:

1. an average for each employee category was not given, merely a total for the workplace;

2. dollar values were given rather than a quantification of time;

3. some content about training policy was given with minimal information by way of

particulars in terms of hours, target groups, potential outcomes and the like; and,

4. information about training programmes for human resources issues, or management

training were generally identified. Some sectors within the company were identified as

receiving specialist training, but the disclosers were silent about the remaining

workforce. The information was also not quantified in terms of participants or hours of

training.

The remainder of the indicators, particularly with reference to trade union interaction in the

workplace along with corporate policy on HIV/AIDS had low numbers of companies

reporting. Interestingly, although the percentage of companies reporting for indicator LA8

(company policy on HIV/AIDS) was at a low 13.5% in 2002 (25.0% in 2003), when

disclosure did occur the average score w as 4.5 for the content of the disclosures, indicating

close to full observance with the GRI indicator.

A further perusal of Figure 8.2a shows that eight of the fifteen indicators in this section had

less than 20% of the companies reporting in both of the years. When the companies in the

analysis are matched with the Top 100 companies, then disclosure of information about

labour/employment matters is negligible at approximately 6%.



8.5.3 Human rights

The reports of the companies in the sample included several sections about their policies on

strategy and management in human rights issues, policy on the use of child labour,

including specifically screening contractors and suppliers for the use of child labour. Table

8.4 lists the GRI Guidelines’ disclosure specifications for this area.

Table 8.4 GRI Social (HUMAN RIGHTS) Core and Additional Indicators


SOCIAL Grouping

Question Number


Core Non-core

Strategy and Management

HR1 Human Right Policies including monitoring & results

HR2 HR impacts on investments, procurements, suppliers / contractors

HR3 HR Policies to address any issues in supply chain, eg with suppliers AND results

HR8 Employee training on all aspects of HR

Non-discrimination HR4 Global policy on discrimination, monitoring & results

Freedom of association

HR5 Global policy on freedom of assoc, and extent of application

Child labour HR6 Global policy on excluding child labour, monitoring and results

Forced & Comp Labour

HR7 Global policy to prevent forced labour, monitoring and results

Disciplinary Practices HR9 Appeals process, not limited to only HR

HR10 Non-retaliation policy and protection of whistle-blowers

Security Procedures HR11 HR training for security personnel…show type & duration & numbers trained

Indigenous Rights HR12 Policies etc to address needs of indigenous peoples HR13 Any jointly managed grievance procedures?

HR14 Share or Revenues distributed back to locals



Although the overall total representation of Australian companies undertaking human

rights disclosure was small, this area was highlighted in the main with disclosures from

companies which had overseas parent companies or which had overseas operations. A

general discussion about how the company currently manages human rights dilemmas and

policies and proposals for future targets was to be found in these sections. In the instances

where these legal or voluntary measures are either in place or about to be implemented,

there should be ample opportunity for the users to assess and evaluate the success of the

programs. An example where the disclosure content gives information about the human

rights policy and gives the users some benchmark either for future assessment or future

actions may be found in the following comments:

Aviva Corp Ltd (formerly CGNU) on Human Rights

“Observance of the basic principles of the Universal Declaration of Human Rights is a

prerequisite for a company that seeks to conduct its business in a socially responsible

manner…We have the opportunity to influence the human rights performance of others via our

purchasing activities. This will be put in place during the course of this year and will be followed

up under the title of ‘shareholders’”. (CGNU Report, 2002, page 13)

Although the GRI Guidelines deal mainly with a company’s global aspects of human rights

issues, this analysis includes companies that do business in Australia only, and for

multinational companies conducting business in many other countries as well. Where

global business is undertaken the human rights issues are perhaps compounded when a

foreign entity enters a country to undertake business activities.

In its Sustainability Report for 2003 (p. 5), BP notes the additional human rights

sensitivities that are manifest in such cases:

“Construction sites have sometimes become ‘honeypots’ attracting people and resources from other

areas and importing social and health problems to fragile communities. Fears over human rights

have been aroused by the arrangements made for protecting people, plant and pipelines.”

Figure 8.3 depicts two graphs showing the percentage of companies reporting (reporting

rate) for the GRI Social-Human Rights Indicators (Figure8.3a) and the average scores

attained for the information presented on each of the GRI Social-Human Rights Indicators.



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

HR1

HR2

HR3

HR8

HR4

HR5

HR6

HR7

HR9

HR10

HR11

HR12

HR13

HR14

GRI Indicator

Repo

rting

Rat

e2002

2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

HR1

HR2

HR3

HR8

HR4

HR5

HR6

HR7

HR9

HR10

HR11

HR12

HR13

HR14

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.3 Level of Reporting Rate with GRI Social (HUMAN RIGHTS) Indicators (8.3a)

and Average scores for GRI Social (HUMAN RIGHTS) Indicators (8.3b)

8.3b

8.3a



The graphs in Figure 8.3 have been extracted from the detailed data shown in Appendix 1.

In total there were 14 questions to be addressed, equally split between core and non-core

matters. The core indicators are numbered HR1 to HR7 (inclusive) and are not represented

chronologically on Figure 8.3a.

Overall the reporting rates for the Human Rights section do not exceed the 50% mark and as

is indicated in Figure 8.3a, the maximum levels of companies reporting are 24.3% in 2002

and 42.9% in 2003. Again, noting the group undertaking TBL reporting in the Top 100

Australian companies is already small, this means that human rights disclosures are even

smaller when considered against the total 100 companies.

When compared to the non-core indicators the level of reporting for the core indicators

(HR1 to HR7) is significantly better, with at least some disclosure in all areas showing the

bar graph - Figure 8.3a - skewed to the core indicators. The high result for HR12 (policies

for indigenous peoples), which is a non-core indicator, is the exception. Except for HR12

with reporting levels at 24.3% in 2002 (39.3% in 2003) the others are remarkable only for

their low levels of disclosure. The low level of responses for all the non-core indicators may

be indicative of the low importance placed on these non-core indicators, or that there is

nothing to report.

The indicator, HR12, is particularly interesting for Australian companies as it deals with

corporate policy to address the needs of indigenous people. Australia has had quite a

chequered past in its relations with its indigenous people, yet current social enlightenment

and disapproval of past acts has forced the Government to be more aware of Australia’s

indigenous population. Legislation such as the Commonwealth Human Rights and Equal

Opportunity Act 1986 and Aboriginal and Torres Straits Islander Act 1989 has meant that

Australian businesses are also required to be aware of this group in the population. For

instance, employment of aboriginal people, their participation in human rights programs,

provision for development, training and cadetships, encouragement in the workplace of

cultural diversity, and providing for an awareness of aboriginal culture are issues that could

impact on a company.

Yet, even with the number of companies reporting at under the level of 30% it was possible

to ascertain that the companies disclosed in this area were of two major types:



1. The first grouping is made up of multinational companies with a subsidiary listed on

the Australian Stock Exchange. These global companies would undoubtedly have

dealings in other countries and with other indigenous populations, so Human Rights

disclosure on policies pertaining to indigenous people would be formulated for more

than one country (Australia) and would be part of a wider global policy.

2. The second grouping is made up of Australian companies that are either ex-

government bodies that have been corporatised, or utilities that have been privatised

and listed on the ASX. These entities as a group have also shown a higher level of

disclosure in this area as compared to the other companies in the sample. This may be

mainly due to their public service background, which would have given them greater

exposure to indigenous rights issues, and may also be due to the geographical locality

of their business dealings giving them more exposure to indigenous communities.

As seen in Figure8.3b, the average score for the content of HR12 disclosures was 3.3/5 in

2002 (and 3.1/5 in 2003). The score was dragged down by the companies that had no

disclosure or disclosures that were merely statements attesting to a policy for indigenous

peoples with little by way of detail or case analysis.

The core indicator HR1 (basic human rights policy, monitoring and results) had one of the

highest levels of companies reporting in this section. This could be attributed to the fact that

many of the companies reporting in Australia would have some policy for indigenous

peoples and this would come under the umbrella of a company’s overall human rights

policy - and thereby the information would be eligible for disclosure under both HR1 and

HR12. For many local companies, a HR policy would not have much emphasis on child

labour and forced labour (see HR6 and HR7).

It should be noted that other disclosures on core indicators relating to HR policies on

discrimination (HR4) and freedom of association (HR5) were also well represented and this

could be attributed to the social and legal climate in Australia.

Overall, the level of disclosures in the Human Rights area does not have a great significance

when placed in the context of the Top100 companies. No pattern could be discerned of

those entities that did carry out some form of disclosure for these indicators. Nonetheless,

the rating given to these disclosures were polarised between a low level of a rating of 2, or



at the high end with a rating of 5, resulting in average score of 3.5 in 2002 (3.2 in 2003).

The high score of 5 was given where the information gave policy and further details of case

examples, of which there were very few.

8.5.4 Social / Community disclosures

This social indicator is seen as dealing with the contribution of a firm to community

development, including; philanthropy; and employee volunteerism (Ranganathan, 1998) as

well as bribery, corruption and free trade issues. The GRI Guidelines for the

Social/Community aspect are provided in Table 8.5.

Table 8.5 GRI Social (COMMUNITY) Core and Additional Indicators


SOCIAL/ Community

Question Specifics of Indicator

Core Non-core

Community SO1 Policies to manage impact on communities, include monitoring, results etc

SO4 Awards received for social, ethical, enviro perf

Bribery and Corruption

SO2 Bribery policy and process

Political Contributions

SO3 Policy for political lobbying & policy on contributions

SO5 Dollar amounts paid to political parties or candidates

Competition and Pricing

SO6 Court decisions on any anti-trust / monopoly behaviour

SO7 Policy, process etc for preventing anti-competitive behaviour

These indicators are made up of 3 core indicators and 4 non-core indicators. An analysis of

the types of matters that are perceived to be important enough to warrant separate and core

disclosure would be information about company policies relating to community impact, the

monitoring of implementation programs and actual corporate behaviour. The other two

core disclosures would result in information about how a company stands on bribery



matters and how it stands on political lobbying. These disclosures are meant to enhance the

users’ understanding of the company’s relationships with the community within which it

exists. Still, it should be noted that the GRI Guidelines focus mainly on policy matters (see

Table 8.5) and not on showing the action/strategy undertaken to achieve these goals, nor

on post-implementation progress. Therefore a great deal of room is left for speculation on

the part of the user and for manoeuvring on the part of the preparer. When many of the

statements do not require that the company establish terms of reference and then monitor

the output of their actions, it seems that policy disclosure is mere window dressing and an

act in futility that will not assist in assessing the long-term social sustainability of the

company.

Figure 8.4 depicts two graphs showing the percentage of companies reporting (reporting

rate) for the GRI Social/Community Indicators (Figure 8.4a) and the average scores attained

for the information presented on each of the GRI Social/Community Indicators (Figure

8.4b). The graphs in Figure 8.4 have been extracted from the detailed data shown in

Appendix 1.

Figure 8.4a indicates that reporting rates are generally low for all indicators except for the

core Social/Community indicator SO1 (policies to manage impact on communities, include

monitoring and results of this policy), which is the first indicator here. For a single indicator

there is a considerable amount of information to be included here. In comparison

something like the Economic indicator, EC1, which requires disclosure of ‘Net Sales’ is

markedly less onerous. As regards SO1 disclosures, it should be noted that 100% in 2003

(91.9% in 2002) of the companies in the sample disclosed some information about this

policy. In terms of monitoring programs, many companies spoke of circulating community

awareness surveys, undertaking community assemblies, distributing information leaflets

and the like. Determining how well the policy had been implemented was established from

reduced community intolerance, measuring involvement in voluntary community/staff

activities and evaluating the results of the surveys.



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

SO1

SO4

SO2

SO3

SO5

SO6

SO7

GRI Indicator

Repo

rting

Rat

e

2002

2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

SO1

SO4

SO2

SO3

SO5

SO6

SO7

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.4 Level of Reporting Rate with GRI Social (COMMUNITY) Indicators (Graph 8.4a)

and Average scores for GRI Social (COMMUNITY) Indicators (Graph 8.4b)

8.4b

8.4a



In terms of the scores given to the disclosures in the Social/Community sub-grouping, there

was quite a high proportion of companies who conformed with SO1 and who gave

outstanding informative content in this area. The disclosures for this indicator are a perfect

example of how a company would be able to exemplify its dealings with the communities it

functions in. Under this indicator, general policy was disclosed, case examples were cited,

methods for monitoring were detailed and outcomes highlighted. For companies not to

take up the option to extol their virtues under this indicator is an opportunity wasted, for

what better way to ensure that users are made aware of the company’s dealings with

society?

In many of the reports companies gave information about support given to local

community groups and projects in their local environs. Examples of these were details

about affiliations and sponsorships with various local community groups and liaisons with

schools, other educational facilities, along with art and musical events. With the use of

quantitative data, each company makes the information in these sections more meaningful

because stakeholders can put into context the resources committed. Where companies

reported on the actual monetary outgoings expended on the various projects then these

amounts could be examined in context with the earnings of each company. In many

instances such a comparison was possible, yet there were also a number of companies

where coverage of community information was textual in nature and addressed specific

cases and examples but gave no indication of a monetary contribution. This factor when

aligned with a lack of disclosures as to the Total Revenue of the company meant that there

was no possible way to ascertain corporate monetary commitment to the community.

The other two core indicators under the Social/Community sub-section, SO2 (disclosure of

bribes) and SO3 (policy on supporting political parties) have not fared as well, with

reporting levels down at 13.5% and 10.8% respectively for the 2002-year. The percentage of

companies reporting against SO2 and SO3 increased in the following year to 28.6% and to

25.0% respectively. As these two core indicators are based on disclosure of bribes and

policy on supporting political parties, the low reporting rates would imply that either these

issues do not have a big impact on Australian companies, that this information is

considered controversial and thus not for public viewing, or as is the case with political

donations, the information is reported elsewhere.



Figure 8.4a shows that a small percentage of companies in the sample undertook some

disclosure in these areas. The disclosure tended to come in the form of amounts paid to the

major political parties and some commentary about the policy on payment of political

contributions (SO5and SO3 respectively). Discussion of corporate policy on accepting

and/or receiving bribes (SO2) did not feature largely in the companies which had most of

their business in Australia, but did feature amongst companies which had dealings in

overseas markets.

As seen in Figure 8.4b, scores on the content of the disclosure of payments to political

parties (SO5 indicator) were at an average of 5. Whereas the vast majority of companies did

not disclose anything in this area, those that did, disclosed the information as designated by

the GRI indicator. As noted earlier, the lack of disclosure for this indicator does not of itself

indicate that no contributions were made to major political parties, merely that this may be

a sensitive area, and that this information is generally available from other sources making

reporting replication redundant. The low percentage of companies reporting against the

SO5 indicator (5.4% in 2002 and 10.7% in 2003) means that any conclusions lack

resilience. Yet, it is worth noting that in the 2002 TBL reports, only 2 companies disclosed

information about contributions to political parties, and the companies that declared their

dealings were in the tobacco industry and the materials industry.

The last two non-core indicators, SO6 (dealing with competition) and SO7 (pricing), were

also poorly represented (see Figure 8.4a). The small size of the Australian market and one

would optimistically like to say that the proper functioning of the Trade Practices Act means

that only two large global entities, Shell and Ansell, had anything to report for SO6 and

SO7.

8.5.5 Product responsibility

A company’s contribution of products and services to social welfare, equity, and the

meeting of basic human needs (eg. food, shelter, water, and health care) is made patently

and clearly apparent from the indicators in this section. Interestingly, of the 11 indicators

outlined here, there are only 3 core indicators, with the rest being non-core (see Table 8.6).



Table 8.6 GRI Social (PRODUCT RESPONSIBILITY) Core and Additional Indicators


SOCIAL/Product Responsibility

Grouping Question Specifics of Indicator

Core Non-Core

Customer Health & Safety

PR1 Policy to preserve customer health and safety, policy visibly stated? Monitored? Results?

PR4 Number and type of instances of non-compliance, include $ fines and penalties

PR5 Number of complaints upheld by regulatory authorities on health and safety issues of product

PR6 Voluntary code compliance, labelling, awards etc

Products and Services PR2 Policy, process etc on product info and labelling

PR7 Number and $ fines for non compliance with product info & label laws

PR8 Customer Satisfaction polices, process, monitoring, by region

Advertising PR9 Policy to show adherence to advertising standards, PLUS voluntary actions

PR10 Number and type of breaches of advertising laws

Respect for Privacy PR3 Policy etc for customer privacy, by geo region

PR11 Number of substantial complaints re breaches

Not surprisingly, what became apparent from the analysis is that all the companies in the

sample considered themselves to be making a positive contribution to society by supplying

a product that benefits the consumer and many were marketing their products to this

extent.

Social responsibility is a major issue for companies that produce a product that whilst it is a

legal product may be harmful. Where a company produces a product that has mainly

negative connotations, then the issue of legitimacy may be important here to explain the

amount and wording of the disclosures that the company undertakes. One of the main

examples in this study is the company British American Tobacco (BAT) in the tobacco



industry. BAT writes that its product is worthwhile, and yet it still identifies several

important issues regarding its product and its impact on society:

1. The risk of smoking and customer information;

2. What is a cigarette and what is in a cigarette;

3. Making a safer cigarette;

4. Reducing the risk of smoking;

5. Tackling the problem of under-age smoking;

6. The issue of public smoking, accommodating the needs of smokers and non-smokers;

and,

7. Illegal sources of tobacco and tobacco regulation.

As BAT’s product is considered to be notoriously harmful to people, the issues surrounding

its supply and in maintaining a business model around such a product are cause for

considerable comment and of paramount interest to the community. In their 2002

inaugural TBL report, BAT takes over 50 pages to address the above issues that they

identified and then another 9 pages to address the environmental matters of littering and

product packaging. As is evidenced by the amount of disclosures undertaken by BAT, the

aim of the disclosures for similar types of companies is possibly damage limitation rather

trying to convince that their product is worthwhile. Legitimacy may never be able to be

attained in the eyes of the public, and such social disclosures may be used to convince that

the company is not all that bad (Campbell et al., 2003). Conversely these companies are so

“structurally illegitimate” (Campbell et al., 2003, p. 560) that any social and environmental

disclosures have negligible value since the company is held in such disdain by the public.

Campbell et al. (2003, p. 561) hypothesised that “companies which are considered … to be

more ‘sinful’ (than some others) will be expected to disclose more social information than

those which are considered to be less ‘sinful’”. In their research they looked at three sectors,

identifying BAT as a company with the greatest perception of “sinfulness”. Their analysis

of the social disclosures of BAT did not support their hypothesis, indeed BAT had a very

low level of disclosure during the period considered by their investigation (from 1972 to



1998). The authors noted that the level of disclosures in the annual reports of the

companies in their study did vary over time, over companies and over sectors. Late in 2000,

the authors examined BAT’s website and found a section titled “What we believe”,

containing sub-sections on smoking, health, corporate citizenship etc. What Campbell et al.

(2003) saw was the precursor to BAT’s inaugural social and environmental report of 2002

used in this analysis. As noted earlier in this study, it was identified that BAT’s disclosures

in the 2002 year numbered over 50 pages whilst Campbell et al. (2003) state that the

smoking section in the BAT website was 27 pages long. Thus, the information presented on

BAT’s website significantly amplifies the amount of their public disclosures, however, this

was not accounted for in the Campbell et al. (2003) study. The content in the 2000 Website

and the 2002 Report remains consistently similar. Several quotes in the BAT 2002 report

(supplemented by information on their website) exemplify the negative or bad news

disclosures:

We believe that with smoking comes real risks of serious disease such as lung cancer,

respiratory diseases and heart disease.

In our view there should be strong public health advice to women not to smoke during

pregnancy.

We do not claim that there is a ‘safe’ level of smoking or there is such a thing as a ‘safe’

cigarette. Accordingly, we do not make any health claims about any of our products.

Because smoking is risky, and because it is difficult to quit, we strongly believe that smoking

should only be for adults, who are already aware of the risks.

These and similar disclosures found in BAT and in other companies with “bad”

environmental and social reputations do not conform with the Guthrie and Parker (1989)

finding that no companies provided “bad news” about themselves in terms of social

disclosures.

Evidence and opinion in this study and other sources has shown that companies in this

situation will do their utmost to present lengthy and detailed disclosures with the aim of

presenting themselves in a positive light (Moerman and Van der Laan, 2005; O’Donovan,

2002; Burton and Rowell, 2002; Deegan and Gordon, 1996; Deegan and Rankin, 1996;

Simmons and Neu, 1996). Whilst this is not supported by the findings of Campbell et al.



(2003), there are deficiencies in the Campbell study (as noted above). A possible

explanation for the behaviour that led Campbell et al. (2003) to conclude that there was no

connection between ‘sinfulness’ and disclosure levels is that, in the period 1972 – 1998,

BAT did not yet feel pressured to reassure a sceptical public, but by 2000 the tobacco

industry may have felt that it was losing legitimacy and had to reassure the public regarding

the health effects of its product. This is one possible explanation and would need further

investigation to provide proof. Even so, the important point to note is that the Campbell et

al. (2003) hypothesis is actually supported when considered together with the further

information available off BAT’s website. This also brings Campbell et al. (2003) into

agreement with others in the literature and also the findings of this study.

As depicted in Figure 8.5 there are two graphs showing the percentage of companies

reporting (reporting rate) for the GRI Social/Product Responsibility Indicators (Graph 8.5a)

and the average scores attained for the information presented on each of the GRI

Social/Product Responsibility Indicators (Graph 8.5b).

Figure 8.5a shows that of the 8 non-core indicators, 4 showed a zero level of disclosure in

the 2002-year for companies in the sample, with only marginally better results in 2003.

These four non-core indicators with a zero reporting rate are:

• PR5 - monetary or numerical data of complaints or fines on product health and safety

issues

• PR7 - monetary or numeric data of non-compliance with product labelling laws

• PR10 - numerical quantification of breaches of advertising

• PR11 – number of substantial complaints re breaches in privacy laws



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

PR1

PR4

PR5

PR6

PR2

PR7

PR8

PR9

PR10 PR

3

PR11

GRI Indicator

Repo

rting

Rat

e

2002

2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

PR1

PR4

PR5

PR6

PR2

PR7

PR8

PR9

PR10 PR

3

PR11

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.5 Level of Reporting Rate for GRI - PRODUCT RESPONSIBILITY Indicators (Graph 8.5a) &

Average scores for GRI Social (PRODUCT RESPONSIBILITY) Indicators (Graph 8.5b)

8.5a

8.5b



The zero levels of disclosure may indicate that the companies in the sample either have

1. a good track record in this area,

2. these items are not included in the collection of data in the companies’ management

information systems, or,

3. the companies merely did not report on the information.

If the first point were valid, then it would be advantageous for the company to disclose that

it has had no such breaches, and submit a nil return on this indicator. When the entity is

“doing the right thing”, this non-disclosure can act as a disincentive to a positive image as

users have not been able to ascertain that the company has done the right thing.

Disclosure of information for the PR11 indicator could produce dubious results. As is

stipulated in GRI Guidelines the wording for PR11 is framed in such a way that it is open

to debate. The information to be disclosed is for substantial complaints of breaches in

privacy laws, yet no definition is given as to the term “substantial”. Are companies meant

to impose a materiality test for what is substantial? Is the term meant to imply substantial in

terms of percentage of complaints against a total customer base, or percentage of privacy

complaints against significant customers or number of privacy complaints against total

complaints received by the company overall? The lack of definition leaves an enormous

scope for manoeuvring in the disclosure.

In Figure8.5a, the indicator PR8 (customer satisfaction polices, processes and monitoring

of the process) shows that the percentage of companies reporting against this indicator was

27.0% in 2002 and 35.7% in 2003, which apart from PR1 is the next highest reporting rate

in this grouping. This indicator merits further discussion as it is very closely linked to an

earlier indicator SO1 (policies to manage impact on communities). In the SO1 indicator a

compliance level in the disclosures reported by the companies was up at the 90th percentile.

To state that customers are also part of the wider social community in which a company

undertakes its activities would seem a logical assumption. Yet the information must have

been difficult to dis-aggregate as the PR8 indicator had markedly lower reporting levels.

From the user viewpoint, there were also problems in identifying how the data was

separated so as to fulfil the GRI Guidelines for SO1 and PR8.



Although the indicator SO1 deals with the community at large and PR8 deals with the one

component of the community, the customers, in many instances the distinction was

difficult to make when reading the reports. Companies tended to bundle the two together

and present commentary about both. Content about meeting community needs and

contributing to community outreach programmes was merged with comments about

customer satisfaction, help-lines and complaints departments. In the analysis of the

disclosures, an attempt was made to look at specific disclosures about the product and the

customers so as to differentiate the information so as to determine what constituted

disclosure for PR8. This then meant that any remaining content resulted in disclosure for

SO1, which turned out to be a significant proportion of the disclosure. It does however

result, albeit at a reduced level, in the disclosures for the PR8 indicator. The companies that

had undertaken disclosure in PR8 did, however, predominantly focus mainly on customer

satisfaction policy, with many showing signs of being generic statements, with comments

such as making sure customer satisfaction is high and customer needs are met.

In general, for the indicator PR8 (customer satisfaction etc), where the company only

disclosed its policy, the rating accorded to this was a score of 2. Where the information

went further and commented on for example, circulating customer satisfaction surveys and

instituting 24-hour complaint lines, then the rating given was at a higher level of 4. The

information content in many of the reports showed the same basic types of information,

with most companies reiterating the statement that there is a need for safe, reliable and

environmentally benign products. Most management envisaged that their companies would

continue the way forward through a continued or sustainable development of the product

through a proper management framework and several firms noted that they believed it

would assist in managing their business in ways that match society’s needs and

expectations. How they intended to do this was not explained, nor was the concept of what

constituted a proper management framework. Only 27.0% of the companies (in the 2002-

year) disclosed information about customer satisfaction (PR8), and the average score for

the quality of disclosure was 3.8 for 2002 and 4.2 in 2003 years. This would indicate that

although the reporting rate was low, the score for the disclosures was high due to content

about policy and processes, and a reasonable level of information about monitoring of the

process with many companies disclosing information about customer satisfaction survey

results and even complaints per annum.



8.5.6 Social topics - Overview

In the Social area, many topics were discussed by the companies analysed, but many of

these received only superficial or no commentary at all, which is consistent with the

findings of other studies (Australian Government, 2005; KPMG, 2005; Jones et al., 2005;

Morhardt et al., 2002; Stratos, 2001). The range of the discussion was limited to a few

indicators receiving the bulk of the attention, which were based on three main groupings.

These groupings each had several items that were discussed almost universally by the

companies in the sample. The four main groupings are shown here and will be discussed

separately:

1. Employee information, relations with employee and working conditions;

2. Community relations and philanthropy;

3. Human rights; and,

4. Health matters.

Employee information, relations with employee and working conditions

Under this sub-groupings the major findings showed disclosures based on the following:

• OH&S information about workplace safety, accidents and incidents,

• information about loss of working days due to injury, fatalities, absenteeism,

• some information about training policy and the time spent training employees was

given, but this was generally done in an adhoc manner, with disclosures about a small

range of employees (eg management training, OH&S training, equity training etc).

These results are consistent with KPMG (2005).



Human rights

The overall total representation of Australian companies undertaking human rights

disclosure was small – 24.3% in 2002 and 42.9% in 2003 – with a greater focus on the core

indicators.

This area were highlighted by disclosures mainly from companies that had overseas parent

companies or which had overseas operations.

Community relations and philanthropy

The number of companies reporting against indicators relating to social/community matters,

involving the impact on communities, was generally low for all indicators except the

indicator specifically addressing policies to manage impact on communities with reporting

rates over 90% in both the years under review.

The number of companies undertaking disclosures on product responsibility was significant

and the amounts of information were numerous and plentiful. Indeed the analysis showed

that the majority of the companies considered themselves to be making a positive

contribution to society by supplying a product that benefits the consumer, and were using

these indicators to market their products. BAT was one such company.

Health matters

The major findings here showed that there were a small number of companies (13.5% in

2002 and 25.0% in 2003) that reported on company policy for HIV/AIDS. The firms

disclosing received an average score of 4.5 out of 5.0 for the quality of their information,

indicating almost full observance with the requirements for this GRI indicator.



8.6 Analysis of conformity with the ‘Environmental’ component

As the sample of 37 companies contained 16 companies in the energy and materials

industries, it was expected that the levels of disclosure for these companies would be high

pursuant to their significant environmental responsibilities. Based on stakeholder theory,

mining companies will generally seek to report information on the issues they perceive

important and they are likely to report information about social and environmental impacts

in order to seek approval from their stakeholders (Yongvanich and Guthrie, 2005).

Significantly, mine establishment, ore extraction, mineral concentration and the associated

transport along with the infrastructure that supports the mines can create considerable

environmental impacts (Australian Bureau of Statistics, 2002). Other potential

environmental impacts can include damage to soils including salination, dust and noise

pollution, wind and water erosion, pollution, loss and compaction of soil structure, acid

mine drainage and loss to flora and fauna (Environment Australia, 2002).

The Environmental component of TBL reporting is particularly important in tracking

corporate intent and the commitment to sustainability and the extent of the reporting and

compliance with GRI indicators should outline some of this commitment. In reviewing

these disclosures, it was essential to establish that a company’s environmental policy

conform to their overall business strategy. In this part of the analysis, the bulk of the

disclosures came from energy uses, greenhouse gas emissions, waste produced and recycled

and information about renewable energy initiatives, sources and efficiencies.

Information about environmental contingent liabilities was not forthcoming. Even though

this was not a GRI indicator, the information was analysed for any such content but none

was discovered. There is an applicable accounting standard (AASB137 Provisions,

Contingent Liabilities and Contingent Assets) on the treatment of contingent liabilities, and

many such liabilities for environmental effects or impacts would be caught under this

standard and likely to be found in the financial statements of the companies. The

expectation however, was that there would also be a level of voluntary disclosure of

contingent liabilities in the TBL reports, since companies were forthcoming with

information about fines, compliance breaches and at the other end of the spectrum awards

and commendations. Studies have shown that contingent liabilities are normally disclosed

as part of the environmental disclosures of companies (Gibson and Guthrie, 1995), and

users tend to take particular interest in such news (Rankin, 1996). Where there is the case of



poor performance, such companies should do better in their disclosure due to the fact they

must adhere to mandated requirements (Hughes et al., 2000). Even so, there is a proposition

that suggests this may not always be the case, for there might be unwillingness on the part

of poor performers to disclose extensive information even where there is mandated

disclosure (Guthrie and Parker, 1990).

Table 8.7 details the list of disclosures expected under the Environmental component of GRI

reporting and contains 35 questions in total, made up of 16 core and 19 non-core

(additional) indicators. The inclusion of a greater number of additional or non-core

indicators within the GRI Guidelines would suggest that these are still under consideration

and their status may change depending on the level of compliance and feedback from

report preparers and users. Although the Environmental core requirements focus on the basic

environmental functioning of the entity, such as amount of energy used, waste produced,

water used etc, the additional indicators appear to add detail or fill in where the basics do

not give the full picture. This is effectively the case in all instances here, with the non-core

disclosures padding out the core information, adding detail, or where the information

would assist in determining/quantifying the environmental impacts.

The five major areas under review here: materials, energy, water, biodiversity, emissions

and waste were given consideration in all the TBL reports. The information content

required by the GRI Guidelines takes mostly a narrative form, with some measurable

indicators. In conformity with this, the environmental information given by the majority of

the companies was highly descriptive and informative, but in many instances lacked

quantification of the statements made. Whilst a higher disclosure content of indices, targets

and trends was found in the better reports, many still had copious amounts of narrative

giving either descriptions, policies or case studies to illustrate their environmental impacts.

In many cases the measurable data was found not in the actual environmental section of the

reports but in tables or appendices placed at the end of the report.

Table 8.7 GRI Environmental Indicators for Core and Additional requirements




Grouping Question Specific Indicator Core Non-

Core

Materials EN1 Materials used by type, in tonnes, kg, volume etc EN2 % of materials used that are from recycled waste

Energy EN3 Direct Energy source and usage EN4 Indirect energy usage EN17 Renewable energy initiatives/ sources/efficiencies EN18 Annualised energy requirements…energy footprints

EN19 Other energy uses

Water EN5 Total water use EN20 Water sources…describe ecosystems / habitat effects EN21 Annual withdrawals of ground & surface water as % EN22 Total recycling and reuse of water

Biodiversity EN6 Location and size of land owned, leased, managed in bio-diversity rich areas

EN23 Total amount of land owned, leased, managed for production or extractive industries

EN24 Amount of impermeable surface - % of land owned/leased

EN7 Major impacts on biodiversity as a result of activities EN25 Impacts on protected and sensitive areas EN26 Changes to natural habitats due to activities + % restored

EN27 Plans etc for protecting degraded natural areas EN28 Number of protected species in areas of operation EN29 Business units etc operating in protected / sensitive areas

Emissions, Waste EN8 Greenhouse gas emissions info (show actuals) EN30 Other relevant greenhouse gas emissions EN9 Use of substance that depletes ozone (Actuals)

EN10 NOx and SOx emissions EN11 Total waste by type & destination (ie recycled, treated etc) EN12 Significant discharges to water by type EN32 Water sources & habitats affected by discharges to water EN13 Number and Volume of Significant oil / chemical / fuel

spills EN31 Info re: production, transport etc of 'hazardous' waste

Suppliers EN33 Performance of suppliers relative to enviro matters

Products & Services EN14 Significant enviro impacts of major products and services EN15 % of weight of product reclaimable at the end of its life

Compliance EN16 Number and fines of non-compliance with enviro treaties, etc

Transport EN34 Significant enviro impacts from use of transport

Overall EN35 Total enviro expenditures by type..Co must define type

There are two graphs depicted in Figure 8.6 showing the percentage of companies reporting

(reporting rate) for the GRI Environmental Indicators (Graph 8.6a) and the average scores

attained for the information presented on each of the GRI Environmental Indicators (Graph

8.6b). Overall the percentage of companies with disclosures in the environmental area is



low (see Reporting Levels in Figure 8.6a) with most of the indicators coming in at less that

than 50% observance. The average score for many of the disclosures was above 3.5 as

indicated by Figure 8.6b signifying that the disclosure reported about policy as well as a

portion of either quantitative information or tracking data.

The area that did not rate well was the disclosure about material usage and recycled

materials (EN1 and EN2 in Figure 8.6a). Data for this should be easily accessible for

companies, therefore, the lack of reporting in these indicators by 65% of the companies

could be due to:

• the fact that most of the reporting companies did not have their major business

operations in areas where there was a tangible product (with 32% of the companies in

service or non-manufacturing businesses),

• the low level of priority placed on the environmental consequence of the materials used

as compared to the cost effective sourcing of the materials,

• the broad range of the disclosure requirements for these indicators, or

• the lack of systems to capture the information.

Just over one third of the companies in the sample reported about materials used, but only

in major operational areas and in commenting on their refusal to use materials from

unethical sources. Full disclosure about all materials usage may prove to be an unattainable

goal as the sheer volume of information would make disclosure onerous and costly for the

firm and the huge content may actually distract from the usefulness to users. An alternative

focus may be based on the major materials inflows into the product or in usage by the

entity. Unless there is agreement about the indicators, then there is likely to be a loss in

reporting integrity. Agreement in indicators enables us to move towards greater

comparability, completeness, and credibility (Ranganathan, 1998). Whilst completeness

would indicate full disclosure of all materials used, the confusion resulting from doing so

would go to the heart of the credibility of such reporting.



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

EN1

EN2

EN3

EN4

EN17

EN18

EN19 EN

5

EN20

EN21

EN22 EN

6

EN23

EN24 EN

7

EN25

EN26

EN27

EN28

EN29 EN

8

EN30 EN

9

EN10

EN11

EN12

EN32

EN13

EN31

EN33

EN14

EN15

EN16

EN34

EN35

GRI Indicator

Repo

rting

Rat

e

2002

2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

EN1

EN2

EN3

EN4

EN17

EN18

EN19 EN

5

EN20

EN21

EN22 EN

6

EN23

EN24 EN

7

EN25

EN26

EN27

EN28

EN29 EN

8

EN30 EN

9

EN10

EN11

EN12

EN32

EN13

EN31

EN33

EN14

EN15

EN16

EN34

EN35

GRI Indicator

Aver

age S

core

2002

2003

Figure 8.6 Level of Reporting Rate for GRI – ENVIRONMENTAL Indicators (Graph

8.6a) and Average scores for GRI ENVIRONMENTAL Indicators (Graph 8.6b)

8.6a

8.6b



Of the Environmental indicators, only 5 of the 35 indicators, had greater than 50% of

companies reporting as shown in Table 8.8.

Table 8.8 Environmental Indicators with > 50% Reporting rates in both years

Sub-Group Indicator

Energy Sub-group EN3 Direct energy source and usage (Core Indicator)

Water EN5 Total water use (Core Indicator)

Emissions and Waste Sub-group

EN8

EN11

EN13

Greenhouse gas emissions information, showing actuals (Core Indicator)

Total waste by type and destination (ie recycled, treated etc) (Core Indicator)

Number and Volume of significant oil/chemical/fuel spills (Core Indicator)

Within the Energy sub-grouping the indicator, EN3, had a reporting rate of 73.0% in the

year 2002 (67.9% in 2003). That this item should have high levels of disclosure is logical as

a significant proportion of the companies in the survey had business interests in some form

of production or extraction. Even with companies in the technology or

banking/finance/insurance sector, there were still some disclosures indicating the energy

usage in the form of electricity usage in the offices. A noteworthy example is Royal

SunAlliance disclosing the use of electricity and gas by the company on a worldwide basis,

and clearly identifying its major centres of operation. Amongst the sampled companies, the

information about energy was presented mainly in tables, graphs or pie charts, with

attached explanatory text. Where companies disclosed information about their attempts to

be energy efficient or to use renewable energy the information was mainly narrative, with

some targets set for the forthcoming periods.

This is not to say that quantifiable data was missing, in fact with many energy and

manufacturing companies, there was considerable data about quantities of renewable

energy and efficiency ratings on equipment and processes (which was incorporated in the



E17 indicator as well). In such instances, companies were given a top score of 5 points for

the content of their disclosure.

In the Emissions and Waste sub-grouping the two indicators, EN8 and EN11, have a high

percentage of companies undertaking reporting. EN8 (greenhouse gas emissions) had a

reporting level of 81.1% in 2002 and 82.2 in 2003. The indicator EN 11 (total amount of

waste) had reporting levels of 78.4% in 2002 and 71.4% in 2003. Disclosure in this sub-

grouping of the GRI Indicators was generally better and more informative than the other

sections in the environmental area. It would seem that the issue of greenhouse gas

emissions and terrestrial (land) and marine waste has become a genuine corporate concern -

or perhaps appearances about genuine concern are merely good public relations for the

company.

That there was a high level of reporting for Indicator EN11 (waste produced and/or

recycled) is not surprising. In contrast to other indicators this was considerably detailed in

both text, measurements and in the majority of cases showing trends. For example, specific

information was given about the types of aerosol pollution that could contribute to acid

rain, and the means of combating and reducing these effluents was discussed. The

importance of some of these issues could be discerned by the disclosure undertaken in the

report. Various pollution abatement programmes, oil spill issues and water conservation

programmes could be found in the reports and in specific case studies reported by many

companies, adding to their significance and reinforcing the sensitivity of these matters.

Companies have become used to looking at how their business rates in the areas of

emissions and/or waste, and all the companies that disclosed information in these sections

had well-documented and extensive environmental policies that covered waste production,

recycling and treatment. The overall narrative content in the environmental policy was

supplemented with further disclosure about specific programmes and solutions, along with

detailed graphical information concerning the entity’s waste efforts. The extent of the

narrative was in many instances loaded with technical jargon, requiring the user to have a

high level of literacy and making these areas not particularly user-friendly and

understandable. Granted the issues confronted in these areas are not simple, but at times

there was an overload of technical content that overwhelmed rather than informed. Of

course there is always the argument that as the information is so technical and specialised,



then ‘dumbing-down’ would be inappropriate and may in fact detract from the content and

the overall message of the importance of the topic.

Under the sub-grouping of Products and Services the core indicator, EN14 relating to the

environmental effects of products, had a reporting rate below 50% in 2002, and 57.1% in

2003 (see Figure 8.6a). Although this number represents the overall response amongst the

companies in the sample it is in fact close to 100% compliance amongst companies that had

a discernible product. A rating of zero was given when the company did not have a

physical product and thus did not disclose anything – the majority of these companies being

in banking/finance, insurance and information technology. This therefore highlights one of

the problems with the GRI Guidelines as the indicators appear to biased towards a physical

product, although the indicator itself does not solely require information about a physical

product or a service7. Yet the service-based companies with no significant physical output

did not disclose any information under this indicator. There was no explanation given for

this in any of the reports and we can only speculate that:

• there may have been a lack of understanding of what the EN14-Indicator requires;

• a nil return was based on the immateriality of amounts and were not deemed

noteworthy for inclusion; and,

• the reporting system could not adequately collect the required information.

Other indicators such as those regarding the percentage of product that is reclaimable at the

end of its life (EN15 core indicator) and information about the energy footprints of the

product (EN18 non-core indicator), illustrate this product bias by the GRI Guidelines. With

no disclosure against an indicator a score of zero was allocated, with the implication being

that the company was negligent or ‘bad’, environmentally speaking. This negative labelling

of a company occurred even when there was nothing to disclose and thus completely

omitting the indicator. A comment about a nil return against the indicator would have

given the firm a better score.

7 At present there are sector specific supplements to the GRI Guidelines that were not available at the time the reports in this analysis were produced. These new supplements are for Financial Services, Logistics and Transport, Miming and Metals, Public Agency, Tour Operators, Automotive, and currently in development, Apparel and Footwear, and, Energy Utilities. (sourced from: http:www.globalreporting.org/guidelines/06sectorSupplement.asp on 22 May 2006)



8.6.1 Environmental indicators - Overview

Overall the content of the Environmental disclosures were better for the 2003 reports than

the 2002 reports. In many instances this shows a level of maturity in the companies in terms

of preparation of the reports and also in terms of the data gathered. In some instances the

2002 reports were either very early prototypes or the inaugural report for the company and

this was apparent in the lack of detail in the disclosures. The establishment, development

and refinement of data collection systems extends over a number of years.

The sections on emissions, waste and recycling were well reported on. The percentage of

companies reporting on greenhouse gas emissions in this study was 81.1% in 2002 and

82.2% in 2003.This finding is consistent with the KPMG (2005) global survey which shows

that greenhouse gas emissions is one of the most pressing environmental issues for

companies. “Not surprisingly, about 85% of the CR reports address climate change, while

67 percent measure greenhouse gas (GHG) emissions from their own business operations”

(KPMG, 2005, p. 27).

There were some weak reporting areas in the Environment section and these are relatively

self-explanatory and can be linked to some of the factors below:

1. Many of these indicators are not relevant to many of the companies in the sample (see

for example, indicator EN24 requiring detail of amount of impermeable land surface).

2. Other indicators required replication of some of the information already submitted

elsewhere (see for example indicators, EN2 and EN19).

3. The information required by the indicators is overly complex or technical and the

companies in the sample may not have resources to meet the requirements - see for

example EN28 (protected species information) and EN21 (withdrawals of ground and

surface water).

4. The indicators in this section focus mainly on the environmental impact of a physical

product, whereas 32% of the reporting companies did not have a physical product.

On the whole, the quality of the information/data was better reported in 2003.



8.7 Overview of conformity with the GRI indicators

Figure 8.7 shows the overall percentage of companies reporting (reporting rate) and Figure

8.8 shows the average scores attained for the information presented for all of the indicators

in the GRI Guidelines (the tables are produced from data shown in Appendix 1). The

presentation of the complete data onto one graph for all the indicators of the three prongs

of TBL reporting gives a good overview and a more complete picture of the performance of

the companies. Overall the Environment component outscored both the Economic and Social

categories. Yet, given the intricacy and the complexity of a firm’s activities and the

multiplicity of sites in which it operates, presentation of all facets of the company’s

environmental activities are likely to be impossible in the disclosures found in reports

(Warsame et al., 2002; Neu et al., 1998; Li et al., 1997), perhaps even when the reporting

framework is as comprehensive as the GRI Guidelines.

In comparison to the disclosures on the Social component, environmental disclosures

ranked higher and consistently showed more disclosures against a wider range of

indicators. These results are consistent with the findings of other studies (KPMG, 2005;

Jones et al., 2005; Australian Government, 2005; Morhardt et al., 2002; Stratos, 2001,

Guthrie, 1982).

Interestingly, disclosures were made in the TBL reports for both positive events and

discrediting events. The presence of disclosures of discrediting events in this study does not

support the studies that show that companies have a tendency to reduce the variability of

undesirable behaviour (Banjeree, 2001; Newton and Harte, 1997) nor that companies

favour positive environmental disclosures (Deegan and Gordon, 1996). It could be

suggested that the environmental disclosures in reports are the ways that organisations

respond to discrediting environmental activities (Warsame et al., 2002).

However, disclosure for the majority of the indicators in the GRI Guidelines was provided

by fewer than 50% of the companies in this study for both the 2002 and 2003, indicating

perhaps that the TBL reporting trend is not as strong amongst Australian companies as it is

on a worldwide front. That “reporting rates in Australia are lower than in most of the

countries surveyed” (Australian Government, 2005, p. 9) is confirmed by these results in

this study. This finding is not supported by the earlier study by Gibson and Guthrie (1995)



whose findings showed that the Australian environmental disclosures were on par with the

international surveys chosen for comparison.

On the other hand, the scores given for the content of the information disclosed in each of

GRI indicators (as seen in Figure 8.8) were generally better than average. Of the 97 GRI

indicators (core and non-core) there were 83 indicators in the 2002-year (85 indicators in

the 2003-year) where the disclosure given by the companies rated a score of 3.5 or better.

This means that the information given by the companies in the survey was generally of a

better than average standard for more than 50% of the GRI indicators. For these indicators,

the reasons for the better disclosures could be due to the following:

• the reporting companies take the process seriously and report accordingly,

• a number of companies included external verification statements with their reports,

which would have resulted in a better and “truer” disclosures,

• the process is costly and time-consuming thereby guaranteeing that the outcomes and

consequences that flow from the report are perceived to be worth the effort, and,

• the reporting company is genuinely environmentally and socially aware.



Figure 8.7 Level of Reporting Rate for GRI – Overall Indicators

0 .0 %

1 0 .0 %

2 0 .0 %

3 0 .0 %

4 0 .0 %

5 0 .0 %

6 0 .0 %

7 0 .0 %

8 0 .0 %

9 0 .0 %

1 0 0 .0 %

EC1

EC2

EC3

EC4

EC11 EC

5EC

6EC

7EC

8EC

9EC

10EC

12EC

13 EN1

EN2

EN3

EN4

EN17

EN18

EN19 EN

5EN

20EN

21EN

22 EN6

EN23

EN24 EN

7EN

25EN

26EN

27EN

28EN

29 EN8

EN30 EN

9EN

10EN

11EN

12EN

32EN

13EN

31EN

33EN

14EN

15EN

16EN

34EN

35 LA1

LA2

LA12 LA

3LA

4LA

13 LA5

LA14 LA

6LA

15 LA7

LA8

LA9

LA16

LA17

LA10

LA11

HR1

HR2

HR3

HR8

HR4

HR5

HR6

HR7

HR9

HR10

HR11

HR12

HR13

HR14

SO1

SO4

SO2

SO3

SO5

SO6

SO7

PR1

PR4

PR5

PR6

PR2

PR7

PR8

PR9

PR10 PR

3PR

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8.8 Verification statements

As noted earlier, the GRI reporting guidelines recommend the inclusion of a statement of

independent assurance about the full TBL report - this is one way that the reporting

company may enhance the credibility of its report.

The results of this study showed that 32% of the companies had external verification

statements/audits attached to their TBL reports across both years 2002 and 2003. These

findings are consistent with other studies (KPMG, 2005; Australian Government, 2005;

KPMG, 2002), but differ to the findings of Rankin (1996) who showed a lower level of

externally audited reports.

The bulk of the verification statements produced (close to 60%) were found in the TBL

reports of the companies in the Energy and Materials industry sectors. The higher level

amongst these sectors indicates that the Australian Minerals Industry Code for Environmental

Management8 was a major trigger for the verification statements. The lack of any other

reporting patterns amongst the other industry sectors or companies in the sample, shows

that as yet there is no apparent trend in favour of including verification statements as part of

the TBL reports.

No verification statement made any attempt to rate a company as sustainable, or whether

the activities of the company were socially or environmentally desirable, which is consistent

with the findings of Moerman and Van Der Laan (2005). This would reflect the comments

by Ball et al., (2000), who noted that existing verification practice did not enable verifiers to

reach an informed opinion about the company’s environmental/social performance.

It was also found that just over 40% of the verification statements were undertake by major

accounting firms, which is consistent with the findings of the study entitled The State of

Sustainability Reporting in Australia, 2005 which reported that “about two-thirds of companies

with verified reports used technical or environmental consulting firms or other

organisations such as university departments for verification. The remaining one third

8 In October 2004 the Minerals Council of Australia released an industry framework for sustainable development called Enduring Value – the Australian Minerals Industry Framework for Sustainable Development, which builds on the Australian Minerals Industry Code for Environmental Management that was applicable for the reporting periods under investigation in this study. This guideline also requires a commitment to independent verification of corporate social reports.



relied on major accounting and management consulting firms. This proportion differs from

trends in verification in other countries. Internationally, 58 per cent of companies with

verified sustainability reports obtained verification from the major accounting firms”.

(Australian Government, 2005, p. 29).

8.9 Results on the research questions

After reviewing the results presented in Sections 8.3 to 8.7 and in Appendix 1, findings for

the research questions are:

Summary - Research Question 1

Question: Are the GRI Guidelines being adopted as a reporting framework

for TBL reporting?

Finding: The data used to determine whether companies have generally

adopted the GRI Guidelines as a base for their TBL reports, shows

low usage levels for most of the indicators. This denotes a limited

acceptance for all the indicators, particularly the non-core

indicators.

About one-third of the companies in the study conformed to the

recommendation that reports include an assurance or verification

statement undertaken by an external party.

The GRI Guidelines are not being fully adopted as a reporting

framework for the TBL reports of the Australian companies in this

study.




Question: Are companies providing equal weighting to the three aspects of

TBL reporting?

Finding: Disclosures are skewed in favour of environmental rather than the

social indicators. However this does not mean that disclosures

about economic and social matters were absent. The analysis of the

company reports showed that economic and social disclosures

were slightly less than the environmental disclosures but there was

an improvement from the reports of 2002 to the reports of 2003.

The unequal weighting of disclosures which is skewed towards the

environmental disclosures supports the conclusion that at present

voluntary corporate social reports are not weighted equally

between the three aspects of TBL reporting.

8.10 Individual Company “Disclosure Scores”: ‘Walk the Walk’ v

‘Talk the Talk’

After collating all the data for the companies an analysis of the Total Disclosure Scores for

each company was undertaken. The graph in Figure 8.9 shows the actual scores for each

company and Figure 8.10 shows the individual scores indexed (all the scores were

recalculated as percentages or amounts out of 100), to enable a clearer representation of

how each company fared.

The Figure in Figure 8.9 shows that British American Tobacco (BAT) company achieved

the top score (see Appendix 1 for BAT’s actual rating of 318 in 2003), with the 2003 rating

outstripping all of the other companies. Thus the company, which manufactures a product

that causes major health problems, also produces the best report. This could be attributed to

a combination of factors, most of which come back to a legitimacy argument, and in the

case of BAT, the need to achieve legitimacy through communication, (Moerman and Van



Der Laan, 2005; Davidson, 1991). There are a number of ways that BAT has attempted to

do this:

1. The BAT report may be seen as a means of reducing the ‘bad press’ that cigarettes are

getting. This is apparent from the items presented in the BAT Social Reports. The BAT

reports allocate considerable space to the discussion of under-age smoking, black-

market selling of tobacco etc. The reports contain some commentary about the

supposed harmful health effects of BAT’s product but do not address the actual harmful

effects, nor is there any information about statistics of tobacco-related deaths and

illnesses.

2. The corporate social reports are produced so as to provide awareness of the company’s

philanthropic acts. This is however unlikely to be a main driver for BAT as the extent

of their charitable and community donations is markedly small compared to their gross

turnover. Whilst the BAT Social Report 2002/03 reports charitable donations at £12.63

million, this only constitutes 0.05% of gross turnover.

BAT has opted to produce an outstanding corporate social report, which is not appended to

the annual report but is a stand-alone publication and aimed at capturing the audience

beyond the traditional user of financial information. There are some negatives to this

approach as the corporate social report is not aligned to financial information and thus its

use is limited to stakeholders who may not be interested in making a long-term financial

commitment (supply of capital or debt) to the company. There are however millions of

stakeholders who willingly make a financial commitment to the company on a daily basis

when purchasing the company’s product.

Another feature of the BAT corporate social report is that it only highlights the information

in the developed countries that the company has a corporate presence in. The BAT

2002/03 Social Report notes that the company does business in 180 countries, yet only the

companies in 24 countries participated in the second report although the 2002/03 BAT

Social Report (p. 5) states that “more will join over time”.

Moerman and Van der Laan (2005, p. 385) are immensely critical of BAT’s reports which

they label as “partial” and state that “the masquerading of a public image campaign as an

objective, broad-based discharge of accountability should be critiqued in light of the



impending enhancement of international tobacco regulation and the many “relevant

publics” who are effectively silenced by this report”.

Burton and Rowell (2002) along with Doane (2004) believe that BAT is trying to redefine

itself as an acceptable corporate citizen in producing its first social report in July 2002. The

production of a social report has proved beneficial to BAT, as is shown by the company’ s

inclusion on the Dow Jones Sustainable Group Index at the end of 2002 (SAM, 2002).

Some regard this as noteworthy (Burton and Rowell, 2002) and an “oxymoron” that makes

a “mockery of corporate social responsibility” (Doane, 2004, p. 83), yet this is a major

achievement for BAT, belonging as it does to an industry that is normally eschewed by

ethical and socially responsible investors and funds (Moerman and Van der Laan, 2005).

The next closest result was Western Mining Corporation with an actual score of 196 for the

2003-year (See Figure 8.9 and see Appendix 1 for actual score). This is also represented in

Figure 8.10 as a score of 40.4 out of 100 for Western Mining Corporation (appearing as

WMR on Figures 8.9 and 8.10), and is well down from BAT (65.6 out of 100 as shown in

Figure 8.9).

As noted earlier, the mining industry through its various activities is responsible for quite a

few potential environmental impacts, such as salination of soil, dust and noise pollution,

loss and compaction of soil structure, acid mine drainage and loss to flora and fauna

(Environment Australia, 2002). As such the expectation was that companies in the mining

industry would produce better TBL reports because of their impact on the environment.

Deegan (2005) notes that the introduction of the Australian Minerals Industry Code for

Environmental Management in February 2000 may also play a part in the better disclosure by

companies in the mining industry. Deegan and Blomquist (2001) observed that such

guidelines would allow the community to see that the industry was making use of the

environment in a responsible manner. This would indicate that “social responsibility issues

have long been part of doing business for mining companies who are used to dealing with

environmental and social issues in their operations” (KPMG 2002, p. 5).



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Similar findings are shown the KPMG (2005) study which comments on the

“environmental impact” of this industry sector. Additionally, an Australian Government

study of sustainability reporting in Australia notes: “Companies in the mining and

manufacturing sectors may have been more inclined to undertake sustainability reporting

because of the greater level of environmental controversy and public scrutiny of their

activities. Another contributing factor may be the industry codes of the Plastics and

Chemical Industry Association (PACIA) and the Minerals Council of Australia, which

encourage reporting” (Australian Government, 2005, p. 23)

The data in Appendix 1 shows Western Mining Corporation to be one of the better

disclosers in the sample and in particular in the environmental section. The results of this

study are consistent with previous studies, which show that the mining industry discloses

more environmental performance information than other companies (KPMG, 2002) but

also at times in a narrower band (Yongvanich and Guthrie, 2005; KPMG, 2005; Bubna-

Litic et al., 2000).

8.10.1 Overview of the Total Disclosure Score

The data shown here (and detailed in Appendix 1) shows that although these companies

voluntarily undertook some form of corporate social reporting, these were markedly lower

than the requirements of the GRI Guidelines.

These Total Disclosure Scores show that although these reports may have a basis in the GRI

Guidelines, they are far from the reporting practice that the framework outlines. The

Guidelines are a framework for reporting on the economic, social and environmental

performance of a company and they assist organisations in presenting a balanced and

“reasonable picture of their economic, environmental, and social performance” (GRI,

2002, p. 8). The Guidelines also allow a degree of flexibility in reporting, reasoning that as

a result of “the youthful state of comprehensive economic, environmental, and social

reporting, GRI recognises that many organisations are still building their reporting

capacity. These organisations are invited to choose an informal approach consistent with

their current capacity” (GRI, 2002, p.14).

In undertaking the calculation of a Total Disclosure Score for each company in the study,

which was based on disclosures of the GRI indicators, an important observation about the



Guidelines must noted here. The GRI Guidelines do not give an indication of what is

considered to be a “good” score in terms of reporting. Indeed they specifically declare that

“the Guidelines are not a code or set of principles of conduct; a performance standard; …

or a management system. (GRI, 2002, p.8).

A closer inspection of the overall results shows that there were marked differences in the

disclosures for the core and non-core indicators. Figure 8.11a gives a view of the indexed

scores for core indicators and Figure 8.11b shows the scores for the non-core indicators.

What is apparent from this representation is that all the companies fared better with core

indicators rather than non-core indicators. This is not surprising given that the ‘core’

indicators are used to give a basic picture of a company’s social and environmental

performance. GRI (2002, p. 12) states that core indicators signify that there is a “general

relevance to both reporters and report users”. The non-core indicators are designed to

highlight or represent “leading practice”, provide further information for stakeholders

deemed important to the reporting entity, and may become core indicators in future

revisions of the GRI Guidelines (GRI, 2002, p. 13).



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Figure 8.11 Individual company indexed scores for core (Graph 8.11a) and

non-core (Graph 8.11b) indicators

8.11b

8.11a



After reviewing the results presented in this Section and in Appendix 1, the finding for

Research Question 3 is:


Question: How are the TBL disclosures of Australian companies faring – via

the development of a Disclosure Score based on their conformity

with the GRI Guidelines? ‘Walk the walk’ v ‘Talk the talk’

Finding: The findings show that Australian companies are devoting most of

their energy to giving an overview of their performance to

stakeholders on matters that are of (perceived) prime importance to

these stakeholders - and even this is not being done with any great

enthusiasm.

The scores for the core indicators are markedly better than the

scores for the non-core indicators. The scores for the contents of

the information represented in the non-core indicators generally

fell below 30% of the ideal. Thus the low scores in the non-core

indicators dragged down the Total Disclosure Score of many

companies.

The conclusion then is that the Australian companies in this

analysis fall short of representing leading reporting practice in

economic, environmental, or social aspects and are not complying

with all the GRI Guidelines.



8.11 Statistical analysis

As part of the analysis of the corporate social reports of Australian companies, a basic

measure of highest and lowest rankings and standard deviation data was undertaken. The

findings for these items are shown in Table 8.9 below.

Table 8.9 Rankings and Standard Deviations in the GRI Disclosures – 2002 Year

Rankings in each Sub-group of the GRI Guidelines – 2002 Year

Statistical Data Economic Social Environmental

Highest Score 40

Maximum Possible = 65

77


93


Lowest Score 0

Minimum Possible = 0

0


2


Mean 16.7500 34.7222 45.1944

Standard Deviation 12.0437 21.0952 23.3358

The companies with a score of zero for the economic disclosures were those that did not

give any disclosure against the economic indicators in their TBL reports. In these cases

even the basic information of the company’s total sales revenue merely to highlight their

dealings in the reporting period were omitted. Where a company specifically alluded to

these items and explained that the information for these indicators could be found in their

financial or performance report, then those entities were ranked in the same way as entities

that had reproduced the information in the TBL reports. Rationale for this was that the

entities that alerted the user to this, showed that both reports, financial and TBL, should be



read in conjunction with each other indicating that only thus could the full corporate

picture be ascertained.

As is seen in Table 8.9 the highest ranking given in the Economic Section was 40,

demonstrating that 5 GRI indicators were not disclosed. This would signify that either there

was nothing to report about these matters or that the information was not considered

important enough or management delayed responding until they had good news to report.

Of those companies with the higher rankings, the majority were transnational entities with

an Australian base, and their TBL reports generally informed on the situation of the

company on a global front rather than produce individual country specific reports. There

was however a small number of transnational entities that did produce a TBL report for

their Australian operations (for example the Ford Corporation).

The highest score received for the Social/Community Section was 77 (see Table 8.9) out of a

possible total score of 385. This could be interpreted to mean that the best report had a

rating of 2 out of 10 in terms of the quality and quantity of disclosures in the Social

indicators. The areas that had good levels of disclosures, as seen earlier, were those dealing

with community outreach programs, OH&S information, and recording and detailing days

lost from work related accidents and fatalities. The rest of the indicators in this section were

unspectacular in terms of the information disclosed and in terms of the number of

companies who reported against the indicators. The low scores given to the disclosures

support the low numbers of companies doing any reporting against the indicators, which

would signify these possible conclusions:

1. The number of GRI indicators are onerous and adoption by companies is difficult, time

consuming and/or costly.

2. The GRI indicators need to be extensive to be applicable to many different types of

entities and to ascertain a clear picture of corporate social commitment. In relation to

Australian entities many of these indicators may not be applicable due to existing

legislative requirements or due to their lack of relevance to the Australian market. Thus

no disclosures are necessary.

3. Australian companies are largely ambivalent to social issues tending to concentrate on

profitability, ignoring the social and merely paying lip service to the environmental.



4. Making no disclosures is an attractive option for management who have nothing to

gain from disclosing anything in the short-term. O’Donovan (2002) notes that this

“avoidance approach implies a management style of secrecy, a do-nothing approach or

an attempt to buy some time” (p. 359).

The Environment section did not fare any better, with the highest score at 93 out of a

possible 175 points (see Table 8.9). This is markedly better than the results in the Social

section, giving the Environment information a rating of 5.3 out of 10 for the quality of

disclosures. The fact that the Environment Section achieved the highest score of the three

sections reflects the better levels of reporting amongst the companies sampled. This factor

was addressed in the earlier part of this analysis and is due to the breakdown of the industry

sector of the companies in the survey, and general societal concern for environmental

matters, which is reflected in the reports.

Of the better performers in this section, Western Mining Corporation (WMC) in the

Materials Industry Sector gave vast amounts of disclosures, and although not strictly

consistent with the GRI Guidelines the WMC report was a wealth of information. Along

with the “valuable” content, many of the mining companies included statements

attempting to justify their activities as well as disclosing corporate policy and performance

in accessing major acquisitions and other resources.

8.12 Measurements and Valuation Methods employed

In reporting the performance indicators for each of the components in the GRI Guidelines,

the companies in the sample availed themselves of a number of techniques to communicate

the data. Within the sampled group, monetary values, indices, rates, percentages and ratios

were the most common forms used to address the notion of “value” of the various core and

additional disclosures. “Reporting organisations should present raw performance data in

terms of absolute figures, and …these absolute figures might be expressed in a currency or

in physical units (such as tonnes, cubic metres, or gigajoules). Absolute figures provide

information on the size of an impact, value, or achievement. (GRI, 2002, p. 82).

However if each corporation has its own favoured methods for calculating environmental

and social impacts, and does not adhere to the guiding principles for quantitative date

espoused by the Guidelines then users could potentially find that comparability of the



information is compromised. In terms of measurement the GRI Guidelines make the

following comments:

In reporting on indicators contained within the Guidelines, reporters should use GRI

technical protocols whenever available. If, for any reason, a reporting organisation does not

use an existing GRI protocol, it should clearly describe the measurement rules and

methodologies used for data compilation. (GRI, 2002, p. 34)

And also:

GRI recognises the value of both qualitative and quantitative information, and views both as

complementary and necessary to presenting a balanced and reasonable picture of an

organisation’s economic, environmental, and social performance. Where possible, GRI

employs quantitative indicators. However, certain topics, particularly in the field of social

performance measurement, do not readily lend themselves to quantification. (GRI, 2002, p.

81)

As an example of different disclosures used in the corporate social reports in this study, the

indicator for CO2 emissions measures is shown in Table 8.10 below.

Table 8.10 Extracts from Corporate Social reports of measures used

Name of Company Indicator used in 2002 Indicator used in 2003

Toyota Motor Corporation

CO2 Emissions at Production Processes measured in tons

CO2 Emissions at Production Processes measured in tons

Daimler Chrysler CO2 Emissions in kg/vehicle produced

CO2 Emissions in kg/vehicle produced

Ford Motor Company CO2 Emissions in tonnes per vehicle

CO2 Emissions in million metric tonnes

CO2 Emissions in metric tonnes per vehicle

CO2 Emissions in million metric tonnes



As Table 8.10 shows the three companies are all in the motor vehicle manufacture sector

with global markets and recognisable brands. The data on the emissions, although similar,

does vary amongst just these three companies. Toyota measures the CO2 emissions using

the non-metric usage of tons from total production, whereas Daimler-Chrysler and Ford both

use the metric equivalent of tonnes. This may seem a matter of semantics, but a ton is the

equivalent of 2240 pounds (in the British scale) or 2000 pounds (in the American scale) and

a tonne equates to 1000 kilograms (2204.6 pounds in the old empirical scale).

The problem lies in the transparency and comparability of the measures. It should not be

left to the user to translate between units and, in the case of tons, to make the assumption

and the comparison as to which measure (ton or tonne) has been used. It is also interesting

to note that the companies give different parameters for the CO2 emissions, equating these

to total production or as an amount per vehicle produced. Only Ford gave both indicators

and reported similar information in the following year, yet with disclosures reported in the

millions of tonnes, full comprehension of the enormity of such a value is not easy.

8.13 Industry findings

The companies in the sample were classified based on their Global Industry Classification

Standard (GICS) which is a joint Standard and Poor Stanley Capital International product

aimed at standardising industry definitions9. There are 10 Industry Sectors, of which the

sample represented 9 sectors. These sectors are further divided into 23 Industry Groups,

which were not used for this analysis due to the size of the population which consisted of

only 37 companies (see Table 7.2 and Table 7.3 in Chapter 7).

There was a concentration of observations in two industry sectors: the Materials Sector

representing the mining, construction, packaging, paper products and chemicals industries;

and the Energy Sector.

Figure 8.12 shows the performance of the companies when grouped into their various

industry sectors.

9 Adopted by the ASX effective 1 July 2002



Each company is shown on the graph with a white dot ( ) and the average for each sector

is shown with the black dot ( ). The 10th and 90th percentiles are shown with the line

joining the points in each sector. The overall average score for all companies in the sample

is represented by the dotted line at the score of 94 for the TBL reports.

Figure 8.12 TBL Disclosure Scores by Industry Sector (2002)

The two industry sectors that dominated the data in terms of greatest number of

participants were the Materials Sector and the Energy Sector as is seen in Figure 8.12.

Although corporate disclosures in these sectors out-rank the other industry groups, the

TBL D isclosure Scores by IN D U STR Y Secto r

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overall performance in TBL disclosures is not spectacular albeit that there was it was

envisaged that the companies in the Materials Sector, many of which are mining companies,

would have performed better than average with their disclosures. It would seem logical that

as the companies in the mining industry undertake production processes in areas that may

be sensitive, then disclosures to ally the fears of stakeholders may have been beneficial.

However, of the firms in the total sample, the ones in the mining sector were amongst those

with the best Disclosure Scores and scored well on the information that they did provide to

stakeholders. The best performers in this sector tended to be the largest mining companies

with reports that were detailed, and where data about the company was plentiful even if

there was no strict compliance with the GRI Guidelines. This would be consistent with the

KPMG (2002) survey which revealed that 33% of companies in the Mining sector analysis

had produced separate corporate social reports10 and were well above the average for the

Top 100s sample. (KPMG 2002). The KPMG 2005 survey shows similar results.

Using the GRI Guidelines as a benchmark for good TBL disclosure, the analysis showed

that half of the companies in this industry sector had a TBL score of less that 100, with only

one mining company achieving a markedly better score of 173 out of a possible 470 points.

Although the TBL disclosure scores were low when compared to the maximum possible,

this is mostly due to the fact that the analysis was performed against the GRI Guidelines,

which have extensive and wide-ranging disclosure requirements. Many of the

environmental disclosures of the mining companies were informative and abundant, and

tended to be limited to a narrower range than the criteria of the Guidelines.

Although reporting of performance on social and environmental matters may be well

established in the Mining Sector - with the industry leading the way in some of these

initiatives (KPMG, 2005; KPMG 2002) - this study shows that they are not using the full

set of indicators in 2002 GRI Guidelines.

The other industry sector that features prominently in the data is the Energy Sector, which

includes companies in oil and gas drilling and exploration. This grouping has a similar

sensitive nature inherent in its business functioning, and again the expectation was that

10 The Mining Sector sample in the KPMG (2002) survey showed that 74% of the companies mentioned environmental, social or sustainability information issues in their Annual Reports as well.



these companies would disclose more information, not necessarily bad news, but at least

fulfil the GRI requirements about policy disclosures. Many of the GRI disclosures require

information about policy, how these policies are implemented and monitored. It would

seem logical that companies in this industry sector would welcome the opportunity to

discuss their environmental policy, employment policies and human rights agendas, and

even where appropriate any information in stakeholder participation and stakeholder

dialogue in developing preliminary policies. These types of disclosures would have meant

that they would have a better Disclosure Score.

Figure 8.12 shows that the majority of the companies in the Energy Sector rated higher than

100 for their TBL score (out of a possible 470 points) - not a laudable performance. The

highest scoring company was Shell Australia, yet it too had deficiencies in conforming to

the disclosures in the GRI Guidelines. Common major deficiencies were found amongst all

companies in the Social component of the GRI Guidelines especially in the sub-groupings

for Labour and Human Rights Issues, perhaps indicating that the focus of the disclosers is on

the environmental rather than the social. The results of a low Disclosure Scores amongst

these companies supports the findings by Morhardt et al., (2002).

The companies in the Consumer Discretionary Sector although numbering only 5 out of the

total sample of disclosing entities, performed on average better than the other industry

groups. All the companies in this grouping were car-manufacturing businesses with

disclosures rating high in the Economic and the Environmental areas, but with some shortfalls

in disclosure in the Social component of the TBL reports. These results support the findings

of Morhardt et al., (2002, p. 225) who note that companies that produced “motor vehicles

fared best in the GRI system because of more attention to environmental performance and

company profile”.

The remaining industry sectors were not represented adequately to form any valid

generalisation as to their disclosure performance. The Industrials Sector for instance

consisted of 4 companies but had a vast diversity within the industry groupings, thus any

opportunity to ascertain a pattern in disclosures was lost.



As a result of the industry analysis of the TBL disclosures two conclusions are tentatively

possible for the Research Question:


Question: Are response rates similar within industry sectors?

Finding: The companies in the sectors for consumer products being both in

the Consumer Staples and Consumer Discretionary areas disclosed

more information than the other industries. This is due to the focus

by these companies (and by the nature of the industry) on quality

disclosures relating to information about their product(s) and

information about customer issues such as satisfaction levels,

privacy issues, complaints handling, research into product

improvement and product safety. BAT Australasia which had the

highest Disclosure Score, with a score of 198 in 2002 and 318 in

2003, was part of this industry grouping.

The companies in the Energy and Materials sectors also had

substantial amounts of environmental disclosures and some social

disclosures but not specifically in the format of the GRI

Guidelines. This could be due to the industry standard – the

Australian Minerals Industry Code for Environmental Management.

The companies in the other sectors did not perform as well in their

TBL disclosures; however, a caveat is stipulated as to the small

number of companies in these sectors thus not enabling definitive

conclusions.

A tentative conclusion on RQ4 based on the limited findings

would indicate that there is some similarity within industry sectors,

due to industry specific issues.



8.14 Findings on Research Question 5: Correlation between size

(revenue) and TBL “Disclosure Score”

The earlier chapters showed that of the many reasons as to why companies undertake

social and environmental disclosures, economic factors would be one of these reasons.

Along with numerous other studies (see Sections 2.3.3 and 3.5.3, and Chapter 7 for details)

this study will also look to establish whether a correlation can be found between the

company’s size through its revenue and its focus on the “green” aspects of its business. The

expectation was that there would be a significant positive correlation.

A correlation analysis of the data (see Figure 8.13) showed that the answer to this research

question is there is no positive correlation between revenue and disclosure score.

Revenue TBL Score

Revenue 1

TBL Score -0.07287 1

Figure 8.13 Correlation data and Regression Graph

y = -0.0005x + 101.44R2 = 0.0053

0

50

100

150

200

250

0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00

Revenue

Score



The two ranges of data, Total Revenue and Disclosure Score were analysed together to

ascertain whether they moved together (for a positive correlation), or whether small values

of one range were associated with large values of the other (for negative correlation).

The data was also regressed and the graph shows a negative association. The resultant

calculation showed a negative correlation of -0.07287 (in 2002), indicating that there is a

slight negative link between Total Revenue and the TBL Scores of the companies in the

sample. The findings for the 2003 data were similar.

As a result of the correlation and regression analysis of the TBL disclosures the findings for

Research Question 5 are shown below:


Question: Is the TBL Disclosure Score (as determined via the rating system)

closely related to the company’s performance as measured by total

revenue?

Finding: The Disclosure Score is negatively correlated to Total Revenue.

Research Question 5 was not answered in the affirmative, as no

positive link between score and revenue was discernible.



8.15 Conclusion

The analysis detailed in this chapter has shown that global standardisation in TBL

reporting through the introduction and adoption of the GRI Guidelines has been partly and

modestly successful amongst the top 100 Australian companies. This finding is consistent

with other studies (KPMG, 2005; Jones et al., 2005; Australian Government, Department

of Environment and Heritage, 2005; KPMG, 2002).

This study has shown that the reporting framework outlined in the 2002 GRI Guidelines

has facilitated a greater level of conformity in formats and common structures that will

“support consistency and comparability” (GRI, 2002, p. 16). Moreover, even in instances

where there is incomplete disclosure and where great chunks of information are neglected,

the remaining report has tended to show conformity with some of the individual sections of

TBL reporting format as outlined in the Guidelines. Compliance with the 2002 GRI

Guidelines may very well go some way in reducing the reporting performance gap that

exits presently. A fact that was noted by Morhardt et al., (2002, p. 225) about reporting

conformity with the first version11 of the Guidelines:

“There is a tremendous gap between what large companies think is appropriate to report and what is

hoped for by the Global Reporting Initiative. Much of the gap, however, is occasioned by the fact that

most companies are content to leave their financial reporting to their annual financial reports, and

much of the remainder to the fact that social reporting is either not perceived to be appropriate for an

environmental report, or is simply not being reported at all. The idea of generally accepted

sustainability accounting principles envisioned by GRI appears to be barely on the radar of most

companies.”

The investigation of each of the three prongs of TBL reporting (people, planet and profit)

has proved useful in identifying the existence or not of firm bias for any of these areas,

which in fact was shown for the Environmental indicators. It is well documented that the

accounting profession and business world has for some time focused on the “profit”

component of reporting. It has however been interesting to discover that amongst the

sampled TBL reports, companies produced quite detailed disclosures for many indicators,

11 The first version of the Guidelines was the 2000 GRI Sustainability Reporting Guidelines on Economic, Environmental, and Social Performance.



indicating perhaps that regardless of the lack of guidance and regulation from governments

and accounting bodies, that these companies are taking the lead and advancing the

information that is disclosed for use by stakeholders. Conceivably the notion of

accountability, that is entrenched in Statement of Accounting Concepts SAC2 (par. 14 and

44), is being taken seriously.

As noted earlier companies are becoming more aware of the need to disclose social and

environmental information and, as Turnbull (2003) noted it is the firms that do not engage

with their stakeholders that are at risk of putting their competitiveness, sustainability and

their reputations in danger.

The comprehensive findings in this chapter are further summarised in the following chapter

where an overall picture will be developed of the TBL reporting patterns of Australian

companies. The discussion in Chapter 9 will also draw out any issues that remain

unresolved and thus undertake a discussion as to possible further research in this area.


Chapter 9: Conclusion - Page 288

CHAPTER 9

Conclusion

9.1 Review of the Study and Overview of the Findings

The purpose of this chapter is to review the findings detailed in Chapter 8 and to link these

back to the theoretical framework via the research questions investigated. What this study

into the content of TBL reports of the top 100 Australian listed companies ascertained, and

brought to the fore, was that

1. many companies are providing stand-alone TBL reports; and

2. this is being done through an acknowledged reporting framework, the 2002 GRI

Guidelines.

However in comparison to a global trend, in terms of disclosure about environmental and

social matters1, Australian companies have tended to lag behind companies in other

countries (Australian Government, Department of Environment and Heritage, 2005).

The analysis of the TBL disclosures in company reports for the reporting years 2002 and

2003 showed that there are definite industry similarities in reporting, along with a focus on

verification matters. This was determined from the outcomes obtained from the five

research questions investigated in this work:

1 Are the GRI Guidelines being adopted as a reporting framework for TBL reporting by

Australian companies?

2 Are Australian companies providing equal weighting to the three aspects of TBL reporting?

1 The report The State of Sustainability Reporting in Australia 2005 states that the “KPMG International Survey of Corporate Responsibility Reporting 2005 found that reporting rates in Australia are lower than in most of the countries surveyed, by percentage of the top 100 publicly listed companies in each country” (Australian Government, Department of Environment and Heritage, 2005, p. 4).



3 How are the TBL disclosures of Australian companies faring – via the development of a

Disclosure Score based on their conformity with the GRI Guidelines? ‘Walk the walk’ v

‘Talk the talk’

4 Are response rates similar within industry sectors?

5 Is the TBL Disclosure Score (as determined via the rating system) related to the

company’s performance as measured by total revenue?

9.1.1 Progression of the Analysis

This investigation into the TBL reporting of Australian companies began with an

examination of the progress of social and environmental disclosures over the past 30 years.

A review of the literature in this area was undertaken, which eventually showed that social

and environmental disclosures have increased and changed focus over this period. The

literature showed that:

• many early disclosures focussed on employee issues and largely ignored environmental

matters,

• early research techniques had focussed on mainly counting lines of disclosure, where

much more emphasis is now given to evaluating their content and comparing them

against certain frameworks, and

• a vast amount of research has been undertaken into speculating why companies

produce social and environmental disclosures/reports in the absence of any mandated

driver for doing so.

These initial literature showed that there has been a conceptual shift in the way society

perceives a company and that there is a need for a firm to give consideration to the impact

it has on the wider community and on the environment. This has resulted in a rise in

prominence of social and environmental disclosures that has evolved into a much broader-

based TBL or sustainability reporting.



As the study progressed the corporate motivations for social disclosures became apparent

showing that voluntary and sometimes arbitrary reporting resulted mainly from the actions

of business with little or no help from governments or standard-setters. Many reasons for

these voluntary disclosures were identified: market considerations; profit and cost

considerations along with reduction in fines/penalties; general green and/or social

awareness of customers and employees; following the direction of market leaders;

organisational legitimacy; notions of a wider accountability/stewardship and the like.

The analysis and evaluation of the applicability of current accounting frameworks,

definitions of users and stakeholders, reporting practices and measurement methods

showed that in many instances these could be suitable for social and environmental

reporting. Even as the present accounting framework has some deficiencies that are

apparent for financial information as well, environmental and social matters could

successfully be included into the present structures.

That the TBL reporting framework is being progressed by non-accounting bodies, and it is

public and social pressures that have mainly pushed these changes, makes much of any

subsequent legislative action reactive rather than proactive. The political and legislative

changes that have been implemented in the areas of environment protection and

employment and human rights matters have forced some form of accountability reporting

on companies, but this has not extended into any global or unified initiatives into TBL

reporting, nor is this something that has been perceived as linking into the financial reports

presently produced by companies. This therefore could represent a hurdle for any attempts

at making the GRI Guidelines into a mandated reporting requirement for Australian

companies.

9.2 The major findings of this study

The TBL reports of the largest Australian companies analysed for their conformity with the

GRI reporting framework varied in their complexity, length and in level of disclosures.

Many of the disclosures showed very little by way of explaining whether the organisation is

meeting stakeholder (and wider social) expectations in respect of, for example, the impact

on the environment. Many disclosures are highly descriptive and make little headway into

analysis of the firm’s actions or into linking this with policy development by the company.

Indeed, in many instances the policy outlined in the reports appeared to be pre-determined



by a marketing or politically correct attitude, which appeared at times ambitious or

exemplary, and aimed at including what appeared to be the policy that the company

perceived that stakeholders wanted to read. In such cases, the mechanisms for

implementing these policies into action and the general business practice of the company

linked to the effectiveness of these policies were not identified.

The major findings in this study are:

• TBL reporting in the form of separate reports is undertaken by less than 50% of the

companies on the Australian Top100 list.

• The TBL reports of the companies surveyed did not conform identically to the 2002 GRI

Guidelines but there was a degree of similarity and thus uniformity in the reports

analysed. This perhaps alludes to a general awareness amongst corporations of what

should be included in TBL reports.

• There was a significant positive change in the level and quality of disclosures in about

45% of the companies analysed over the 2-year period. This denotes a significant change

in mind-set and could arguably show that TBL reporting is becoming more mainstream.

• The spread of disclosures amongst the three prongs of TBL reporting (eg. economic,

social and environmental) was also well distributed. Companies have moved away from

mainly environmental disclosures and are more forthcoming about social disclosures.

Similar results have been reported by the KPMG International Survey of Corporate

Responsibility Reporting 2005. However, it should be noted that, although there is more

parity in the distribution of information amongst the three TBL prongs, the

environmental component still dominates the amount of information disclosed.

• The companies in the industry sectors with a relatively high environmental impact

continue to be the leaders in TBL disclosures. The companies in the Energy and Materials

sectors had substantial amounts of corporate social disclosures but not specifically in the

format of the GRI Guidelines. This could be due to the industry standard – the

Australian Minerals Industry Code for Environmental Management. Furthermore these

companies are subject to various regulatory systems that already impose high levels of

compliance and reporting in environmental and OH&S issues. As a consequence of this,

any information that is already collected for the various regulatory agencies could be



readily adapted for conformity with the GRI Guidelines, with less impact on cost and

time constraints than companies in other industries.

• The companies in the industry sectors, Consumer Staples and Consumer Discretionary areas,

focussed their disclosures on information relating to their product(s), about customer

issues such as satisfaction levels and complaints handling, research into product

improvement and product safety. The company with the highest Disclosure Score, BAT

Australasia, (with a score of 198 in 2002 and 318 in 2003 out of a possible score of 485)

was part of this grouping. As noted earlier, this corresponds with prior studies that

hypothesised that those companies that are most ‘sinful’ will have a propensity to higher

levels of disclosure (see Section 7.5.5).

• Coverage of other social issues (specifically the non-core GRI indicators) remained

sketchy and were not covered as well as those in the Environmental section of the GRI

Guidelines. The disclosures of Australian companies did not rate well or did not rate at

all in areas such as child-labour, forced labour, bribes etc. This is consistent with the

findings by Jones et al. (2005) who note that the companies in their sample did not

address many of these GRI indicators.

• Verification Statements were provided by 32% of the companies in both years. The

verification statements attested to the truth of the numerical data and the existence of

policy. Major accounting firms tend to dominate the assurance market. No verification

statement made any attempt to rate a company as sustainable.

• The assessment of whether there was any positive link between the TBL disclosures of

the Australian companies and their revenue showed that no such positive link exists.

The evidence would thus indicate that the GRI Guidelines have been a persuasive tool in

getting Australian firms to prepare TBL reports and that industry requirements along with

industry clusters can also be seen as the variables behind the form and content of these

reports. These trends have also been identified by other studies as cited previously, and it

remains an issue for regulators to determine whether they will intervene in this matter. The

GRI Guidelines are “generally regarded as the benchmark for sustainability report structure

throughout the world, yet (they have) so far only achieved a limited take-up amongst

Australian-owned companies” (Australian Government, 2005, p. 41). Yet, social and



environmental reporting has reached a state that places it on the brink of further reforms,

whether this is through the introduction of a revised set of reporting guidelines, or whether

these reports branch out exponentially into web-based formats to enhance transparency

(Andrew, 2005), it is without a doubt the status quo will not remain as such for long.

9.3 Contributions to the Field of Research

This study has been pivotal in ascertaining whether Australian companies who choose to

voluntarily undertake TBL reporting use the existing GRI framework (the 2002

Guidelines). Furthermore, in the use of the 2002 GRI Guidelines as a framework for the

evaluation via a rating/scoring system of the content of the social reports of companies, this

investigation adds a significant Australian component to this field of research. It is in

linking the TBL reporting paradigm with the GRI Guidelines and then undertaking an

evaluation of the content of corporate TBL reports (which were either printed or published

on the company website), that this study has made a major contribution.

Preliminary findings of this study pre-empted some of the recommendations in the report

on “The State of Sustainability Reporting in Australia – 2005” undertaken by the

Australian Government. This report (Australian Government, 2005, p. 40 and 41)

recommended the following:

“Recommendation 1: The study team recommends that future research in this area collects

data capturing the full breadth of sustainability reporting in Australia, at the same time as

allowing for examination of the types of reporting taking place.”

“Recommendation 3. The study team recommends that further research into sustainability

reporting evaluate the full breadth of sustainability reporting, taking into account issues

beyond he environment such as community and employee relations”.

The methodology and the results of this research could be used to benchmark future studies

into the areas recommended above.

Furthermore, the findings of this study have also added support to findings that companies

which prepare social reports tend to focus mostly on environmental information with social

and economic information coming in at second place (consistent with KPMG, 2005).



A final feature of this study has been in its contribution to the accounting profession’s

discourse by showing that there are existing frameworks/structures that can be used by the

profession as a base in developing a standard for social and environmental reporting — an

area that is sorely in need of reform and where there is a clear need for serious engagement

by the accounting profession.

9.4 Implications for Standard Setters - Setting the GRI Guidelines

as a Standard

Apart from the GRI Guidelines, other global and country-wide attempts to create reporting

guidelines have been unsuccessful in achieving a viable penetration in the business world.

The various agencies, for example CERES the co-creator of the GRI Guidelines, list their

‘success’ stories of adoption and acceptance by major corporate and multinationals, yet

reporting is piecemeal or incomplete at best. The result has been and still is that, when

stakeholders are dealing with social and environmental issues, there is a bewildering array

of reporting that reduces uniformity and comparability. Even when choosing to adopt TBL

reporting (using the GRI Guidelines for example), companies do so voluntarily. As there is

no requirement for such reporting, companies are free to chose the sections they wish to

adopt and then discard the rest, leading to the conclusion that companies may not be

following the best of “best practice” even when using such guidelines (Van der Laan, 2004).

In order to facilitate enhanced environmental and social performance and a sustainable

culture amongst Australian companies, Grossman and Moran (2005) note that better

government leadership and mandatory disclosures are the answer. They recommend that

the “strengthening of regulatory frameworks (be undertaken) to adopt mandatory triple

bottom line reporting” (Grossman and Moran, 2005, p. 20). A report into environmental

accounting and reporting presented to the Parliament of Victoria, recommends “the

government encourage voluntary environmental reporting by publicly listed companies and

the public sector (not already subject to mandatory reporting requirements) with the

intention of mandating, within 10 years, disclosure of environmental information” (PAEC,

1999, p. 106). This recommendation could be extended to include social information as

well.

A single set of universally agreed and legally binding standards would reduce the

ambiguity, alleviate stakeholders concerns and set boundaries for corporate social



reporting2. Regulatory responsiveness to community concerns is not new, and it has

occurred in the past as a means of looking after public interest and to achieve socially

desirable outcomes. Such examples of historical events supporting regulatory intervention

include the establishment of regulators after significant market collapses. For instance in

the formation of the U.S. Securities and Exchange Commission (SEC) after the U.S. stock

market crash of 1929 and the creation of the Accounting Standards Review Board (ASRB) by

the Australian Commonwealth government in 1984 after many corporate collapses and

share price drops. Recently corporate governance issues appear to be driving regulatory

changes. Dean and Clarke (2003, p. 283) note that “similar to the sentiment that drove the

profession’s defence of its primarily self regulatory regime in the 1930s, the impact of faulty

accounting has fuelled measures to purge corporate activity of its persistent ills in the new

millennium”. Thus implementation of the GRI Guidelines as a universally applicable

standard could be one such response to the unregulated and chaotic social reporting

environment that presently exists.

9.4.1 TBL reporting Standard will help with the problem of lack of

verifiability

Lack of verifiability is major concern amongst the users of TBL reports. The financial

reports of public companies are mandatorily audited by external parties so as to verify the

application of approved accounting standards and to attest to the truth and fairness of the

accounts. Without a “standard” for TBL reporting, there is less credibility attached to

corporate social reports, even where external verification has been undertaken. Monaghan

(2004, p. 147) states that it is also the lack of “robust independent third-party verification of

data and commentary ... (that is a) major factor in undermining ethical and environmental

reporting”. Thus, credible assurance would likely appease even environmental groups

(Beets and Souther, 1999) and would reduce the gap between user expectations for credible

reports and reports that are merely an attempt to green-wash the company and are a public

relations exercise. In the interests of reliability, shareholders may, however, expect

verification commentary to contain a degree of criticism as well as praise if the organisation

under scrutiny is far from perfect (Monaghan 2004).

2 Commentary about stanadardisation of TBL reporting was addressed in Section 7.6.



This study showed (see Chapter 8 for analysis) that only 32% of the companies in the

sample had external verification statements/audits attached to their TBL reports. There

was no change in the numbers of companies producing verification statements in the years

2002 and 2003. Furthermore the bulk of the verification statements produced (close to 60%)

were found in the TBL reports of the companies in the Energy and Materials industry

sectors. This indicates that the Australian Minerals Industry Code for Environmental

Management3 was a major trigger for the verification statements in these industry sectors and

would indicate that these companies are availing themselves of one more factor to facilitate

legitimacy of their operations (see Deegan and Blomquist, 2001). Furthermore this sharing

of information about environmental verification with their users may be based on reasons

such as trust (Aeppel, 1993). The lack of any other reporting patterns amongst the other

industry sectors or companies in the sample, shows that as yet there is no apparent trend in

favour of including verification statements as part of the TBL reports.

9.4.2 Words of caution

There are some caveats to the undertaking of a global TBL reporting framework. Deegan

(2005, p. 1127) sets some limits to the use of the Guidelines and advises that the GRI

Guidelines “could be used as a basis for mandatory reporting if mandatory social and

environmental (and sustainability) reporting were introduced within a particular

jurisdiction”. Oakley and Buckland (2004) also warn that standardisation may inhibit

innovation, be seen as irrelevant, be too rigid or inflexible, promote mediocrity and

promote accepted practice rather than best practice. With reference to the findings in this

study, the formats of the TBL reports showed a high level of similarity. There were

however several instances where the reports were modified and the format, as set out by the

GRI Guidelines, was adapted for the specific reporting needs of the companies. Yet, in

general similar types of information tended to be found in about the same place in the

majority of the reports, with the exception being web-based content. Thus this general

adherence or “compliance” with a format did not lead to inferior or mediocre content nor

did the reports lack innovation in what was displayed. Indeed the absence of a TBL

3 In October 2004 the Minerals Council of Australia released an industry framework for sustainable development called Enduring Value – the Australian Minerals Industry Framework for Sustainable Development, which builds on the Australian Minerals Industry Code for Environmental Management that was applicable for the reporting periods under investigation in this study.



reporting standard may result in companies defending the use of minimal environmental

reporting, because they believe that economic forces will reward environmentally-oriented

companies if the market ascribes a value to their efforts (Beets and Souther, 1999). After

analysing the reports in this study, it may be concluded that a “standard” may prescribe a

structure and disclosures, as does the GRI reporting framework, yet still facilitate reporting

excellence through tailor-made frameworks for specific industries.

Another argument against the adoption of a standard for TBL reporting is similar to the

argument about how much to disclose in financial statements, which has raged for some

time in the arena of accounting information. Too much information and users are

swamped with detail that may be difficult to digest and to comprehend resulting in

ultimately useless reports and where there is limited disclosure the information is hidden or

lost in the summaries again resulting in useless reports (Henderson and Peirson, 2004).

As noted in Chapter 8, many of the reports contained large amounts of narrative that were

technically loaded and relied on a high level of literacy in the user. This tended to make

understandability an issue, and even if the issues in these areas are not simple, the tendency

to overload with technical jargon meant that the user was overwhelmed rather than

informed. Of course there is always the argument that as the information is so technical, it

would be inappropriate to use any other terminology, as it would detract from the content

and the overall message of the reports.

In terms of understandability, the AASB Accounting Framework (paragraph 25) gives some

guidance to the concept of understandability for financial reports:

“An essential quality of the information provided in financial reports is that it is readily

understandable by users. For this purpose, users are assumed to have a reasonable knowledge of

business and economic activities and accounting and a willingness to study the information with

reasonable diligence. However, information about complex matters that should be included in the

financial report, because of its relevance to the economic decision-making needs of users, should not be

excluded merely on the grounds that it may be too difficult for certain users to understand”



The commentary about understandability as provided in the Framework could be readily

applied to the TBL reports. Admittedly, the production of one single report for economic,

social and environmental matters may result in a large amount of information, yet, it will

bring together in one format the variety of information already produced by companies and

will also avoid duplication.

9.5 Further Research

There are two broad areas of further research that may be pursued from the results of this

research and these are based firstly on the GRI Guidelines themselves and secondly on

further research or the TBL reports.

9.5.1 Research into the GRI Guidelines

The GRI provides a reporting framework that is quite elaborate and comprehensive,

however, the GRI recently announced that it will soon deliver the third generation (G3) of

the GRI reporting framework. This will be done through a process that will seek to deliver

upon a dual transition of moving the Guidelines to a standard, and shifting GRI's funding

base away from philanthropy towards the goal of becoming self-sustaining through the

provision of products and services in support of the new GRI standard.

These proposals come after review of the information received through a feedback process

and other inputs that the GRI has solicited and received since the second modification of

the Guidelines. The process of the third modification into G3 has been designed to achieve

this dual transition through the development of three new components4. According to the

GRI, “these complementary activities will help make reporting easier, more valuable, and

more compatible with other corporate responsibility initiatives” (GRI, 2004b).

4 The process begins with the Guidelines Innovation process - a major technical programme to recruit members for participation in three new work-streams. The next step in the progress of the G3 is a web-based component to enable its effective use through the technology platform based on XBRL. The proposed final component of the G3 will be the creation of education and accreditation programmes, to assist in using and applying the Guidelines. (More information is available at http://www.globalreporting.org/SFP).



Thus this study may be replicated in the near future using version 3 — G3 of the GRI

Guidelines to ascertain the level of adoption amongst Australian companies.

The study could also be modified so as to focus on the reporting undertaken by companies

in similar industries, for example companies in the energy and minerals industries.

Future work in the use of the GRI Guidelines could be done to evaluate the benefits and

impediments relating to use of this reporting framework by Australian companies.

Additionally, further future research could also be undertaken to consider the range of

frameworks available for TBL or sustainability reporting in Australia, and compare the

reports produced under any other frameworks against the content that would be produced

under the GRI Guidelines.

9.5.2 Research into TBL Reporting

Whilst developing a preliminary picture of the TBL reporting landscape in Australia, this

study has brought to the fore the need for further research in the Australian arena. This is

now more pressing, as the Australian accounting standards have undergone considerable

change with the adoption of the IASB standards and also with potential changes likely

emerge from the IASB/FASB resurgence of interest in the conceptual framework.

Some of the areas that need further investigation and consideration are:

• An analysis based on the investigation into whether there is any alignment of annual

financial reporting with the economic, social and environmental components of TBL

reporting, to thus ascertain reporting similarities, trends and overlaps.

• An extension of this study into further reporting periods.

• An extension of this study into an international comparison, looking at the disclosures

of the Australian companies against the disclosures of other similar countries, trading

partners, or those undertaking GAAP observance.

• A study linking the quality and coverage of reporting with the type of report the

company is producing, for example, ‘Sustainability’ report or ‘Community and Social’



report, and whether the information is found in a stand-alone report, on a web site or

part of an annual report.

• A study looking at the TBL reporting by the top 100 companies and linking this to their

actual social and environmental performance.

• An study looking at the reporting by the better reporters and their social and

environmental performance rated against external measures such as numbers and

amounts of fines, numbers of environmental accidents, OH&S matters and the like.

• Research into the form and content of verification and attestation statements included

with the TBL reports, with a view to the development of an international verification

system or standard for TBL reporting.

9.6 Concluding Comments

Less than 50% of the Top 100 companies in Australia produced TBL reports in the two-

year period 2002 and 2003, yet a marked positive change in the level and quality of the

disclosures in the TBL reports being produced by these companies was apparent over this

time

The disclosures amongst the three prongs of TBL reporting (eg. economic, social and

environmental) although not equitably distributed are perceptibly delineated within the

reports produced. There is however a growing trend towards the achievement of more

evenly balanced reporting amongst the three prongs, with a move away from mainly

environmental disclosures to becoming more forthcoming about social disclosures.

The companies in the industry sectors Energy and Materials that potentially have a relatively

high environmental impact continue to be the leaders in TBL disclosures. The companies in

these industry sectors had substantial amounts of corporate social disclosures albeit not

distinctively in the format of the GRI Guidelines.

Verification and external assurance of reports is receiving attention and increasing numbers

of companies are seeking assurance for their social and environmental information In

Australia, almost one-third of the companies undertaking TBL reporting included external

assurance or verification reports. The verification statements attested to the truth of the



numerical data and the existence of policy. Major accounting firms dominated the

assurance market.

In conclusion it is noted that whilst Australian companies are undertaking some TBL

reporting, there is a need for further work to be done to maintain efforts to encourage TBL

reporting by Australian companies, and in the continued monitoring of TBL reporting to

formulate an universally acceptable reporting framework.


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Company Reports Alcoa Inc.

• Alcoa in Australia – 2002 Sustainability Report Ansell Ltd.

• Ansell Limited Code of Conduct • Ansell Annual Review 2003 Australia and New Zealand Banking Group Ltd.

• Creating the bank of tomorrow today – 2002 Annual Report • Strong Different Successful Sustainable – 2003 ANZ Annual Report Australian Gas Light Company

• Environmental Strategies – Annual Report 2000/2001 • Corporate Sustainability

(http://www.agl.com.au/AGLNew/About+AGL/Sustainability/default.htm) AVIVA Corp. Ltd. (formerly CGNU)

• Corporate Social Responsibility Report 2002 • Corporate Social Responsibility Report 2003 • Corporate Social Responsibility Report 2004 BHP Billiton

• Policy into Practice – Health Safety Environment and Community Report 2002 • Policy + Action Sustainability – Health Safety Environment and Community Report

2002 BP plc.

• Triple Bottom Line Report (Published November 2001) • Environmental and Social Review 2002 • Defining our path – Sustainability Report 2003 Brambles Industries Ltd.

• Corporate Social Responsibility website information (http://www.brambles.com/bramblescorp/csr/)

British American Tobacco (BAT) plc.

• British American Tobacco – A Social Report 2001-2002 • British American Tobacco –Social Report 2002/2003



Caltex Australia Ltd.

• Environment, Health and Safety Report 2000 and 2001 Carter Holt Harvey Ltd.

• Environment, Health and Safety, Risk and Partner Relations – Annual Report December 2002

• Environment, Health and Safety, Risk and Partner Relations – Annual Report December 2003

CSR Ltd.

• 2003 CSR Annual Report • Environment, Safety and Community Relations Report 2002 DaimlerChrysler

• Environmental Report 2001 • Environmental Report 2002 – DaimlerChrysler on the road to sustainable mobility • 360 degrees – Environmental Report 2003 – Energy for the future • 360 degrees – Environmental Report 2004 – Alliances for the Environment Energex

• Energex environment report – connecting (for financial year ended 30 June 2000) • Sustainability report 2004

(http://www.energex.com.au/environment/sustainability_report/index_flash.html) Ford Motor Company

• 2002 Corporate Citizenship Report – Our Principles, Progress and Performance • 2003/04 Corporate Citizenship Report – Our Principles, Progress and Performance General Motors

• Corporate Responsibility & Sustainability Report 2001-2002 Hanson plc.

• Corporate Responsibility Overview (covers calendar year 2002) Hewlett Packard Co.

• Social and environmental responsibility report (covers period from June 2000 to merger with Compaq in 2002)

• 2003 Global Citizenship Report • 2004 Global Citizenship Report International Business Machines Corp.

• IBM Environment & Well-Being Progress Report – Australia and New Zealand (covers financial year 2001/2002)



Leighton Holdings Ltd.

• 2002 Leighton Holdings Limited Concise Annual Report – Corporate Report • 2002 Leighton Holdings Limited Concise Annual Report – Financial Report • Thiess Health, Safety, Environment and Community Report 2001/2002 • Leighton Holdings Limited Concise Annual Report 2003 Mitsubishi Motors Corp.

• Environmental Sustainability Report 2002 • Environmental Sustainability Report 2003 Mitsui & Co. Ltd.

• Environmental Report 2001 • Sustainability Report 2003 Orica Ltd.

• Safety, Health and Environment Performance Report 2002 • Safety, Health and Environment Performance Report 2003 Origin Energy Ltd.

• Sustainability Report to Stakeholders 2002 • Sustainability Report to Stakeholders 2003 Queensland Transport and Rail

• Portfolio Environmental Report 2002 Rio Tinto Ltd.

• 2002 Social and environment review highlights • 2003 Social and environment review highlights Royal & SunAlliance Insurance Group Ltd.

• Update to the 2001-2002 Environmental and Social Report Covering Period April 2001 – March 2002

Royal Dutch Petroleum Co. (Shell)

• The Shell Report 2002 • The Shell Report 2003 Singapore Telecoms Ltd. (formerly Optus)

• Respect, Commitment, Action – Environment and Community Report 2002



Telstra Corp. Ltd.

• Public Environment Report 2000 • Public Environment Report 2001 • Public Environment Report 2002 • Corporate Social Responsibility Report 2003 Toyota

• Environmental Report 2002 • Environmental & Social Report 2003 Wesfarmers Ltd.

• Report 2002 – Environment, Health, Safety and the Community • Report 2003 – Environment, Health, Safety and the Community Westpac Banking Corp.

• Our First Social Impact Report – A fresh perspective ... (2002) • Our 2003 Social Impact Report – Who cares? WMC Resources Ltd.

• WMC Resources Reports 2002 – Global Reporting Initiative (GRI) Index • WMC Resources Reporting 2003 – Global Reporting Initiative (GRI) Index

(http://www.wmc.com/sustainability/approach/gri/gri2003.htm) Woodside Petroleum Ltd.

• Concise Annual Report 2002 • Concise Annual Report 2003 Woolworths Ltd.

• Health Safety Environment and Community Report 2002 Xstrata plc.

• Health Safety Environment and Community Report 2002 • Health, Safety, Environmental Management, Employee and Community Involvement

Review – December 2002 • Health Safety Environment and Community Report 2003


Appendix 1 - Page 345

Appendix 1

Scorecard of Company Reports, 2002 and 2003 Years

GRI Analysis of 2002 Reports

Total number of companies in samples 37

INDICATOR Disclosure Required

Item Core Indicators


Core Indicators


Alcoa Inc Ansell Ltd Australia and New Zealand

Banking Group Ltd

Australian Gas Light Company

Aviva Corp Ltd (formerly

CGNU)

BHP Billiton Ltd

BP plc Brambles Industries Ltd

British American

Tobacco plc

Caltex Australia Ltd

Carter Holt Harvey Ltd

CSR Ltd Daimler Chrysler

Energex Ford General Motors

Hanson plc Hewlett Packard Co.

AAI ANN ANZ AGL AVA BHP BP BIL BAT CTX CHY CSR DCX egx F GM HAN HPQ

Industry Sector Code 15 35 40 15 40 15 10 20 30 10 15 15 25 10 25 25 25 45Listing location ASX ASX ASX ASX ASX ASX NYSE ASX LSE ASX ASX ASX NYSE - NYSE NYSE ASX ASX

External audit / verification N N N N N Y Y N Y Y N N N N N N N N

ECONOMICEC1 Net Sales 116 5 0 5 0 0 5 5 0 5 0 0 5 0 5 5 5 0 5EC2 Market share for each product if >25% ALSO if market share

is >5% country GDP45 2 0 0 0 0 0 0 0 5 0 0 0 0 0 5 0 0 2

EC3 Cost of all good 56 5 0 5 0 5 0 4 0 0 0 0 0 0 2 5 0 0 5EC4 % of contract paid on time 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0


9 0 0 0 0 3 0 0 0 2 0 0 0 0 0 0 0 0 3

Employees EC5 Monies Paid and payable 49 5 0 0 0 0 0 4 0 5 0 0 4 0 1 3 5 0 0EC6 Monies paid as dividends all share classes AND interest to

debtholders67 5 0 5 0 0 3 4 0 5 0 0 3 0 5 4 0 0 0

EC7 Changes to retained profits. Must include ratios, ROACE etc 52 5 0 5 0 0 2 4 0 0 0 0 3 0 3 0 5 0 0

EC8 Taxes paid by country 54 5 0 2 0 0 2 3 0 5 0 0 3 0 5 3 0 0 0EC9 Subsidies received by country/region 2 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0

EC10 Donations 144 5 0 0 3 5 5 3 5 5 5 5 4 3 2 5 5 5 5EC12 Expenditure on non-core business infrastructure, eg, schools,

creche etc for employee benefit8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Indirect Economic Impacts EC13 Any other indirect economic impacts 8 2 0 1 0 0 0 0 0 0 0 0 0 0 1 0 4 0 0SUB TOTAL 588 25 39 0 23 3 13 17 29 5 32 5 5 22 3 24 30 24 5 20Average 16.6Standard Deviation 11.9

ENVIRONMENTALEN1 Materials used by type, in tonnes, kg, volume etc 44 5 0 0 2 5 0 0 0 5 0 0 1 2 5 2 0 0 0EN2 % of materials used that are from recycled waste 9 5 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0EN3 Direct Energy source and usage 128 4 0 0 5 5 4 0 5 5 5 5 3 0 0 5 4 0 5EN4 Indirect energy usage 29 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EN17 Initiatives to use renewable energy sources or attempts to be energy efficient

73 4 0 0 5 5 0 3 0 5 0 0 3 5 0 5 4 2 5

EN18 Annualised energy requirements … energy footprints of major products

38 0 0 0 0 0 5 0 0 2 0 0 0 0 0 5 4 0 0

EN19 Other energy uses 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0EN5 Total water use 98 5 0 0 0 5 5 0 0 5 5 5 4 0 0 5 5 0 0

EN20 Water sources … describe ecosystems / habitat effects 31 3 0 0 0 0 0 0 0 3 0 0 0 0 0 2 5 0EN21 Annual withdrawals of ground & surface water as % 10 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0EN22 Total recycling and reuse of water 32 5 0 0 0 0 2 0 0 1 0 0 0 3 0 0 5 0 0

EN6 Location and size of land owned, leased, managed in bio-diversity rich areas

28 0 0 0 0 0 0 0 0 5 0 0 0 0 0 2 0 5 0


50 0 0 0 0 5 5 2 0 5 0 0 0 0 0 5 0 5 0

EN24 Amount of impermeable surface as % of land owned / leased 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EN7 Major impacts on biodiversity as a result of activities / products

42 4 0 0 0 0 0 1 0 0 3 0 2 0 2 4 1 0 0

EN25 Impacts on protected and sensitive areas 14 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0EN26 Changes to natural habitats as a result of activities…AND %

restored / protected68 5 0 0 0 0 5 3 0 5 2 5 4 0 0 0 0 5 0

EN27 Plans, programmes for protecting natural areas that have been degraded

38 5 0 0 0 0 0 0 0 5 0 2 0 0 2 0 3 2 0

EN28 # of protected species in areas of operation 10 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0EN29 Business units etc operating or planning to operate in

protected / sensitive areas33 4 0 0 0 0 0 3 0 0 3 0 2 0 0 5 2 2 0

EN8 Greenhouse gas emissions info (show actuals) 142 5 0 0 0 5 5 4 5 5 5 5 0 3 5 5 5 5 5

EN30 Other relevant greenhouse gas emissions 78 5 0 0 2 5 5 4 5 5 5 0 0 0 5 0 5 1 0EN9 Use of substance that depletes ozone (show actuals and

separate)40 4 0 0 0 0 5 0 0 1 5 0 0 1 5 0 3 0 3

EN10 NOx and SOx emissions 63 2 0 0 0 0 5 2 0 0 5 0 0 1 5 0 5 0 0EN11 Total amount of waste by type and destination (ie recycled,

treated etc)120 5 0 1 2 5 5 0 3 5 3 5 4 2 5 5 5 3 5

EN12 Significant discharges to water by type 37 0 0 0 0 0 0 3 0 0 0 0 0 3 0 0 3 0 0EN32 Water sources and habitats affected by discharges to water &

runoff22 0 0 0 0 0 2 0 5 0 0 0 0 0 0 2 0 0

EN13 # and Volume of Significant oil / chemical / fuel spills 93 5 0 0 0 0 0 5 5 0 4 0 4 0 0 5 0 0 0EN31 Info re: production, transport etc of 'hazardous' waste 22 5 0 0 0 0 0 0 0 0 0 0 2 3 0 0 0 0 5

Suppliers EN33 Performance of suppliers relative to enviro matters 41 0 0 1 0 5 0 0 2 5 0 0 0 0 0 5 0 0 5EN14 Significant enviro impacts - major products & services 72 5 0 0 0 0 0 3 2 5 0 0 3 2 4 4 5 0 4EN15 % of weight of product reclaimable at the end of its life 48 5 0 0 0 0 0 0 0 5 0 0 2 0 0 5 4 5 4

Compliance EN16 # and fines of non-compliance with treaties, agreements, conventions etc - for enviro

62 0 0 0 0 0 5 0 5 5 5 5 5 0 0 5 5 3 0

Transport EN34 Significant enviro impacts from use of transport 64 0 0 0 0 5 0 3 3 5 0 0 0 0 2 0 0 0 0Overall EN35 Total enviro expenditures by type ... Company must define

type31 5 0 0 0 2 0 3 0 0 0 0 0 0 0 0 0 0 0

SUB TOTAL 1055 663 98 0 2 16 52 56 41 35 89 53 37 39 25 42 74 72 43 41Average 46.4Standard Deviation 24.2

Company ScoreTotal Score

Emissions, Effluents, Waste

Products and Services

Biodiversity

Public Sector

Materials

Energy

Water

GRI Reference

Customers

Suppliers

Providers of Capital






Core Indicators



Banking Group Ltd



CGNU)

BHP Billiton Ltd


British American

Tobacco plc







Company ScoreTotal ScoreGRI Reference

SOCIAL - LABOURLA1 Breakdown of workforce, FT, PT, Contract etc 53 0 0 0 0 3 3 3 0 2 0 2 2 0 5 3 3 0 3LA2 NET Employment creation by country/region 13 0 0 0 0 0 0 1 0 0 0 5 2 0 0 0 0 0 0


24 0 0 0 0 0 0 2 0 5 0 0 0 0 2 0 0 0 0

LA3 % of employees in unions, OR % covered by collective bargaining agreements

7 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0


6 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0


6 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0

LA5 Recording OHS accidents / diseases 118 5 0 0 0 0 5 0 5 5 5 5 5 0 4 5 5 4 5LA14 Evidence of compliance with OHS laws 124 3 0 0 0 5 0 1 5 5 5 5 3 1 5 5 5 5 5

LA6 Description of joint worker and manager OHS committees and coverage of such committees

22 3 0 0 0 0 0 0 0 0 0 0 3 0 0 5 0 0 0

LA15 Trade union involvement in OHS agreements 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0LA7 # lost days from injury, accident, absenteeism, # of work

fatalities126 5 0 0 0 0 5 4 5 5 5 5 5 0 5 5 5 5 5

LA8 Co policy on AIDS/HIV 23 0 0 0 0 0 3 0 0 0 0 0 0 0 0 5 0 0 0LA9 Ave hours training per year per employee category 47 2 0 0 0 3 0 3 2 3 0 3 2 0 2 0 4 3 0

LA16 Info about Programmes supporting continuing employability and/or retirement of employees

13 2 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 2

LA17 Info about programmes re lifelong learning skills 6 2 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0LA10 Info about Equal Opp programmes, monitoring, results etc 44 3 0 0 0 3 0 2 2 5 0 0 0 2 0 3 4 0 2LA11 Composition of senior management and BofD, PLUS

male/female ratio and other indicators of diversity38 0 0 2 0 2 2 3 0 3 0 0 0 0 0 5 3 0 3

SOCIAL - HUMAN RIGHTSHR1 Human Right Policies including monitoring & results 28 0 0 3 0 5 0 0 3 0 0 0 0 3 0 4 0 2 0HR2 HR impacts on investments, procurements, suppliers /

contractors8 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0


6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0

HR8 Employee training on all aspects of human rights 10 0 0 0 0 5 0 3 0 0 0 0 0 0 0 2 0 0 0Non-discrimination HR4 Global policy on discrimination, monitoring & results 25 3 2 0 0 0 0 0 0 5 0 0 0 0 5 5 4 0 0Freedom of association etc HR5 Global policy on freedom of association & extent of applic 16 0 2 0 0 0 0 0 0 0 0 0 0 0 0 5 2 2 0Child labour HR6 Global policy on excluding child labour, monitoring and results 29 0 0 0 0 5 5 0 0 0 0 0 0 0 5 5 2 2 0

Forced & Comp Labour HR7 Global policy to prevent forced labour, monitoring and results 11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 2 2 0

HR9 Appeals process, not limited to only HR 5 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0HR10 Non-retaliation policy and protection of whistle-blowers 10 0 0 0 0 0 0 0 2 0 0 0 0 0 0 5 0 0 0

Security Procedures HR11 Human Rights training for security personnel…show type & duration & numbers trained

5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0

HR12 Policies etc to address needs of indigenous peoples 30 0 0 0 0 0 3 0 4 0 0 0 0 0 0 0 1 0 2HR13 Any Jointly managed grievance procedures? 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0HR14 Share or Revenues distributed back to locals 3 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0

SOCIAL - SOCIETYSO1 Policies to manage impact on communities, include

monitoring, results etc143 5 4 2 5 5 3 4 3 5 5 5 3 5 5 5 5 4 5

SO4 Awards received for social, ethical, enviro perf 52 0 0 0 0 0 5 3 0 0 0 5 0 0 0 0 5 5 5Bribery and Corruption SO2 Bribery policy and process 17 0 4 0 0 0 0 0 0 0 0 0 0 0 0 4 0 0 0

SO3 Policy for political lobbying & policy on contributions 14 0 4 0 0 0 0 0 0 5 0 0 0 0 0 4 0 0 0SO5 $ paid to political parties or candidates 10 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0SO6 Court decisions on any anti-trust / monopoly beh 7 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0SO7 Policy, process etc for preventing anti-competitive behaviour, 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

SOCIAL - PRODUCT RESPONSIBILITYPR1 Policy to preserve customer health and safety, policy visibly

stated? Monitored? Results?88 3 2 0 3 0 0 2 0 5 4 5 0 0 3 5 5 0 3

PR4 # and type of instances of non-compliance, include $ fines and penalties

6 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0

PR5 # of complaints upheld by regulatory authorities on health and safety issues of product

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PR6 Voluntary code compliance, labelling, awards etc 19 0 0 3 0 0 0 0 0 4 4 0 0 0 0 0 3 0 0PR2 Policy, process etc on product info and labelling 29 0 0 2 0 0 0 3 0 5 0 0 0 0 4 0 0 1 0

PR7 # and $ fines for Non compliance with product info and labelling laws

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PR8 Customer Satisfaction polices, process, monitoring, surveys by region

38 0 0 0 0 0 0 1 0 5 5 5 0 0 0 0 2 0 0

PR9 Policy to show adherence to advertising standards, PLUS voluntary actions

5 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0

PR10 # and type of breaches of advertising laws 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0PR3 Policy etc for customer privacy, by geo region 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PR11 # of substantial complaints re breaches 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0SUB TOTAL 911 385 36 20 12 8 41 37 47 31 77 33 45 25 11 50 93 65 35 40Average 35.0Standard Deviation 20.9

Absolute scores TOTAL Disclosure Score 3627 173 20 37 27 106 110 117 71 198 91 87 86 39 116 197 161 83 101CORE Disclosure Score 2554 120 18 32 20 66 77 74 50 124 64 60 72 27 97 155 109 51 69ADDITIONAL Disclosure Score 1073 53 2 5 7 40 33 43 21 74 27 27 14 12 19 42 52 32 32

Relative scores TOTAL Disclosure Score 20.2% 35.7% 4.1% 7.6% 5.6% 21.9% 22.7% 24.1% 14.6% 40.8% 18.8% 17.9% 17.7% 8.0% 23.9% 40.6% 33.2% 17.1% 20.8%CORE Disclosure Score 27.6% 48.0% 7.2% 12.8% 8.0% 26.4% 30.8% 29.6% 20.0% 49.6% 25.6% 24.0% 28.8% 10.8% 38.8% 62.0% 43.6% 20.4% 27.6%ADDITIONAL Disclosure Score 12.3% 22.6% 0.9% 2.1% 3.0% 17.0% 14.0% 18.3% 8.9% 31.5% 11.5% 11.5% 6.0% 5.1% 8.1% 17.9% 22.1% 13.6% 13.6%

Employment

Health and Safety

Training & Education




Advertising

Respect for Privacy

Disciplinary Practices

Indigenous Rights



Community








Core Indicators


Industry Sector CodeListing location

External audit / verification

ECONOMICEC1 Net Sales 116EC2 Market share for each product if >25% ALSO if market share

is >5% country GDP45

EC3 Cost of all good 56EC4 % of contract paid on time 3


9

Employees EC5 Monies Paid and payable 49EC6 Monies paid as dividends all share classes AND interest to

debtholders67

EC7 Changes to retained profits. Must include ratios, ROACE etc 52

EC8 Taxes paid by country 54EC9 Subsidies received by country/region 2

EC10 Donations 144EC12 Expenditure on non-core business infrastructure, eg, schools,

creche etc for employee benefit8

Indirect Economic Impacts EC13 Any other indirect economic impacts 8SUB TOTAL 588 25Average 16.6Standard Deviation 11.9

ENVIRONMENTALEN1 Materials used by type, in tonnes, kg, volume etc 44EN2 % of materials used that are from recycled waste 9EN3 Direct Energy source and usage 128EN4 Indirect energy usage 29


73


38

EN19 Other energy uses 8EN5 Total water use 98

EN20 Water sources … describe ecosystems / habitat effects 31EN21 Annual withdrawals of ground & surface water as % 10EN22 Total recycling and reuse of water 32


28


50

EN24 Amount of impermeable surface as % of land owned / leased 0


42

EN25 Impacts on protected and sensitive areas 14EN26 Changes to natural habitats as a result of activities…AND %

restored / protected68


38

EN28 # of protected species in areas of operation 10EN29 Business units etc operating or planning to operate in

protected / sensitive areas33

EN8 Greenhouse gas emissions info (show actuals) 142

EN30 Other relevant greenhouse gas emissions 78EN9 Use of substance that depletes ozone (show actuals and

separate)40

EN10 NOx and SOx emissions 63EN11 Total amount of waste by type and destination (ie recycled,

treated etc)120

EN12 Significant discharges to water by type 37EN32 Water sources and habitats affected by discharges to water &

runoff22

EN13 # and Volume of Significant oil / chemical / fuel spills 93EN31 Info re: production, transport etc of 'hazardous' waste 22

Suppliers EN33 Performance of suppliers relative to enviro matters 41EN14 Significant enviro impacts - major products & services 72EN15 % of weight of product reclaimable at the end of its life 48


62

Transport EN34 Significant enviro impacts from use of transport 64Overall EN35 Total enviro expenditures by type ... Company must define

type31

SUB TOTAL 1055 663Average 46.4Standard Deviation 24.2

Total Score



Biodiversity

Public Sector

Materials

Energy

Water

GRI Reference

Customers

Suppliers


Inter-national Business Machines

Corp

Leighton Holdings Ltd

Mitsubishi Motors Corp

Mitsui & Co. Ltd

Orica Ltd Origin Energy Ltd

Queens-land Transport and

Rail

Rio Tinto Ltd Royal and Sun Alliance

Insurance Group plc

Royal Dutch Petroleum Co.

(Shell)

Singapore Telecoms Ltd

(formerly Optus)

Telstra Corp Ltd

Toyota Wesfarm-ers Ltd

Westpac Banking Corp

WMC Resources

Ltd

Woodside Petroleum Ltd

Wool-worths Ltd

Xstrata plc

IBM LEI MMC MIT ORI ORG qtr RIO RSA RD SGT TLS TMC WES WBC WMR WPL WOW XTA

45 20 25 10 15 10 20 15 40 10 50 50 25 20 40 15 10 30 15ASX ASX TSE TSE ASX ASX - ASX NYSE NYSE ASX ASX TSE ASX ASX ASX ASX ASX LSE

Y N N N N N N Y Y Y N N Y Y N Y N N Y

5 5 5 5 0 5 2 4 0 5 0 5 5 0 5 5 5 0 50 0 2 5 0 5 0 0 0 5 0 5 0 0 4 5 0 0 0

0 0 0 0 0 0 0 5 0 5 0 5 0 0 0 5 0 5 00 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0

0 0 0 0 0 5 0 0 0 0 0 5 0 0 2 5 0 0 50 5 0 3 0 5 0 0 0 5 0 0 0 0 5 5 5 0 0

0 5 0 0 0 0 0 0 0 5 0 0 0 0 5 5 5 0 0

0 3 0 3 0 3 0 0 0 2 0 5 0 0 5 5 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 05 4 1 3 0 5 5 5 2 5 3 3 5 5 5 5 3 5 50 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 3

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 010 22 8 19 0 28 7 14 2 35 3 28 10 5 36 40 18 11 18

0 0 0 0 0 4 0 0 4 0 0 3 2 0 0 0 0 4 00 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 05 0 5 0 5 5 4 5 5 5 0 5 5 5 5 5 0 4 55 0 0 0 0 0 0 0 5 0 5 0 0 0 0 5 0 4 55 0 0 0 0 5 0 0 0 0 0 5 5 0 0 2 0 5 0

5 0 0 0 0 4 0 5 0 0 0 3 5 0 0 0 0 0 0

0 0 0 0 0 3 0 0 0 0 0 5 0 0 0 0 0 0 05 0 5 0 5 2 0 5 5 5 0 2 5 5 0 5 0 0 52 0 0 0 0 2 0 3 0 0 0 0 5 2 0 0 0 0 40 0 0 0 0 0 0 0 0 0 0 0 3 0 0 2 0 0 0

0 0 0 0 0 0 4 0 0 0 0 3 5 0 2 0 0 20 0 0 5 0 3 0 0 0 0 0 2 0 2 0 2 0 0 2

0 3 0 5 0 0 0 0 0 0 0 4 0 0 0 2 4 0 5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 3 4 0 0 5 3 3 0 4 0 3 0 0 0

0 0 0 0 0 3 2 0 0 0 5 0 0 0 0 2 0 0 03 3 0 0 2 3 4 0 0 0 0 4 3 5 0 4 0 0 3

0 0 0 2 0 3 4 0 0 0 5 0 0 0 0 3 0 0 2

3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 20 3 0 3 0 0 2 0 0 0 0 4 0 0 0 0 0 0 0

5 3 5 3 0 5 5 5 5 5 4 5 5 5 5 5 0 0 5

5 0 0 0 0 5 2 4 0 5 0 0 0 0 0 2 5 0 30 0 3 2 0 3 0 0 0 5 0 0 0 0 0 0 0 0 0

0 0 5 0 0 4 5 0 0 5 0 0 5 5 0 5 0 0 45 2 5 4 0 0 5 0 3 3 5 5 5 5 0 5 0 0 5

0 2 5 0 0 0 5 0 0 0 0 5 5 3 0 0 0 0 30 0 3 0 0 0 0 0 0 5 0 0 5 0 0 0 0 0 0

5 0 5 0 5 0 5 5 0 5 5 5 5 5 0 5 5 0 50 0 5 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 00 0 5 0 0 0 0 0 0 0 0 3 5 0 5 0 0 0 05 2 5 3 0 5 0 0 0 0 0 0 5 0 5 0 0 0 50 0 5 0 0 0 0 0 0 0 3 3 5 2 0 0 0 0 05 2 0 0 0 0 0 0 0 5 0 0 5 0 0 2 0 0 0

0 2 5 0 2 0 3 0 3 5 4 5 0 4 5 5 0 3 02 0 4 2 0 0 0 0 0 0 0 3 5 0 3 0 2 0 0

65 22 70 29 19 62 50 36 30 58 39 76 91 59 28 68 16 20 65

Company Score






Core Indicators


Total ScoreGRI Reference

SOCIAL - LABOURLA1 Breakdown of workforce, FT, PT, Contract etc 53LA2 NET Employment creation by country/region 13


24


7


6


6

LA5 Recording OHS accidents / diseases 118LA14 Evidence of compliance with OHS laws 124


22

LA15 Trade union involvement in OHS agreements 7LA7 # lost days from injury, accident, absenteeism, # of work

fatalities126

LA8 Co policy on AIDS/HIV 23LA9 Ave hours training per year per employee category 47


13

LA17 Info about programmes re lifelong learning skills 6LA10 Info about Equal Opp programmes, monitoring, results etc 44LA11 Composition of senior management and BofD, PLUS

male/female ratio and other indicators of diversity38

SOCIAL - HUMAN RIGHTSHR1 Human Right Policies including monitoring & results 28HR2 HR impacts on investments, procurements, suppliers /

contractors8


6

HR8 Employee training on all aspects of human rights 10Non-discrimination HR4 Global policy on discrimination, monitoring & results 25Freedom of association etc HR5 Global policy on freedom of association & extent of applic 16Child labour HR6 Global policy on excluding child labour, monitoring and results 29

Forced & Comp Labour HR7 Global policy to prevent forced labour, monitoring and results 11

HR9 Appeals process, not limited to only HR 5HR10 Non-retaliation policy and protection of whistle-blowers 10


5

HR12 Policies etc to address needs of indigenous peoples 30HR13 Any Jointly managed grievance procedures? 2HR14 Share or Revenues distributed back to locals 3


monitoring, results etc143

SO4 Awards received for social, ethical, enviro perf 52Bribery and Corruption SO2 Bribery policy and process 17

SO3 Policy for political lobbying & policy on contributions 14SO5 $ paid to political parties or candidates 10SO6 Court decisions on any anti-trust / monopoly beh 7SO7 Policy, process etc for preventing anti-competitive behaviour, 3


stated? Monitored? Results?88


6


0

PR6 Voluntary code compliance, labelling, awards etc 19PR2 Policy, process etc on product info and labelling 29


0


38


5

PR10 # and type of breaches of advertising laws 0PR3 Policy etc for customer privacy, by geo region 0

PR11 # of substantial complaints re breaches 0SUB TOTAL 911 385Average 35.0Standard Deviation 20.9

Absolute scores TOTAL Disclosure Score 3627CORE Disclosure Score 2554ADDITIONAL Disclosure Score 1073

Relative scores TOTAL Disclosure Score 20.2%CORE Disclosure Score 27.6%ADDITIONAL Disclosure Score 12.3%

Employment

Health and Safety





Advertising

Respect for Privacy


Indigenous Rights



Community




Corp



Mitsui & Co. Ltd



Rail


Insurance Group plc


(Shell)


(formerly Optus)

Telstra Corp Ltd



WMC Resources

Ltd


Wool-worths Ltd

Xstrata plc


Company Score

3 0 3 0 0 0 3 0 0 3 0 0 0 0 5 5 2 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 03 0 0 0 0 0 0 0 0 0 0 0 5 0 5 0 0 0 2

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 2

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 2

5 2 0 0 5 5 0 5 4 4 0 0 5 5 5 5 5 0 55 5 4 0 0 5 3 5 4 4 5 0 5 5 5 5 1 0 55 0 0 0 0 0 0 0 3 0 0 0 3 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 02 2 5 0 5 5 0 5 5 5 0 0 5 5 3 5 5 0 5

0 0 0 0 0 0 0 5 0 5 0 0 0 0 0 0 0 0 52 2 2 0 0 0 2 2 0 0 2 3 0 3 0 0 0 2 00 0 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 3

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20 0 0 0 0 0 0 4 0 5 0 0 0 0 5 0 2 2 00 0 0 0 0 4 0 0 0 4 0 0 0 0 5 2 0 0 0

0 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 30 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0

0 0 0 0 0 3 5 0 0 0 0 0 0 0 5 5 2 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 2 5 0 4 0 5 3 2 5 5 3 5 4 5 5 4 3 5

0 0 0 0 5 4 0 0 0 0 5 0 5 0 0 0 5 0 00 0 0 0 0 0 0 0 0 5 0 0 0 0 3 1 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 00 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0

0 0 5 5 4 5 5 3 0 5 3 3 5 0 5 0 0 0 0

0 0 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 0 05 0 0 0 0 0 0 0 0 0 0 4 5 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 5 0 0 3 0 0 0 0 0 0 2 0 5 0 0 0 5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 030 13 29 5 23 47 23 32 18 83 20 19 45 22 63 33 30 8 47

105 57 107 53 42 137 80 82 50 176 62 123 146 86 127 141 64 39 13072 41 76 41 33 81 55 61 43 136 38 87 90 63 87 105 43 30 8733 16 31 12 9 56 25 21 7 40 24 36 56 23 40 36 21 9 43

21.6% 11.8% 22.1% 10.9% 8.7% 28.2% 16.5% 16.9% 10.3% 36.3% 12.8% 25.4% 30.1% 17.7% 26.2% 29.1% 13.2% 8.0% 26.8%28.8% 16.4% 30.4% 16.4% 13.2% 32.4% 22.0% 24.4% 17.2% 54.4% 15.2% 34.8% 36.0% 25.2% 34.8% 42.0% 17.2% 12.0% 34.8%14.0% 6.8% 13.2% 5.1% 3.8% 23.8% 10.6% 8.9% 3.0% 17.0% 10.2% 15.3% 23.8% 9.8% 17.0% 15.3% 8.9% 3.8% 18.3%






Core Indicators



Banking Group Ltd



CGNU)

BHP Billiton Ltd


British American

Tobacco plc







Industry Sector Code 15 35 40 15 40 15 10 20 30 10 15 15 25 10 25 25 25 45Listing location ASX ASX ASX ASX ASX ASX NYSE ASX LSE ASX ASX ASX NYSE - NYSE NYSE ASX ASX

External audit / verification N N N N N Y Y N Y Y N N N N N N N N1 1 1 1

ECONOMICEC1 Net Sales 115 5 5 5 0 5 5 0 5 0 5 5 5 5 5EC2 Market share for each product if >25% ALSO if market share

is >5% country GDP68 5 0 5 3 3 3 0 5 0 0 0 3 5 3

EC3 Cost of all good 49 5 5 0 5 0 5 0 5 0 0 0 0 3 0EC4 % of contract paid on time 10 0 0 0 0 0 0 0 5 0 0 0 0 0 0


8 0 0 0 3 0 0 0 2 0 0 0 0 0 3

Employees EC5 Monies Paid and payable 53 0 0 0 0 5 4 0 5 0 3 0 0 3 0EC6 Monies paid as dividends all share classes AND interest to

debtholders78 5 5 5 0 3 5 0 5 0 3 0 3 4 2

EC7 Changes to retained profits. Must include ratios, ROACE etc 69 5 5 3 0 0 3 0 5 0 3 0 5 3 0

EC8 Taxes paid by country 62 0 2 5 0 5 5 0 5 0 3 0 0 3 2EC9 Subsidies received by country/region 4 0 0 0 0 0 0 0 0 0 0 0 0 2 0

EC10 Donations 103 0 5 0 5 5 5 5 5 5 4 3 2 5 5EC12 Expenditure on non-core business infrastructure, eg, schools,

creche etc for employee benefit5 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Indirect Economic Impacts EC13 Any other indirect economic impacts 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0SUB TOTAL 611 14 25 27 23 16 26 35 5 48 5 21 8 18 33 20Average 22.3Standard Deviation 11.9

ENVIRONMENTALEN1 Materials used by type, in tonnes, kg, volume etc 27 0 0 2 5 0 0 0 5 0 0 0 0 2 0EN2 % of materials used that are from recycled waste 9 0 0 0 0 0 0 0 0 0 0 3 0 2 0EN3 Direct Energy source and usage 92 0 0 2 5 5 5 5 5 5 0 5 5 5 5EN4 Indirect energy usage 27 0 0 0 0 0 5 0 0 0 0 5 0 2 0


42 0 0 5 5 0 0 0 4 0 0 0 5 0 0


21 0 0 2 0 5 0 0 0 0 0 3 0 0 3

EN19 Other energy uses 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0EN5 Total water use 99 0 0 0 5 5 4 0 5 5 0 5 0 5 5

EN20 Water sources … describe ecosystems / habitat effects 27 0 0 0 0 0 0 0 5 2 0 0 0 0 0EN21 Annual withdrawals of ground & surface water as % 17 0 0 0 0 0 0 0 0 5 0 0 0 0 0EN22 Total recycling and reuse of water 27 0 0 0 0 5 0 0 1 0 0 1 0 0 5


17 0 0 0 0 0 3 0 2 0 0 0 0 3 0


24 0 0 0 5 0 0 0 5 0 0 0 0 0 0

EN24 Amount of impermeable surface as % of land owned / leased 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0


25 0 0 0 0 0 5 0 0 0 0 0 2 4 0

EN25 Impacts on protected and sensitive areas 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0EN26 Changes to natural habitats as a result of activities…AND %

restored / protected36 0 0 0 0 5 0 0 0 4 0 5 5 0 3


19 0 0 0 0 0 0 0 5 2 0 0 3 0 0

EN28 # of protected species in areas of operation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0EN29 Business units etc operating or planning to operate in

protected / sensitive areas7 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EN8 Greenhouse gas emissions info (show actuals) 115 0 0 5 5 5 5 5 5 5 0 5 5 5 5

EN30 Other relevant greenhouse gas emissions 36 0 0 0 0 5 0 5 5 0 0 0 0 0 4EN9 Use of substance that depletes ozone (show actuals and

separate)28 0 0 0 0 5 0 0 3 5 0 0 0 2 5

EN10 NOx and SOx emissions 53 0 0 0 0 5 5 0 0 0 0 5 0 5 0EN11 Total amount of waste by type and destination (ie recycled,

treated etc)86 0 0 3 5 5 3 5 5 5 0 5 3 5 5

EN12 Significant discharges to water by type 40 0 0 0 0 0 4 0 5 0 0 2 2 2 0EN32 Water sources and habitats affected by discharges to water &

runoff15 0 0 0 0 0 0 0 5 0 0 1 0 0 0

EN13 # and Volume of Significant oil / chemical / fuel spills 74 0 0 0 0 0 5 5 4 0 5 0 0 5 0EN31 Info re: production, transport etc of 'hazardous' waste 10 0 0 0 0 0 0 0 0 0 0 0 0 0 5

Suppliers EN33 Performance of suppliers relative to enviro matters 48 0 0 0 5 0 0 2 5 0 0 5 0 5 0EN14 Significant enviro impacts - major products & services 61 0 0 0 0 2 5 4 1 0 0 5 3 4 4EN15 % of weight of product reclaimable at the end of its life 27 0 0 0 0 0 0 0 5 0 0 0 0 5 5


66 0 0 0 0 5 5 5 5 5 0 0 0 0 0

Transport EN34 Significant enviro impacts from use of transport 36 0 0 0 5 0 0 3 5 0 0 0 0 0 5Overall EN35 Total enviro expenditures by type ... Company must define

type29 0 0 0 1 3 2 0 3 0 0 5 0 0 0

SUB TOTAL 846 399 0 0 19 46 60 56 39 94 43 5 60 33 61 59Average 44.5Standard Deviation 26.9

Biodiversity

Public Sector

Materials

Energy

Water

Company ScoreTotal Score



GRI Reference

Customers

Suppliers







Core Indicators



Banking Group Ltd



CGNU)

BHP Billiton Ltd


British American

Tobacco plc







Company ScoreTotal ScoreGRI Reference

SOCIAL - LABOURLA1 Breakdown of workforce, FT, PT, Contract etc 55 0 0 0 1 0 3 0 5 2 3 2 3 3 0LA2 NET Employment creation by country/region 20 0 0 0 0 0 5 0 5 0 3 0 0 0 0


23 0 0 0 2 0 0 0 5 5 0 0 0 0 0


13 0 0 0 0 5 0 0 0 0 0 0 3 3 0


9 0 0 0 0 0 3 0 1 0 0 0 0 2 0


7 0 0 0 0 0 0 0 0 0 0 0 0 0 0

LA5 Recording OHS accidents / diseases 102 0 5 0 0 5 5 5 5 5 5 0 5 5 5LA14 Evidence of compliance with OHS laws 109 0 0 5 5 5 5 5 5 5 5 0 5 5 5


11 0 0 0 0 0 0 0 3 0 0 0 0 5 0

LA15 Trade union involvement in OHS agreements 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0LA7 # lost days from injury, accident, absenteeism, # of work

fatalities110 5 0 0 0 5 5 5 5 5 5 0 5 5 5

LA8 Co policy on AIDS/HIV 32 0 0 0 0 0 5 0 5 0 0 5 0 5 0LA9 Ave hours training per year per employee category 48 0 0 0 3 0 3 2 2 3 1 2 3 0 2


11 0 0 0 0 0 0 0 3 0 0 0 0 0 3

LA17 Info about programmes re lifelong learning skills 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0LA10 Info about Equal Opp programmes, monitoring, results etc 58 0 0 2 3 0 5 2 5 0 0 2 0 2 3LA11 Composition of senior management and BofD, PLUS

male/female ratio and other indicators of diversity62 2 3 3 4 2 3 0 5 0 2 0 0 5 5

SOCIAL - HUMAN RIGHTSHR1 Human Right Policies including monitoring & results 35 0 5 2 5 0 3 0 5 0 0 0 0 4 3HR2 HR impacts on investments, procurements, suppliers /

contractors18 0 0 0 5 0 3 0 2 0 0 0 0 3 2


16 0 0 2 0 0 0 2 2 0 0 0 0 3 5

HR8 Employee training on all aspects of human rights 11 0 0 0 0 0 0 0 3 0 0 0 0 0 0Non-discrimination HR4 Global policy on discrimination, monitoring & results 38 0 0 0 3 5 5 0 5 0 0 0 3 3 2Freedom of association etc HR5 Global policy on freedom of association & extent of applic 34 0 0 2 0 4 3 1 3 0 0 0 3 3 2Child labour HR6 Global policy on excluding child labour, monitoring and results 26 0 0 0 0 5 3 2 5 0 0 0 0 3 1

Forced & Comp Labour HR7 Global policy to prevent forced labour, monitoring and results 12 0 0 0 0 0 3 0 3 0 0 0 0 3 1

HR9 Appeals process, not limited to only HR 10 0 0 2 0 0 0 0 3 0 1 0 2 0 0HR10 Non-retaliation policy and protection of whistle-blowers 13 0 0 0 0 3 0 4 3 0 0 0 0 0 0


4 0 0 0 0 0 0 0 2 0 0 0 0 0 0

HR12 Policies etc to address needs of indigenous peoples 34 0 0 2 0 3 0 1 3 0 0 3 0 0 1HR13 Any Jointly managed grievance procedures? 2 0 0 0 0 0 0 0 2 0 0 0 0 0 0HR14 Share or Revenues distributed back to locals 9 0 0 0 0 0 0 0 5 0 0 0 0 0 0


monitoring, results etc128 4 5 5 4 4 5 5 5 5 5 5 5 5 5

SO4 Awards received for social, ethical, enviro perf 50 0 0 0 5 0 0 0 5 5 0 5 0 5 5Bribery and Corruption SO2 Bribery policy and process 32 4 0 0 0 3 5 5 0 0 0 0 0 4 0

SO3 Policy for political lobbying & policy on contributions 26 4 0 0 0 0 5 3 5 0 0 0 0 4 0SO5 $ paid to political parties or candidates 15 0 0 0 0 0 0 5 5 0 5 0 0 0 0SO6 Court decisions on any anti-trust / monopoly beh 4 2 0 0 0 0 0 0 2 0 0 0 0 0 0SO7 Policy, process etc for preventing anti-competitive behaviour, 6 0 0 0 0 0 0 3 3 0 0 0 0 0 0


stated? Monitored? Results?89 2 4 5 3 0 2 0 5 5 0 5 5 5 4


21 0 0 0 0 0 0 0 5 5 0 0 0 0 0


5 0 0 0 0 0 0 0 5 0 0 0 0 0 0

PR6 Voluntary code compliance, labelling, awards etc 16 0 3 0 0 0 0 0 5 0 0 0 0 0 0PR2 Policy, process etc on product info and labelling 23 0 5 0 0 0 2 0 5 0 0 0 0 3 0


5 0 0 0 0 0 0 0 5 0 0 0 0 0 0


42 0 0 0 0 0 0 0 5 5 0 0 0 5 5


5 0 0 0 0 0 0 0 5 0 0 0 0 0 0

PR10 # and type of breaches of advertising laws 5 0 0 0 0 0 0 5 0 0 0 0 0 0PR3 Policy etc for customer privacy, by geo region 32 0 0 0 3 0 5 3 1 0 0 0 0 5 5

PR11 # of substantial complaints re breaches 8 0 0 0 0 0 0 0 5 0 0 0 0 0 3SUB TOTAL 1029 420 23 30 30 46 49 86 53 176 50 35 29 42 98 72Average 51.8Standard Deviation 31.8

Absolute scores TOTAL Disclosure Score 3319 48 57 72 108 135 177 97 318 98 61 97 93 192 151CORE Disclosure Score 2486 46 54 56 72 101 170 69 182 60 50 69 73 172 101ADDITIONAL Disclosure Score 833 2 3 16 36 34 7 28 136 38 11 28 20 20 50

Relative scores TOTAL Disclosure Score 18.5% 9.9% 11.8% 14.8% 22.3% 27.8% 36.5% 20.0% 65.6% 20.2% 12.6% 20.0% 19.2% 39.6% 31.1%CORE Disclosure Score 26.9% 18.4% 21.6% 22.4% 28.8% 40.4% 68.0% 27.6% 72.8% 24.0% 20.0% 27.6% 29.2% 68.8% 40.4%ADDITIONAL Disclosure Score 9.6% 0.9% 1.3% 6.8% 15.3% 14.5% 3.0% 11.9% 57.9% 16.2% 4.7% 11.9% 8.5% 8.5% 21.3%


Advertising

Respect for Privacy


Indigenous Rights



Community



Health and Safety




Employment






Core Indicators


Industry Sector CodeListing location

External audit / verification

ECONOMICEC1 Net Sales 115EC2 Market share for each product if >25% ALSO if market share

is >5% country GDP68

EC3 Cost of all good 49EC4 % of contract paid on time 10


8

Employees EC5 Monies Paid and payable 53EC6 Monies paid as dividends all share classes AND interest to

debtholders78

EC7 Changes to retained profits. Must include ratios, ROACE etc 69

EC8 Taxes paid by country 62EC9 Subsidies received by country/region 4

EC10 Donations 103EC12 Expenditure on non-core business infrastructure, eg, schools,

creche etc for employee benefit5

Indirect Economic Impacts EC13 Any other indirect economic impacts 1SUB TOTAL 611 14Average 22.3Standard Deviation 11.9

ENVIRONMENTALEN1 Materials used by type, in tonnes, kg, volume etc 27EN2 % of materials used that are from recycled waste 9EN3 Direct Energy source and usage 92EN4 Indirect energy usage 27


42


21

EN19 Other energy uses 1EN5 Total water use 99

EN20 Water sources … describe ecosystems / habitat effects 27EN21 Annual withdrawals of ground & surface water as % 17EN22 Total recycling and reuse of water 27


17


24

EN24 Amount of impermeable surface as % of land owned / leased 0


25

EN25 Impacts on protected and sensitive areas 4EN26 Changes to natural habitats as a result of activities…AND %

restored / protected36


19

EN28 # of protected species in areas of operation 0EN29 Business units etc operating or planning to operate in

protected / sensitive areas7

EN8 Greenhouse gas emissions info (show actuals) 115

EN30 Other relevant greenhouse gas emissions 36EN9 Use of substance that depletes ozone (show actuals and

separate)28

EN10 NOx and SOx emissions 53EN11 Total amount of waste by type and destination (ie recycled,

treated etc)86

EN12 Significant discharges to water by type 40EN32 Water sources and habitats affected by discharges to water &

runoff15

EN13 # and Volume of Significant oil / chemical / fuel spills 74EN31 Info re: production, transport etc of 'hazardous' waste 10

Suppliers EN33 Performance of suppliers relative to enviro matters 48EN14 Significant enviro impacts - major products & services 61EN15 % of weight of product reclaimable at the end of its life 27


66

Transport EN34 Significant enviro impacts from use of transport 36Overall EN35 Total enviro expenditures by type ... Company must define

type29

SUB TOTAL 846 399Average 44.5Standard Deviation 26.9

Biodiversity

Public Sector

Materials

Energy

Water

Total Score



GRI Reference

Customers

Suppliers



Corp



Mitsui & Co. Ltd



Rail


Insurance Group plc


(Shell)


(formerly Optus)

Telstra Corp Ltd



WMC Resources

Ltd


Wool-worths Ltd

Xstrata plc


45 20 25 10 15 10 20 15 40 10 50 50 25 20 40 15 10 30 15ASX ASX TSE TSE ASX ASX - ASX NYSE NYSE ASX ASX TSE ASX ASX ASX ASX ASX LSE

Y N N N N N N Y Y Y N N Y Y N Y N N Y1 1 1 1 1

5 5 5 0 5 5 5 5 5 0 5 5 5 55 4 5 0 5 0 0 5 0 0 4 5 0 0

1 0 0 0 0 5 5 0 0 0 0 5 5 00 0 0 0 0 0 0 0 0 0 0 5 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 3 0 5 5 0 5 0 0 5 5 0 55 0 3 0 5 0 5 0 0 0 5 5 5 5

5 0 5 0 2 0 5 0 5 0 5 5 5 0

3 0 0 0 4 5 2 5 0 0 5 5 3 00 0 0 0 0 2 0 0 0 0 0 0 0

0 1 3 0 5 5 5 5 3 5 5 5 2 50 0 0 0 0 0 0 0 0 0 5 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 024 10 24 0 31 25 29 25 13 5 39 45 25 20

0 0 2 0 3 0 0 0 2 0 0 4 0 20 0 0 0 0 0 0 0 0 0 0 4 0 00 5 0 5 5 5 0 0 5 5 0 5 0 50 0 5 0 0 0 0 0 0 0 0 5 0 50 5 3 0 5 0 5 0 5 0 0 0 0 0

0 0 0 0 3 5 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 00 5 5 5 5 5 5 5 5 5 5 5 0 50 0 0 2 3 3 0 0 5 3 0 0 0 40 0 0 0 0 0 0 0 5 2 0 5 0 00 0 0 0 0 0 0 0 5 5 0 0 0 50 0 5 0 0 0 0 0 0 0 0 2 0 2

3 0 5 0 0 1 0 0 0 0 0 0 0 5

0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 4 3 0 0 0 0 2 0 2 0 3

0 0 0 0 4 0 0 0 0 0 0 0 0 01 0 0 0 5 0 0 0 0 5 0 0 0 3

0 0 2 2 3 0 0 0 0 0 0 0 0 2

0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 3 0 4 0 0 0 0 0 0 0 0 0

0 5 5 5 5 5 5 5 5 5 5 5 0 5

0 5 0 2 5 0 5 0 0 0 0 0 0 00 3 0 0 0 0 0 0 0 0 0 5 0 0

0 5 0 0 5 0 5 0 5 3 0 5 0 50 5 5 1 0 0 5 5 5 5 0 5 0 1

0 5 0 0 3 0 0 5 5 5 0 2 0 00 4 0 0 0 0 0 0 5 0 0 0 0 0

0 5 0 5 5 5 5 0 5 5 0 5 5 50 5 0 0 0 0 0 0 0 0 0 0 0 00 5 2 0 0 2 2 5 5 0 5 0 0 02 5 3 0 5 0 0 0 5 0 5 3 0 50 5 0 0 0 0 0 2 5 0 0 0 0 01 5 5 5 0 0 5 0 5 5 0 5 0 5

0 5 0 3 5 0 0 0 0 0 5 0 0 00 5 5 0 0 0 0 0 5 0 0 0 0 0

7 87 55 39 76 31 42 27 87 55 25 67 5 67

Company Score






Core Indicators


Total ScoreGRI Reference

SOCIAL - LABOURLA1 Breakdown of workforce, FT, PT, Contract etc 55LA2 NET Employment creation by country/region 20


23


13


9


7

LA5 Recording OHS accidents / diseases 102LA14 Evidence of compliance with OHS laws 109


11

LA15 Trade union involvement in OHS agreements 0LA7 # lost days from injury, accident, absenteeism, # of work

fatalities110

LA8 Co policy on AIDS/HIV 32LA9 Ave hours training per year per employee category 48


11

LA17 Info about programmes re lifelong learning skills 5LA10 Info about Equal Opp programmes, monitoring, results etc 58LA11 Composition of senior management and BofD, PLUS

male/female ratio and other indicators of diversity62

SOCIAL - HUMAN RIGHTSHR1 Human Right Policies including monitoring & results 35HR2 HR impacts on investments, procurements, suppliers /

contractors18


16

HR8 Employee training on all aspects of human rights 11Non-discrimination HR4 Global policy on discrimination, monitoring & results 38Freedom of association etc HR5 Global policy on freedom of association & extent of applic 34Child labour HR6 Global policy on excluding child labour, monitoring and results 26

Forced & Comp Labour HR7 Global policy to prevent forced labour, monitoring and results 12

HR9 Appeals process, not limited to only HR 10HR10 Non-retaliation policy and protection of whistle-blowers 13


4

HR12 Policies etc to address needs of indigenous peoples 34HR13 Any Jointly managed grievance procedures? 2HR14 Share or Revenues distributed back to locals 9


monitoring, results etc128

SO4 Awards received for social, ethical, enviro perf 50Bribery and Corruption SO2 Bribery policy and process 32

SO3 Policy for political lobbying & policy on contributions 26SO5 $ paid to political parties or candidates 15SO6 Court decisions on any anti-trust / monopoly beh 4SO7 Policy, process etc for preventing anti-competitive behaviour, 6


stated? Monitored? Results?89


21


5

PR6 Voluntary code compliance, labelling, awards etc 16PR2 Policy, process etc on product info and labelling 23


5


42


5

PR10 # and type of breaches of advertising laws 5PR3 Policy etc for customer privacy, by geo region 32

PR11 # of substantial complaints re breaches 8SUB TOTAL 1029 420Average 51.8Standard Deviation 31.8

Absolute scores TOTAL Disclosure Score 3319CORE Disclosure Score 2486ADDITIONAL Disclosure Score 833

Relative scores TOTAL Disclosure Score 18.5%CORE Disclosure Score 26.9%ADDITIONAL Disclosure Score 9.6%


Advertising

Respect for Privacy


Indigenous Rights



Community



Health and Safety




Employment


Corp



Mitsui & Co. Ltd



Rail


Insurance Group plc


(Shell)


(formerly Optus)

Telstra Corp Ltd



WMC Resources

Ltd


Wool-worths Ltd

Xstrata plc


Company Score

0 0 5 0 4 0 3 5 1 0 5 5 2 30 0 0 0 0 0 0 5 0 0 0 2 0 00 0 1 0 0 0 0 0 5 0 5 0 0 0

0 0 0 0 0 0 0 0 0 0 0 2 0 0

0 0 0 0 0 0 0 0 0 0 0 3 0 0

0 0 0 0 0 0 5 0 0 0 0 0 2 0

0 5 0 5 5 5 2 0 5 5 5 5 5 55 2 0 5 5 5 2 0 5 5 5 5 5 50 0 0 0 0 0 0 0 0 0 0 3 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 00 5 0 5 5 5 5 5 5 5 5 5 5 5

0 0 0 0 0 0 5 0 0 0 0 2 0 50 2 5 3 3 0 0 3 0 3 0 3 2 30 0 5 0 0 0 0 0 0 0 0 0 0 0

0 0 5 0 0 0 0 0 0 0 0 0 0 03 0 2 0 3 2 5 5 5 0 5 2 2 02 1 0 0 5 0 5 5 2 0 4 2 0 2

0 0 2 0 0 0 2 0 2 0 0 2 0 00 0 0 0 0 0 0 0 0 0 0 3 0 0

0 0 0 0 0 0 0 0 0 0 0 2 0 0

0 0 5 0 3 0 0 0 0 0 0 0 0 00 0 5 0 3 0 0 0 2 0 0 2 0 00 0 2 0 0 0 5 0 0 0 3 3 0 00 0 0 0 0 0 5 0 0 0 0 2 0 0

0 0 0 0 0 0 0 0 0 0 0 2 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 00 0 2 0 0 1 0 0 0 0 0 0 0 00 0 0 0 0 0 2 0 0 0 0 0 0 0

0 0 0 0 5 1 0 5 0 0 5 5 0 00 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 2 0 2

2 5 5 5 5 2 3 5 5 5 5 5 4 5

0 0 0 5 0 0 0 0 5 5 0 0 5 00 0 0 0 0 0 5 0 0 0 3 3 0 00 0 0 0 0 2 0 0 0 0 0 3 0 00 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0

0 5 5 4 5 0 3 5 5 5 4 3 0 0

0 0 0 0 3 0 3 0 0 5 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 5 0 0 0 0 0 3 0 0 00 0 0 0 0 0 0 0 5 0 0 3 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0

0 3 0 0 4 0 0 2 5 0 3 0 0 5

0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 5 0 0 0 5 0 00 0 0 0 0 0 0 0 0 0 0 0 0 012 28 51 32 63 23 60 50 57 38 60 84 32 40

43 125 130 71 170 79 131 102 157 98 124 196 62 12734 86 90 52 108 61 107 90 102 68 88 179 50 969 39 40 19 62 18 24 12 55 30 36 17 12 31

8.9% 25.8% 26.8% 14.6% 35.1% 16.3% 27.0% 21.0% 32.4% 20.2% 25.6% 40.4% 12.8% 26.2%13.6% 34.4% 36.0% 20.8% 43.2% 24.4% 42.8% 36.0% 40.8% 27.2% 35.2% 71.6% 20.0% 38.4%3.8% 16.6% 17.0% 8.1% 26.4% 7.7% 10.2% 5.1% 23.4% 12.8% 15.3% 7.2% 5.1% 13.2%



Appendix 2

Additional Information about the GRI Guidelines



Additional information about the GRI Guidelines

Introduction

This appendix contains a review of the objectives of the GRI Guidelines and assesses their

suitability as a reporting standard for TBL reporting given the analysis of Australian

companies presented in Chapter 8. The GRI Guidelines are unique in their coverage and

process as a reporting standard, with one of their major strengths being the strong links with

other initiatives such as the United Nations Global Compact, the OECD Guidelines for

Multinational Enterprises and ISO 14001 standards - all of which were pivotal in the

development and format of the framework.

The GRI and best practice

The question to be asked is whether the GRI Guidelines constitute best practice and the

future of CSR. To answer this question it is important that we begin with mission statement

and objectives of the GRI, which are reiterated here:

• Elevate economic, environmental and social reporting as routine practice, at the highest

standards of rigour and comparability.

• Design and continually improve reporting guidelines reflecting the three dimensions of

sustainability: economic, environmental and social.

The GRI Guidelines “represent the ‘cadillac’ version of reporting guidelines” (Stratos,

2001, p. 18), they represent current “best practice” (Deegan 2005) and are seen as the ‘gold’

standard to sustainability (Calvert, 2003). One of the major reasons for this is that the GRI

Guidelines cover more than 80% of the issues mentioned in various questionnaires of

sustainability rating agencies (World Business Council for Sustainable Development, 2002,

p21). Adoption of the GRI Guidelines may thus save time and money in responding to

requests about social and environmental issues.

As part of a moderation or review of corporate sustainability reports, the work done on

‘Trust Us’ by SustainAbility/United Nations Environment Programme (UNEP) show the

areas of best practice, innovation reporting and areas that are in need of improvement.

There were nine significant issues in relation to the quality of disclosures and the



communication for corporate sustainability reporting that were identified by ‘Trust Us’ (see

Table A1).

Table A1 Quality of Disclosures for corporate sustainability reports

(Trust Us, 2004)

Issues Additional information

1. Problems in identifying the core issues rather than the peripheral ones in a reporting context.

2. Addressing the TBL reporting imbalance Focus on environmental performance as against the social and economic issues.

3. Concerns with the barriers to accountability Includes concerns with assurance of the reports as well as the barriers to assurance perceived by auditors.

4. Review of the links between reporting, brands and trust and corporate reputation.

5. Coverage of corporate governance matters in sustainability reports.

6. Interpretation of sustainability reporting by new or emerging markets.

7. The reporting of social and environmental impacts on the wider economic picture of the company.

8. Impact of information content of sustainable development

Impact issues particularly on financial markets and companies

9. Risk of supply chains Considerations of how companies are addressing these.

Doubtless, reporting is a major part of how companies engage with their shareholders and

stakeholders. The production and availability of corporate social reports provide

information to users and also assist in accountability assessment of management. The key

issues identified by ‘Trust Us’, as outlined above, may be perceived as useful by standard-



setters when consideration is given to developing a TBL standard or in considering

mandating the GRI Guidelines. Some global features are already apparent with the GRI

indicators recognizing global agreements as regards to occupational health and safety and

human rights as a base for disclosure, but there is some comment that these do not go far

enough (Khan, 2003).

Extension of the content included in the GRI framework

The need to communicate clearly and accurately with stakeholders on matters such as

economic wellbeing has been an area that has received much scrutiny. The need for clear

and accurate communication in terms of environmental quality, social justice and product

safety is as important as reporting economic prosperity. The GRI Guidelines go some way

in achieving the TBL reporting agenda of sustainability yet they do not realize the full

potential that is possible. To assist in better decision-making, a corporate social reporting

framework should incorporate some content about targets for various indicators, and some

comparative information so that assessment about performance relative to previous

performance or relative to competitors may be made. Merely reporting carbon dioxide

emissions, for instance, does nothing to sufficiently fulfill the relevance criterion of the

information. Nor does the existing list of indicators and metrics fully facilitate a company’s

transition from an excessive polluter to responsible corporate citizen. The inevitable

transition of such a framework would be one where communications as to corporate

environmental and social impacts are relevant, reliable and comparable thereby creating

value for the user, and also in orchestrating a more sustainable business model for the

company.

Finally, even with better stakeholder engagement ensuing from the reports produced

according to the GRI Guidelines, there is still a need to recognise the problems of a lack of

inter-generational equity, as well as a lack of intra-generational equity (particularly between

the developed and under- or undeveloped countries). As noted in earlier chapters, this is

central to the concept of sustainability and, if not handled appropriately, could result in

massive problems for future generations and undermine the credibility of voluntary

environmental and social reporting. There is the danger that corporate social reports will

be seen as merely a means of green-washing a business, rather as a means of evaluating the

long-term sustainability performance of the company. Reporting environmental policies

may be a positive step in the right direction, but unless policies are implemented there is no



benefit and inter-generational equity is but a fairytale. As Hart (as quoted in Elkington

1999, p. 71) notes: “The simple fact is this: in meeting our needs, we are destroying the

ability of future generations to meet theirs”. Corporate social reports may lead to increased

information but, unless they are part of a sustainability agenda (with its focus on inter-

generational equity) and with a recognition of the role of governments, their only

achievements will be to flood stakeholders with useless information and consume scarce

corporate resources. This is, however, unlikely as reporting under the GRI Guidelines is

perhaps more likely to focus management and boards on social and environmental issues in

operational as well as reporting terms.

The GRI and Sustainability

It is important to address the issue of sustainability whilst undertaking a discussion of

corporate social disclosures and the GRI Guidelines. The long-term objective of any such

reporting is to open the eyes of business so that they are aware of unsustainable business

practices and then to hopefully reduce or eliminate these behaviours.

At this point, it is worth going back to the definition of sustainable development. According

to the 1987 Brundtland Report produced by the World Commission on Environment and

Development, sustainable development is “development that meets the needs of the present

without compromising the ability of future generations to meet their own needs.” It should

be noted that this statement includes an explicit commitment to intergenerational equity.

Elkington (1997) sees this as one of the key issues that TBL reporting will need to address

in order to achieve the balance between the economic, the social and the environmental. It

is, however, an issue that the GRI Guidelines appear to be silent on.

The Brundtland definition also implies a commitment to protect environmental processes

(particularly those that provide global service functions such as climate), to minimise or

eliminate the use of non-renewable resources, and to ensure that waste is not created at rate

greater than the environment’s processing/assimilative capacity to process them. Whilst

some of these items receive cursory exposure in the GRI Guidelines, the failure of the

Guidelines to require corporations to set sustainability targets means that much of the data

disclosed does not have a context in which it can be judged. There is also no capacity to

make comparisons between companies, as there is no basis for determining the value

produced by the companies’ resource usage, pollutant output or social impacts.



The Western viewpoint of the world as a vast machine that can be disassembled into

component parts (Capra, 1982) is falling apart as an enduring construct. Evans (1993, p. 5)

puts it well when she writes that:

“the environment and the economy have always been inextricably linked everywhere but in the human

mind. Functionally speaking there is only the biosphere and humans have always been a part of it”.

The result is that, unless sustainable business practices become a fundamental principle of

doing business, the viability of future generations may be compromised. That we

differentiate between what we can use up now and what we have to protect for the future is

not an empty insistence. Pearce et. al., (1989) argue that each generation should at least

inherit a similar natural environment and gives four reasons for differentiating between

man-made capital and natural capital:

1. Non substitutability – Man-made and natural capital are not so easily substituted

There are many types of environmental assets that have no substitute (for example

recreating the depleting ozone layer), and as a result natural capital should be used

sustainably, particularly in terms of eco-system functions.

2. Uncertainty – Natural stock should not be depleted because we believe that in the

future we will come up with a substitute.

3. Irreversibility – There are some degradations of the environment that are irreversible

(extinction of a species for example) and will affect all future generations.

4. Equity - The poor rather than the rich suffer far more from environmental degradation,

and treating social and natural capital as interchangeable would disadvantage these

people even further.

As a start at overcoming these problems, the undertaking of a moderate approach to

economic growth and development is imperative.

Features of corporate governance in TBL reporting

Although this study primarily considers the extent of adoption and adherence to the GRI

Guidelines by Australian companies, there is also a component of corporate governance in

the study. The “subject of corporate governance is of enormous practical importance”



(Shleifer and Vishny, 1997, p. 737) and its importance to the actions of the company in

environmental and social matters should not be underestimated. Compliance with a

non-mandatory set of disclosures on environmental and social impacts gives stakeholders a

certain level of assurance that management is attempting to conform with expectations

about good corporate citizenship. Legally and morally the expectation is that the boards

and the directors of companies are responsible for the actions of that company. These

actions usually refer to the financial and economic performance aspects of the company but

increasing legislative requirements are demanding a greater level of accountability. What

many people forget is that directors are central to the operations of a company and are

responsible for key oversight functions (Daily et. al., 2003) being ultimately responsible for

the effective functioning of the company (Jensen, 1993; Johnson et. al., 1996).

The performance aspect of the company is particularly important and is one area that is

deemed to be the responsibility of directors and in the domain of board oversight. The

additional directorial roles of resource allocation and strategic direction (Johnson et. al.,

1996; Zahra and Paerce, 1989) have an impact on the sustainability performance of the

entity. Decisions made about where resources are allocated and how strategies are

implemented are translated into actions that should ultimately find their way into a Triple

Bottom Line report. Hopefully the proper functioning of the board in maintaining a balance

between the oversight role and a support role will add to organisational efficiency (Daily et.

al., 2003). Adequate corporate governance mechanisms would then provide shareholders

some assurance that management is striving to achieve outcomes that benefit the

shareholders (Shleifer and Vishny, 1997) and benefit the wider environment.

Along with corporate social responsibility, corporate governance mechanisms and

disclosures have become newsworthy around the world as a result of several major

corporate collapses. Governments in Australia, the USA, United Kingdom and across

Europe have had to step in to promote corporate governance, and companies and

stakeholders alike are feeling the changes to legislation. In Australia, the Ramsay Report

(Ramsay, 2001) has recommended that there should be a greater disclosure of corporate

governance mechanisms. In the USA, the Sarbanes-Oxley Act 2002 addresses corporate

responsibility and the ethics of senior financial officers. In the United Kingdom, the

Department of Trade and Industry is coordinating a Company Law Review. Across

Europe individual countries are working reform measures: Germany has just recently



introduced a Transparency & Control Law, whilst Italy, France and Spain have Corporate

Governance Commissions.

In Australia, the Government’s Corporate Law Economic Program, CLERP 9 (2002),

which includes increased levels of disclosure on corporate governance, has been recently

released and the impacts of the proposed changes are already being felt. Historically,

companies were left to their own devices in the area of governance and the prevailing

thought was that market forces would regulate unacceptable conduct and behaviour. This

did not occur, and bankrupt companies, overcompensation of under-performing directors

and diminishing returns resulted in careful and close scrutiny of governance matters. The

inability of corporations to regulate their negative behaviours and the subsequent outcry by

stakeholders (shareholders, employees and media) have forced a level of regulation in an

area that was previously seen as wholly the domain of the private sector and a matter

between shareholders and the directors of the company.

These matters are included in the GRI Guidelines, not as part of the three-pronged

performance information for economic social and environmental indicators, but as part of

the preliminary reporting elements and disclosures about the governance structure and

management systems of the company. These areas in the GRI Guidelines reflect much of

the content introduced recently into legislation in Australia and the USA. Although not

specifically included in the disclosure scores for this study, a number of companies did have

disclosures about corporate governance measures.



Appendix 3

Additional Measurement Information



Historical Cost Method (HC)

This method has a reliance on the dollar amount of the transaction at the first recognition

of the element. The method assumes no change in the significance of the unit of measure

and ignores the time-value of money, thereby loosing relevance in times of inflation. For an

environmental cost, for example clean-up costs, the value shown would be the amount

actually spent or predicted to be spent, regardless of the timing of the clean-up. At the very

least this method could be used for the more common environmental costs such as fines,

restoration cost, rehabilitation costs, changing production processes, waste removal, waste

or product recycling and the like. Such matters as the cost or penalty imposed by acid rain,

global warming, changes to biodiversity as effluents pollute the landscape and rivers are not

easily given a monetary value, so a technique such as historical cost may not be

appropriate.

Replacement Cost Method

There are two broad categories of replacement cost: firstly the cost of replacing an asset

with an identical asset and secondly the cost of replacing the operating capacity of the asset.

This method solely relates to the measurement of non-current assets and does not affect the

measurement of monetary assets. It does not have any relevance in the measurement of

liabilities. This method has been used to value environmental goods, but studies have

shown some difficulty in determining replacement environmental goods.

Current Cash Equivalent (CCE)

This method is primarily pertinent to the measurement of assets rather than liabilities. This

approach is the current market price or net realisable value of the asset. The measurement

is based on the selling price less any cost, in an orderly market. The closest value that could

be determined for the measure for an environmental good, may be a willingness to accept

valuation, but may be difficult if no market exists.

Net Present Value (NPV)

NPV can be used to measure both assets and liabilities. This technique is based on isolating

the relevant cashflows and then discounting them to reflect the time value of money. As a

measurement technique it can lack verifiability. Despite this, its supporters argue that in an



informed, active and efficient market, the NPV of future cashflows of assets should be the

same as their market price, since the market price impounds the future cashflow

expectations of all market participants to form an objective measure. In terms of the

environment, discounting is a very real problem. Not only does this method rely on market

values for cashflows which are difficult to ascertain for social and environmental impacts,

the cashflows are then discounted back to present value, resulting in some value that has no

real relationship to the value of the environmental or social good. The discounting

approach is not appropriate for environmental goods, as the implication is that the item is

of less value today than in the future. This approach does not take into consideration the

fact that some environmental goods increase in value over time, thus discounting cashflows

to present value seems an anomaly.

Net Realisable Value (NRV)

Net realisable value is the amount the asset can be sold for less any cost of getting it into a

saleable condition and any selling costs. This method differs to the CCE method in that

CCE deals with the sale of the asset in its current condition. NRV is based on the sale of the

completed condition and was originally developed for the measurement of inventory.

Lower of Cost and Net Realisable Value Method

This method combines two methods, HC and NRV, requiring the preparer to adopt the

more conservative approach. This method tends only to be used for inventory, and is the

mandated approach in the AASB102 and the International Accounting Standard IAS 2.

Recoverable Amount Method

In Australia, this amount has generally been used as an upper limit to be compared against

other measures and has been limited to non-current assets, although it can be applied to

other assets as well. In the Australian Accounting Standard AASB116 the recoverable

amount of an asset is defined as the “higher of an asset’s net selling price and its value in

use” (para. 6). “Value in use” is defined in AASB136, para. 6 as “the present value of the

future cash flows expected to be derived from an asset”. As the recoverable amount of an

asset is effectively the value that the firm gets from the use of the asset, it would be difficult

to put this into place for environmental assets. Air and water are undoubtedly assets to all

companies. For example clear running water in a stream is crucial for whisky stills, yet this



is not placed in the balance sheet as an asset. Many companies insist on placing goodwill

and intellectual property as assets in the balance sheet but are hesitant to give

environmental and social goods and services the same consideration. Value through use for

an asset makes a lot of sense, and translating this into a dollar amount for environmental

and social goods may be as ‘easy’ as predicting future revenues from use of these goods.

The major arguments to booking environmental assets are based on whether the entity has

exclusive control over the asset and what dollar amount to place on it. Exclusivity is not an

issue. The definition of an asset is still only part of the conceptual framework, the rules of

which are not required by law. There are many examples of companies that include assets

in their balance sheet where they do not have control over the assets. Prime offenders are

companies in the extractive industries, tending to make considerable investments in

infrastructures surrounding their areas of interest (mine sites). Such costs as the betterment

of public roads to access mine sites, increases in township support systems and the like, are

not exclusively controlled by the company, yet they still insist on reporting these costs as

assets in their balance sheets.

Applying the term ‘easy’ to the process of determining a dollar amount for environmental

and social goods was not used irresponsibly. It is not unusual when determining valuations

for assets for accountants to make predictions about future revenues and costs, thus

application to some environmental goods should not be the overwhelming task it is made

out to be.

Fair value (FV)

Fair Value is defined as “the amount for which an asset could be exchanged, or a liability

settled, between knowledgeable, willing parties in an arm’s length transactions” (AASB116

para. 6). This is not really a measurement base but rather a measurement technique. Fair

value measures are easily determinable in active markets, but this not feasible in cases

where an active liquid market for the asset does not exist. A derivative form, net fair value

is also used in some standards to mean FV less expenses involved in selling the assets, and

for liabilities FV plus the cost of settling the liability. Where an active market does not exist,

proponents of this technique advocate the use of estimates in the form of prediction of

future cash flows. Again, the business world will happily accept estimates for what are

perceived to be traditional business goods but baulks ate the notion of estimates for

environmental goods.



Net Market Value

This definition is similar to the definition of Net Fair Value of an asset, the major difference

being the disposal of an asset in an “active liquid market” although there is no requirement

for an “arm’s length transaction”. Interestingly, these qualifiers are not necessary in this

definition as the market price in an active liquid market easily reflects the price established

by knowledgeable willing buyers.

Marking-to-Market

This method is best suited to financial instruments that are traded on the securities market

(for example, debentures, shares, and options). Under the marking-to-market technique, the

financial instruments are revalued to their market price at balance date. This seems to be a

measurement technique rather than a measurement base. It is generally associated with

financial assets, liabilities and equity instruments. This technique could be applied to

environmental and social goods as it is similar to willingness to accept valuation methods.



Appendix 4

Environmental Policy in Australia



Environmental policy in Australia

The history of the environmental policy in Australia has seen many stop-start motions

dependant on the political leanings of the incumbent party in power. Prior to the 1980’s the

environmentalist movement saw little success in educating the public about the social and

environmental damages caused from extensive logging and woodchipping of Australian

native forests. There was some coverage of issues such as loss of natural forest areas and

threats of job losses as a result of the logging. Nevertheless the ignorance of the general

public to the issues and disjointed efforts by environmentalist groups did not help the

movement, nor did the massive and glossy media campaign undertaken by the timber

industry (Davis, 1992). The main areas involved were the Tasmanian region where logging

continued unabated. When it came time for the forestry industry to apply for renewal of

woodchipping export licences in the early 1980’s, a different picture emerged. Davis (1992)

claims that by this time the conservation movement was more adept and in an attempt to

protect the Tasmanian forests, used the media and the Environment Protection (Impact of

Proposals) Act (1974) to question industry statements and to claim community value of the

forests. Up until this time environmentalist groups had undertaken piecemeal action to

protect environmentally sensitive areas, with little support from governments. Educating

the public had proved an onerous and thankless task and the lack of political and media

acumen of these groups was affecting their viability as protectors of the environment.

Intervention by the Federal Government was needed and came, when it finally invoked the

World Heritage Properties Conservation Act in 1986. This did not deter the Tasmanian

government from testing the sovereignty of the Commonwealth act over Tasmanian forests

in the High Court and now over two decades later the case of the Tasmanian forests and

woodchipping has not been settled to anyone’s satisfaction. Indeed in 1998 the newly

elected Labor State Government in Tasmania commemorated its electoral win by doubling

the rate of woodchipping in that State. These acts are indicative of declining government

regard towards the environment and crystallise the perception that the federal and state

governments had up until this time not been proactive in taking on board environmental

policy.

The 1980’s in Australian environmental policy have been described by some as the golden

years for the environment and by others as an aberration form the norm, as it saw the

emergence of several important legislative changes to protect the environment. The change



in government focus was foreshadowed by the controversy and opposition to the proposed

hydro-electric scheme in Tasmania by Tasmania’s Hydro Electric Commission. The

resultant Commonwealth World Heritage Properties Protection Act 1983 legitimised the then

Labor Government’s anti-dam policy and in terms of legislative control reinforced the

Commonwealths power to make environmental protection legislation over the States’

dominion on land use. This next decade saw Federal government policy taking into

consideration the environmental concerns of environmentalist groups and along with the

Tasmanian dam decision and protection of Tasmanian forests, legislation was enacted to

protect other land sites on the Australian continent. Further legislation to protect the

wilderness regions of from woodchipping in Victoria and New South Wales resulted.

Commonwealth protection has also been granted to rainforests in the state of Queensland

and for the curtailment of mining at the Kakadu National Park in the Northern Territory

(Boer and Preston, 1987; Papadakis, 1993).

The issue of why these changes happened has been considerably debated, with some

references to the fact that the Hawke Federal Government’s historical affiliation with trade

unions may have been a contributing factor to these actions. This would conform to

Martin’s (1984) view of labour-based methods or strategies that environmentalists use for

action about the environment. Economou (1999) applauds this willingness by the Hawke

Federal Government to embrace an environmentalist stance as a change in political

thinking from a “developmentalist blue-collar approach” to a more sophisticated approach.

The next period saw more policy changes, but this time in the opposite direction. What had

been a growth period for environmental policy saw a deterioration take place. A

constriction in the regard for the environment starting with the Keating Federal

Government (Labor Party) due not so much because of ideological reasons but more from

neglect and a focus on other matters, regressing to even further deterioration with the next

change in a Liberal Party Government. These government changes from Labor Party to

Liberal Party bring about fluctuating fortunes in the environmental movement. Australian

environmental policy in the past several years has been neither progressive nor sympathetic.

Hooper (1990) reported that in a meeting between Australian government ministers and

senior executives of the major companies, one of the central considerations affecting their

investment strategies was uncertainty about environmental policy and their effect on long-

term investment.



Environmental policy formation had changed in Australia. The importance of

environmental policy formation had diminished and changed becoming more a metapolicy

involving debates amongst institutional players about how to improve polices on the basis

of past experiences (Economou, 1999). Examples of metapolicy or ex post regulation can be

seen in Europe, with instances of industrial self-regulation being initiated by acts of

government environmental policy and implementation, which were made redundant

because of actions of firms in anticipating the new measures (Jacob and Jänicke, 1998 as

quoted in Matten, 2003). Environmental politics is fraught with instances of ‘symbolic

politics’ (measures which are announced but are merely rhetoric or target a signalling

effect) that are at the very worst, a failure in politics, or at the very best, an initiating

processes which governments are unwilling or unable to do (Matten, 2003).

The Federal Government’s attendance at the Kyoto Conference and the subsequent

humiliating disregard for proposed solutions, requests for an increase in emissions, means

that the Australian public and business are getting mixed messages. The devolution of

environmental policy from a Federal level down to a state and at times local government

level has meant that the present government has swept the environment away from the

national agenda. The shift from the federal level to the state level for environmental

legislation is not of itself an undesirable change. An undesirable result may occur, when

such a shift results in cash-strapped states neglecting their responsibilities, or getting into

bidding wars with other states to attract capital at the expense of the environment and of

worker justice. Yet, at the federal level, a large majority of Australian voters place the

environment high on their list of concerns, but the Australian government disregards these

concerns. Crowley and Walker (1999) note:

“Although political scientists, lobbyist and commentators have frequently announced that ‘green’ or

environmental politics has ‘arrived’ and is ‘here to stay’, not only is the hold of environmental

considerations in Australian politics now more precarious, but determined attempts have been and

continue to be made to ignore and obliterate them” (p. 3).

The pendulum of Australian environmental policy has swung the other way and the

environment as an issue has lost ground and sunk far beneath national priorities. As Doyle

(1999) ascertains, a major reason for this has been the focus on “market environmentalism”

where the ecosystem is seen as infinitely renewable and sustainable process, after the notion

of neoclassic economics. The Hicksian concept of income is constantly chimed by



economists, but even with this elegant definition, we as a community still think of income

as revenue that we are getting and forget what is happening to the capital base from which

it is derived, and it is depleting (Jacobs, 1993). Economic rationalism and a political system

driven by the wealth imperative means that environmentalists are outside the loop and can

only hope to maintain a vigilant watch over environmental policy performance

(Economou, 1999). Unfortunately environmental agendas debated amongst politicians

leave a lot to be desired, since many politicians don’t have the scientific expertise to analyse

the problems and they tend to see these as side issues outside the more important business

of running the economy. As such there can be no argument about the negative messages

that are sent to the business world. If the government of the day ignores international

guidelines and recommendations and relegates the environment to the role of marginal

politics, what environmental and sustainable practices can we then expect from business

which have an economic imperative to produce a profit in order to survive. Furthermore

with the political ideology of economic rationalism there is a tendency to believe in the

fairytale that the private sector will do things better. Thus more conservative governments

tend to push public resources into the hands of private companies in the hope that this will

promote economic growth and in this process thereby mobilising resources into a sector of

the economy that will abuse them.

Environmental laws and strategies affect business by imposing restrictions in some cases on

materials used, production processes undertaken and waste produced. As legal

requirements become more onerous, so too does the sophistication process of detection

agencies and individual companies. Government agencies are able to detect trace levels of

pollutants in the environment and impose the requisite penalty, hopefully deterring future

illegal practices. On the other hand technology has helped in business development of

cleaner production processes, more efficient energy use and lower waste levels.



REFERENCES for Appendix 4

Boer, B.W., and Preston, B. (1987) Forestry - reform and regeneration. Environmental Policy

and Law, 4, p. 80

Davis, B.W. (1992) Federal-State Tensions in Australian Environmental Management: The

World Heritage Issue. In K.J. Walker (ed.) Australian Environmental Policy - Ten Case

Studies. University of NSW Press, Sydney. p. 215-232.

Doyle, T. (1999) Roundtable Decision Making in Arid Lands Under Conservative

Governments: The Emergence of "Wise Use". In K.J. Walker and K. Crowley (eds.)

Australian Environmental Policy 2 - Studies in Decline & Development. UNSW Press,

Sydney. p. 122 -141.

Economou, N. (1999) Backwards into the Future: National Policy Making, Devolution and

the Rise and Fall of the Environment. In K.J. Walker and K. Crowley (eds.)

Australian Environmental Policy 2 - Studies in Decline & Development. UNSW Press,

Sydney. p. 65-80.

Hooper, N. (1990) Cabinet begins to see past the trees. Business Review Weekly, 19 October

1990, p. 30-31.

Jacob, K., and Jänicke, M. (1998) Ökologische Innovationen in der chemischen Industrie:

Umweltentlastung ohne Staat? Eine Untersuchung und Kommentierung zu 182

Gefahrenstoffen. Zeitschrift für Umweltpolitik und Umweltrecht , 21(4), p. 519-547,

(as cited in Matten 2003).

Jacobs, M. (1993) Environmental Economics, Sustainable Development and Successful Economies.

Occasional Publication No. 4. Resources Assessment Commission, 29 October 1992,

Canberra.

Matten, D. (2003) Symbolic politics in environmental regulation: corporate strategic

responses. Business Strategy and the Environment, 12, p. 215-226.

Papadakis, E. (1993) Politics and the Environment: The Australian Experience. Allen and

Unwin, Sydney.

Walker, K.J. andCrowley, K., (1999) (eds.) Australian Environmental Policy 2 - Studies in

Decline & Development. UNSW Press, Sydney.



Appendix 5

Alternative Valuation Models



Alternate Valuation Models

Approaches Name of Model Commentary

Change in Productivity and

• Environmental costs or impacts are measured or ascertained by changes in productivity and the outcomes of productivity.

• For example a value would be calculated for the benefit that would include noise control as compared to the cost incurred to reduce the noise levels

Change in Income Techniques

• Evaluating and measuring the deprivation of income due to loss of work from long-term ill health, long-term illness or death caused by environmental effects such as pollution.

• The money value is then the change in labour inputs to production in the form of wages, or reduction of income due to lost production.

Replacement Cost Technique

• This method is very similar to the accounting usage when determining the replacement cost of asset, but rather than the cost of a physical man-made asset, it focuses on the replacement of the environmental good of service

• The method is versatile. - Has been used to determine such

values as the cost of replacement and repair of public assets such as roads, rivers and water storages affected by land degradation and the cost to restore strip-mining sites to their original condition.

Market Value Approaches

Employs a market method in valuing the environment in terms of willingness to pay (WTP) for an environmental good. WTP looks at the value a consumer puts on a product which they presently do not have or are receiving for free and which they would pay for in the future.

Preventative-expenditure technique

and

Relocation-cost technique

• These methods measure the expenditure undertaken to prevent an environmental bad/damage from occurring. Both methods are similar in that they cost the activities to maintain current levels of enjoyment or output.

• Examples include calculating the cost of the monetary loss of a stream which is a fishing destination or measuring the benefits of tree cover to avoid increasing salinity levels that could potentially involve increased household spending (Greig and Devonshire, 1981).



Travel Cost Method

• Means of determining or estimating the willingness to pay for recreational activities.

• Activities include facilities provided at recreational sites such as national park, lakes etc which are far enough away to necessitate that people are required to drive or fly to the area to enjoy the recreational facilities.

• Method involves using distances travelled and expenditures undertaken for the traveller to arrive at the recreational centre.

• Can also be determine the values of site characteristics such as scenic views, quality of paths and facilities available

• Useful in the valuation of the housing market (see also next section).

Property-Value Technique/ Hedonic Property Values

• Property prices reflect the value of the actual and perceived benefits of the property characteristics

• Features such as proximity and access to large roads, quality of view and noise levels are also significant determinants in the final value of the property.

• Environmental features of the property are generally easily ascertained, thus this method enables the determination of an actual money/market value for these environmental features

Wage-Differential Technique

• As well as a premium paid for geographical differences, higher wages are paid to workers in regions with higher pollution, sites with greater health risks, greater toxicity and less amenities.

• Non-physical factors that may also affect the wage rates for professional services is the lack of opportunities for job sharing and job switching

Surrogate Market Approaches

Proxy-Good

Technique

• Relies on the theoretical underpinning that a good/service with a market price may be a substitute for an environmental effect without a price. This market price could then be taken as an approximation for the value of the environmental effect.

• The proxy good may be something that already has a price as in swimming pools substituting for rivers and lakes.

• The method only values the utilitarian component of the environmental good and not the broader ‘service’ component that is provided.

• Problem in determining proxies and their comparability with environmental effect.



Contingent Valuation Method

• Valuation of a commodity which relies upon individual responses to contingent circumstances posited in an artificially structured market.

• The Contingent Valuation (CV) method has a widespread applicability and often utilises a direct questionnaire approach to seek individuals’ responses that purport to indicate each individual’s valuation of a non-market good. This is determined to be that person’s willingness to pay for an environmental good or willingness to accept as compensation for damage or loss of an environmental good or service.

• The valuations derived from the CV method are then commonly used as input benefits in a cost-benefit analysis and/or net present value analysis in project evaluation.

Trade-off

technique

• The method relies on the individual choosing between alternatives, effectively undertaking a trade-off between two items

Simulated Market Approaches

Contingent

Ranking &

Contingent

Rating

• This approach does not require respondents to specify a willingness to pay or willingness to accept, but requires that they rank alternatives in order of their preferences. The method uses a money value for the environmental alternatives and also includes a threshold for comparison. This approach is not in common usage, nor have the techniques been fully established amongst researchers



Appendix 6

Additional Readings: Theories to explain corporate social

reporting



Theories to explain corporate social reporting

Undertaking of corporate social disclosures

As noted in Section 2.3.2, corporations may gain from social and environmental disclosures

by raising their visibility amongst stakeholders. A very brief overview of the major drivers

was given in Section 2.3.2, but a more detailed discussion into the major theories that

attempt to explain corporate social disclosures follow here:

• Legitimacy Theory;

• Political Economy Theory; and,

• Stakeholder Theory or Accountability Theory.

Legitimacy Theory

In understanding why firms undertake voluntary corporate social disclosures (and TBL

reporting), legitimacy theory is one of the most popular theories and is the basis for

numerous studies (see for example, Moerman and Van der Laan, 2005; Jupe, 2005; Mobus,

2005; Campbell, Craven and Shrives, 2003; Deegan et al., 2002; O’Donovan, 2002,

O’Donovan, 2001; Chu, 2001; Wilmhurst and Frost, 2000, Unerman, 2000b; Campbell,

2000; Patten, 2000; Brown and Deegan, 1999; Buhr, 1998; Neu et al., 1998; Walden and

Schwaltz, 1997; Wood, 1991; Patten, 1992; Patten, 1991; Guthrie and Parker, 1989;

Hogner, 1982).

Legitimacy is defined by Lindblom (1994, p. 2) as:

“A condition or a status which exists when an entity’s value system is congruent with the value system

of the larger social system of which the entity is a part.”

Legitimacy theory puts forward the proposition that organisations are continually seeking

to ensure that they operate within the bounds and norms of their societies (Blomquist and

Deegan, 2000). As early as 1975, Dowling and Pfeffer wrote that organisations seek to

establish congruence between the social values associated with or implied by activities and

socially accepted norms. When these values are congruent with the larger social system of



acceptable behaviour then there is “organisational legitimacy”. Legal and social sanctions

may curtail or redirect corporate behaviour so that organisational goals, output and

operations will conform to social norms. Lindblom (1983) was part of an early group of

writers (along with Preston and Post, 1975; Hogner, 1982; and Lehman, 1983) who

supported the theory that corporate disclosure reacts to environmental factors be they

economic, social or political. Lindblom (1983) examined the legitimacy of corporations as

it is manifested in their social values and as these are associated with or implied by their

activities. It should be noted that organisational legitimacy is not to be confused with

economic success or legality.

An early Australian study conducted by Guthrie and Parker (1989) investigated the social

disclosures of one of Australia’s largest corporations, Broken Hill Proprietary Company Ltd

(BHP) over a 100-year period. Guthrie and Parker (1989) gave two reasons for the

investigation, which was similar to an earlier U.S. study by Hogner (1982). Firstly to

confirm legitimacy theory as the primary rationale for disclosures, and secondly, to see

whether the Australian steel industry (through a study of BHP) would yield similar

disclosure results as an US Steel company in the earlier study by Hogner (1982)1.

The study by Hogner (1982) examined the annual reports of the company, US Steel, over a

period of 80 years (between 1901 and 1980), with the view of establishing that corporate

social reporting was not a new practice but was, in fact, long-established, resulting from

societal forces and pressures. In the Australian study, Guthrie and Parker (1989) attempted

to match BHP’s disclosures against a data bank of significant concurrent events so as to

assess the applicability of legitimacy theory. Their study, which employed historic and

content analysis, failed to confirm legitimacy theory in five of the six variables (environment,

energy, human resources, products, community involvement and others) tested for.

Several other studies have used legitimacy theory to explain the use of corporate social

reporting to convey certain messages (see for example, Jupe, 2005; Adams, 2002;

1 The study by Hogner (1982) examined the annual reports of the company, US Steel, over a period of 80 years (between 1901 and 1980) and analysed the data on a year-to-year basis in terms of general narratives, statistical information, yearly comparison and nature of activities. Hogner had speculated that these disclosures by US Steel were linked to legitimacy theory, but did not fully test the relationship.



O’Donovan, 2002; Warsame et al., 2002) to respond to specific environmental performance

threats (Warsame et al., 2002; Deegan and Rankin, 1996; Patten, 1992) and to examine

mandatory environmental disclosures against subsequent performance (Mobus 2005).

Corporations that do not respond to stakeholder pressures and social expectations risk

losing legitimacy (DiMaggio and Powell, 1983). Yet a corporation can achieve legitimacy,

not by moving towards society’s expectations and values, but by moving society towards

the corporation’s values and agendas. When companies produce voluntary reports that

communicate positive organisational moves, then this contributes to defining sound

practices and in promoting legitimacy by creating messages of good faith (Mobus, 2005).

It could also be argued that corporations may attempt to influence public perceptions about

their behaviour by undertaking advertising campaigns, voluntary disclosures and public

relations exercises in order to change negative perceptions (both correct and incorrect)

about the corporation. Along these lines Guthrie and Parker (1990) also maintain that

reports produced from the accounting system act as tools in constructing, sustaining and

legitimising the economic and political agenda contributing to the organisation’s agendas.

At times environmental disclosures don’t fare any better either: Deegan and Rankin,

(1996), Patten, (2000) and Patten (2002) suggest that these type of disclosures are used as

manipulative devices rather than as a representation of actual environmental performance.

Remaining consistent, Patten (2002b, p. 772) notes that the finding that “worse

environmental performance is associated with greater environmental disclosure supports

arguments that the level of social disclosure is a function of the exposure a company faces

to the social/political environment”.

Just as increased external scrutiny can affect disclosures (Waddock and Graves, 1997), so

too can size of the corporation (Mobus, 2005; Yongvanich and Guthrie, 2005; Barut et al.,

2003; Orlitzky, 2001; Adams et al., 1998; Hackston and Milne, 1996; Blacconiere and

Patten, 1994; Patten, 1991; Guthrie and Parker, 1990; Cowen et al., 1987; Trotman and

Bradley, 1981). Larger companies do behave more socially responsibly than the smaller

companies as a response to the attention they get from external stakeholders (Waddock and

Graves, 1997) and large publicly-owned companies disclose more social and environmental

information than their privately-owned counterparts (Cormier and Gordon, 2001). Yet, the

size or success of the organisation can actually hinder legitimacy as the corporation

presents a more visible target and societal expectations can increase. Environmental



pressure groups are also more likely to target large firms rather than smaller firms which

could be a reflection of society’s expectation that large companies will be good corporate

citizens (Bewley and Li, 2000). Arguably the corporate response to these expectations

would be to choose a level of performance and a level of disclosure that it is comfortable

with.

A company’s legitimacy is put under pressure by environmental and human accidents and

social pressures to change policy. These legitimacy variables may be instrumental to

increased environmental disclosures (Deegan and Rankin, 1996; Patten, 1995; Patten

1992). A major environmental accident, the Exxon Valdez spill in Alaska in 1989, was used

by Patten (1992) to identify whether the Exxon Valdez spill had any effect on other

corporations in the petroleum industry. He investigated the increasing environmental

disclosures in the annual reports of the Aleyeska Pipeline Service Corporation immediately

after the Alaskan spill in an attempt to prove legitimacy theory. Patten(1992) found that

there were increased environmental disclosures in the annual reports after the accident.

This supported legitimacy theory, as public perception - not only relating to Exxon and the

spill, but to the oil industry as a whole - affected the disclosures of firms in that industry.

Bucholz (1993) notes that it is now acknowledged that corporations cannot act as if they

operate in a social vacuum, and Shrivastava (1995a) explains that activities of the company

must be linked to sustainability and environmental sustainability should become an integral

part of a corporation. Yet such matters as sustainability and incorporating inter- and intra-

generational equity into decision-making, or moving from an anthropocentric to an

ecocentric viewpoint are unlikely to occur within a capitalist economy (Gray, 1992; Gray

et. al, 1993).

In other instances, externally reported environmental events and the levels of quantity and

quality of disclosures (Shields and Boer, 1997; Walden and Schwartz, 1997; Barth and

McNichols, 1994; Blacconiere and Patten, 1994) show a positive relationship. Furthermore

in determining whether legitimacy theory may be an explanation for corporate social and

environmental disclosures, Campbell et al., (2001, p. 558) note that the annual report may

be a limited resource in looking at voluntary disclosures: “The distorting effects of

perception (of legitimacy-threatening factors) and the increase in choices of disclosure

media partly explain the mixed results (in their study) and …. it is suggested, challenge the

usefulness of future ‘annual-report only’ studies”.



Thus, is an unambiguous and uncontestable link between legitimacy factors and voluntary

disclosures possible through the examination of TBL reports, which are a manifestation of

a company’s motivation? Gray et al., (1995), identify legitimacy theory and the associated

notion of a social contract as the dominant theory that has emerged in explaining reasons

for corporate social and environmental reporting practises but not as the sole reason.

Political Economy Theory

The other main theory to explain corporate social reporting is political economy theory,

which “explicitly recognises the power conflicts that exist within society and the various

struggles that occur between groups within society” (Deegan, 2002, p. 292). Political

economy theory, is grounded on the notion that organisations are part of economic,

political and social systems and their dealings cannot be isolated but must be studied within

the framework of these systems (Jupe, 2005; Blomquist and Deegan, 2000; Gray et al.,

1995).

From a theoretical perspective, political economy theory has derived from classical political

economy and views corporate social disclosures as an attempt to legitimise the capitalist

system when it’s dominance is threatened by the very groups which are required to support

it and are exploited by it (Unerman 2000b). Thus political economy theory is based on the

premise that the relationship between the social and organisational world is dysfunctional,

thereby creating elitist structures controlling power. MacIntosh (1990) used the political

economy theory in a study of the disclosures in IBM reports, and was able to identify four

types of coercion variables - power was one such variable and was wielded to maintain

control and to shape community expectations to the value system of the corporation.

Buhr (1998, p. 165) used both legitimacy theory and political economy theory to explain

environmental disclosures and, of the latter theory, she wrote that “accounting systems act

as mechanisms used to create, distribute and mystify power”. Interestingly, in the study

conducted by Buhr (1998) to investigate the social disclosures of Falconbridge (a mine and

smelter company in Ontario, Canada) during the period 1964 – 1991, she concluded that in

the case of Falconbridge, legitimacy theory was better than political economy theory at

explaining the disclosures. Yet, parts of her concluding comments make for an interesting

evaluation of the management at the smelter company:



“while it would be highly naive to impute management of Falconbridge with a neutral

mindset and completely objective disclosures, it seems as though the company’s

approach to annual report disclosures is as without guile as their approach to sulphur

dioxide abatement” (Buhr, 1998, p. 186).

The results of several studies (Adams and Harte, 1998; Adler and Milne, 1997; Guthrie and

Parker, 1990; Tinker and Neimark, 1987) have used and supported political economy

theory, with the Guthrie and Parker (1990) study showing that there was a tendency by the

communicator to set the agenda in corporate social disclosures. On the other hand, political

economy theory could not provide a plausible explanation for the corporate social

disclosures of Shell during the years 1897 to 1914 in a study conducted by Unerman

(2000b)2.

Does legitimacy theory or political economy theory explain the rise of TBL

reporting?

These two theories, legitimacy theory and political economy theory, would seem to be

inter-related, but the variation depends on the interpretation of the purpose of the

information content. Buhr (1998) argues that both theories serve to legitimate behaviour,

but that each school of thought has a different means and motivational viewpoint. Frost

(2003) notes that legitimacy theory implies that the corporation is an entity that reacts to

social change, whereas political economy theory implies that the corporation is an active and

powerful participant that shapes its social and political environment. Buhr (1998) claimed

that the distinction between the two theories was that legitimacy theory was played out at

the micro level while political economy theory was at the macro level. Political economy

theory could be used to account for the rise of TBL reporting which has come about at the

macro level through a meeting of major corporate supporters, powerful NGOs and large

stakeholder bodies (GRI, 2004).

Yet, Gray et al., (1995) argue that, whilst these theories may represent a variety of views,

the theories are complementary rather than competing with each other, and making such a

distinction “is a moot question” (Gray et al., p. 56).

2 Unerman (2000b) concluded that neither political economy theory nor legitimacy theory were adequate explanations for the corporate social disclosures of Shell during the period under investigation.



Stakeholder Theory (or Accountability Theory)

Freeman (1984) introduced modern stakeholder theory to the field of business and society,

and linked stakeholder interests to corporate strategy. Freeman’s definition of

“stakeholder”, that is “any group or individual who can affect or is affected by the achievement of

the organization’s objectives” (1984, p. 46), is part of the basis of stakeholder theory. This

theory focuses on the moral right of stakeholders to access organisational information and

disclosures. In its simplest form it does not, however, give emphasis to the power struggles

or conflicts between the stakeholders and the organisations. Yet stakeholder theory does

recognise the dynamic and intricate relationships between companies and their

stakeholders and that these relationships entail responsibility and accountability (Gray et

al., 1996).

Stakeholder theory (Freeman 1984) represents a marked theoretical progress in bringing

ethical considerations into the organisation, yet work is still needed in this area as little has

been done to develop normative-based principles for corporations (Phillips, 1997; Freeman,

1994; Donaldson and Preston, 1995).

Under this theory, the continuing existence of the organisation depends on the approval of

stakeholders, the more powerful the stakeholders the more the corporation will need to do

to adjust its activities to gain their approval (Gray et al., 1995). That this is similar to

legitimacy theory is not a coincidence, as both stakeholder theory and legitimacy theory

have developed and are derived from the broader social and political theories (Moerman

and Van der Laan, 2005) or political economy theory (Deegan 2002; Gray et al., 1996).

By using Fortune magazine’s reputation index Hammond and Slocum (1996) considered

the implications of the firm’s reputation and stakeholder expectations. Their findings led

them to conclude that firms which delivered financial results in accordance with

stakeholders expectations were perceived as more socially responsible, as there was a

perceived link in the ability of management to reduce costs.

When considering the relationships between organisations and their stakeholders, a closer

analysis of the functioning of the parties and their access and rights to organisational

information does, in fact, bring to light the disparity in the power over information (Neu et

al., 1998; Ullman, 1985). The inequality between organisations and stakeholders in terms of



control over information, is amplified by Gray et al., (1988) who note that the legislative

regime governing the disclosure of this information may not be in the public interest.

Clarification, as to whom social and environmental disclosures are targeted at, is part of the

reporting problem. Thus a ranking of stakeholders into the sub-classification of primary or

secondary is provided. A primary stakeholder is defined as “one without whose continuing

participation the corporation cannot survive as a going-concern” (Clarkson, 1995, p. 106).

Examples of a primary stakeholder include investors, suppliers, employees, customers,

governments and communities that provide infrastructure and markets (Clarkson, 1995).

The influence of reporting entities extends to the social and environmental structures and

processes that affect members of the community and, as such, accountability of

corporations would be extended to these domains too.

The Framework for the Preparation and Presentation of Financial Statements (AASB, 2004)

identifies six other categories of users of general-purpose financial information beyond the

narrow group of investors: employees, lenders, suppliers and other trade creditors,

customers, governments and their agencies and the public. This list is similar to those

examples of primary stakeholders employed by Clarkson (1995). Amalgamation of the

groups described by the AASB and Clarkson gives us the generic term “stakeholder” — an

all encompassing term to denote all persons with an interest in the actions of the company

be they financial, social or environmental, not merely the shareholder who has a financial

stake/share in the company. Thus, a determination about the audience at which these

disclosures are targeted, and the reasons these disclosures are made can be postulated.

Although non-owner stakeholders are seen as users of financial information, Goodpaster

(1991) suggested that the relationship between management and non-owner stakeholders,

though morally significant, was different to the relationship between management and

owners. Filsner and Cooper (1992) interestingly assert that the environment is not an issue

in itself for this latter group of people. They state that “environmental awareness is simply a

framework within which such issues as energy efficiency, waste management, and product

design and packaging can be examined. Ironically perhaps, it is likely that the profit motive

will be more effective in furthering the green cause than any amount of self-sacrifice or

ideology” (Filsner and Cooper, 1992, p. 124).



Ascertaining which groups of users that managers pay attention to, is also important. In

this regard, Mitchell et al., (1997) developed a model to identify the most important

stakeholders of the entity based on one or more of the three attributes power, legitimacy

and urgency at the time of reporting. The findings of Agle, Mitchell and Sonnenfeld (2000)

confirmed that these stakeholder attributes (developed by Mitchell et. al., 1997) do affect the

degree to which top managers give priority to competing stakeholders. Thus, for example

stakeholders or users who wish to evaluate the level of pollution emitted by a businesses

after a major industrial accident would have attributes of urgency and legitimacy and thus

the disclosing company would attend to information about these consequences of their

operations upon society and the environment. Van Buren III and Paul (2000, p. 135) note

that “while a firm has many stakeholders, not all of them are interested in its corporate

social performance. Socially responsible investors … may play the role of self-designated

monitors of corporate social performance, and so might be important in bringing more

attention to a corporation’s social behavior”.

Yet there are still the expectations of organisational behaviour requiring companies to “not

do harm” but to “do something positive”, which necessitates corporations to be more

proactive in their handling of social and environmental matters and the management of

their stakeholders. Altman (2000) found that that high corporate social performance tended

to be coupled with increased levels of stakeholder relationship and action taken by

companies to include stakeholders in social and environmental programs

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