Effects of Social and Environmental Reporting on Stakeholder
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Published: Wed, 07 Mar 2018
Social and environmental reporting would benefit from greater stakeholder inclusivity.
The concept of corporate social responsibility (CSR) is very modern and now applies to more and more businesses. This topic piqued my interest because a lot of companies in my country have begun to adopt CSR and adopt social and environmental reporting.
I am aware of the concept of corporate social responsibility, but I did not know its social and environmental dimensions. I mostly believed that corporate social responsibility is restricted mainly to charity. The more I read about it and discuss about it with other students, the more I realized its wider usefulness.
Corporate Social Responsibility concerns actions that businesses do in order to solve problems involving the environment and society. In particular, companies in their business activities as well as in their contacts with other interested parties, bring together social and environmental concerns in a voluntary framework.
A company to be qualified as socially responsible must take into account the problems related to the protection of the environment as well as to the development, rights and quality of life of its employees and the society within which it develops. With Corporate Social Responsibility, the business environment is voluntarily regulated, to ensure respect for the problems with the help of management systems regarding the impact on the environment, the support communities in the local context and the creation of a working environment which will ensure justice and security.
Over the last five years, Corporate Social Responsibility plays an important role in both large enterprises and the European Commission, as well as in political and non-profit organizations. Several multinational or large companies try to prove that they have managed to integrate CSR in their strategy with great success.
Two levels of implementation of Corporate Social Responsibility concern the companies. The first level, known as the initial stage of maturity concerns the big enterprises in Cyprus, where Corporate Social Responsibility is part of the activities of the department of public relations and particularly the field of charity and sponsorship. The second level, known as the maturity of the business, declares that Corporate Social Responsibility is an integral part of corporate policy and strategy. At this stage, there is a department or committee which is responsible for specific activities whose purpose is the achievement of strategic objectives as well as the annual Record of Social Report exclusively for Corporate Social Responsibility.
In Cyprus, Corporate Social Responsibility is not at an advanced stage. This is because it may well be that Cyprus is a member of European Union, but the developments in the field of Corporate Social Responsibility do not show any significant progress. For Cyprus, the environmental dimension of CSR is very important because it is very relevant to tourism, which is the heavy industry of Cyprus.
For example, companies from Eastern European countries are more sensitized to Corporate Social Responsibility issues and there is indeed the desire to learn what Corporate Social Responsibility is, to see how they can adapt it to their philosophy, because they know that the global markets are asking for it.
Nowadays, experts acknowledge that the Cypriot companies focus mainly on charity activities. The downside, however, is the fact that in Cyprus, there is no plan, no growth prospects and long term commitment for actions made. In addition, social responsibility is not limited to charitable giving, but it also covers the overall compliance with the international federal state and the local laws and legislative acts as well as with the ethical standards and procedures under which the company will operate. Great importance should be given to our awareness in order to function socially responsible, i.e. to approach the issue individually rather than corporately.
Economic growth is directly related to the development of society and the environment. For example, if the sustainability of the environment is at risk, which is considered a business function, then this will directly affect the company and its financial results. The fact that CSR is an investment rather than a cost may be shown in the following way: It’s a business practice that affects consumer attitudes, depending on their shopping choices.
I believe that my involvement with this project helped me understand the importance of corporate social responsibility and how it can be applied to enterprises of my country. In particular, today the countries affected by the economic crisis and the developments that occur daily in the social and economic level, has created an environment of “increased corporate responsibility.” In this environment, companies seek to operate based on the developments occurring every day, while trying every way to reduce social risks. Based on the information available for liquidity in the economic and social level, firms must be able to understand, when they are able to avert a crisis (what happens when pop) and when to manage it successfully (this happens when the crisis is unpredictable). Corporate Social Responsibility is a strategic tool for managing the crisis.
Today, most companies have social responsibilities. The directors think that a business to respond effectively and efficiently in social issues, corporate social policy must be integrated into corporate strategy.
To assess how well the business operates in the fields of social responsibility, social auditing has been developed as a preliminary guide.
The social audit consists of a series of systematic studies and the evaluation of social performance. It is interested in social influences on quality of life rather than in the economic quality of life. The social audit/reporting, leads to social performance.
The benefits derived from a social audit are:
- It gives the information to assess the effectiveness of the programs on ecology and community development.
- The managers try to focus their attention on those activities where reports and evaluations are necessary. The existence of social audit seeks to promote concern for the achievement of social performance targets.
- It provides information that allows management to compare the effectiveness of different social programs.
- It gives the right to manage, provide information to external groups that rely on the company requirements for social performance (Cowton and Crisp 1998:120).
Based on the results of this evaluation, the company can see where improvements are needed and what methods can be applied. I hope that this may be the issue of a future work.
The field of corporate social responsibility (CSR) has expanded significantly over the last decade both at the international and European level. More and more companies engage in serious efforts to define and integrate CSR into all aspects of their business. These efforts are supported by a growing number of evidence that proves that CSR has a positive impact on business economic performance. New voluntary standards and measurement tools of service are multiplied in number in parallel with the ongoing controversy about whether and how to standardize legal requirements for CSR from the business side. The interested parties now require from the company to apologize for its performance throughout the supply chain and for a set of issues of social responsibility. All the above take place in view of a complex global economy, where there are many social, economic and environmental injustices.
In the past, the value of a company was only based on its financial performance. The interested parties now begin to understand better how the way the operational behavior affects the social, political and natural environment. The consequence of this is a growing pressure from investors, consumers and employees to the businesses, to include social and ecological criteria when taking decisions.
CSR involves two basic ideas, the responsibility for reporting (accountability and transparency). Conversely, different groups of stakeholders require from businesses to operate successfully in non-financial sectors, which include human rights, business ethics, environmental practices, corporate contributions, contribution to local community development, corporate governance and labor and discrimination issues (Edgley et al.2009) The social and environmental performance is considered now as most consistent with economic efficiency.
rights at the international level, companies need to apologize for their actions and their impact. In addition, companies are expected to disclose and “communicate” their policies and practices, which affect employees, communities and the environment. In the global economy, the companies that meet the requirements of the participants, namely the stakeholders are more likely to achieve long-term financial performance.
CSR may be involved in every aspect of business activity. A company is considered a good corporate citizen when it demonstrates a sense of commitment to various stakeholders through socially responsible practices and transparent operations.
DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY
At the international level, many practitioners in CSR seek to define the CSR concept. One of the most important of them is the World Business Council for Sustainable Development (WBCSD), a coalition of 175 businesses, which share a common commitment to sustainable development through three pillars: economic growth, ecological balance and social progress. CSR is defined as the continued commitment by the company to behave ethically and contribute to economic development, whilst improving the quality of life of employees and their families, local community and society at a general level (United Nations 2002).
In addition, global non-profit organizations have been developed to promote the concept of corporate social responsibility by offering to their members (companies) information, tools, training, consulting services for the integration of CSR in their business operations and strategy.
A significant institution is the Business for Social Responsibility, according to which CSR seems to be the realization of commercial success in ways that honor ethical values and respect people, communities and the natural environment. Through CSR, society address the legal, ethical, commercial and other expectations of the business and take decisions that fairly balance the interests of the interested parties. CSR answers why, when and how the company manages the social, environmental and economic objectives, performance and results, and the relationship among them.
In addition, CSR Wire reports that CSR aligns social values with business activities (Kuratko and Morris 2002). It focuses on social, environmental and financial performance, the so-called “triple basic principle”. The aim is to make business success while having a positive impact on society.
Likewise, CSR Europe in an effort to strengthen CSR in companies to achieve profitability, sustainability and human development, points out that CSR concerns the way in which the firm improves its social and environmental impact, so it adds value both for shareholders and for the interested parties.
The European Commission in its Green Paper in July 2001 (European Commission 2003) in an attempt to open a public debate and promote a European framework for CSR, describes it as «a concept whereby companies integrate, on a voluntary basis, in their activities and contacts with interested parties, social values and environmental worries». The Commission links CSR with the new strategic goal that was set in Lisbon for the current decade: “to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion”. (European Commission 2003).
From its part, the Economic and Social Committee (EESC), supports the European Commission. According to EESC, corporate social responsibility is a complex group of issues that must be addressed in different ways and at depth. The cultural specificities and the legal systems have a direct impact on its implementation. There are differences between geographic levels of action (local, national, European, global), among developing and industrialized countries, including large multinational companies, SMEs and small firms as well as among sectors. In addition, apart from the classic hierarchical structure within the company, there are new forms of structure and organization of work such as Listen
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part-time, telecommuting or online businesses. According to EESC, socially responsible action means that companies implement conscientiously the social rules and make efforts to build a spirit of cooperation. The voluntary decision by a company for taking action on CSR (whether this has to do with the adoption of a code of conduct or map or trademark) includes preparedness and commitment (European Commission 2004).
In conclusion, it is noticed that the concept of corporate social responsibility is associated with other considerations and concepts, a fact that facilitates its clarification. Such concepts are the approach of participants – stakeholders, business ethics, company culture, corporate governance and the status of corporate citizenship. As a new concept in the business reality, it has not yet acquired a specific, well-established definition.
In this paper, corporate social responsibility is defined as the permanent, ethical obligation of companies to combine their contribution to economic growth with the responsible use of environmental and social resources (quality of employees life, respect for human rights, participation in the development of the local community where they operate, protection of the natural environment, structure of consistent and responsible relationships with suppliers and the wider social contribution). Generally, CSR is the voluntary integration of social and environmental values in business activities within the framework of transparency and reporting required by society for companies in the modern world.
DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY
Initially, the concept of corporate social responsibility has its internal and external dimensions.
The first relates to intra business environment and includes socially and environmentally responsible practices, the combination of which aims at improved competitiveness.
Socially responsible practices include:
- investment in human capital following policies of responsible recruitment, equal pay and stock options to employees, as well as a more diverse workforce to combat discrimination. Their goal is to ensure employability and work, reduce unemployment and combat social exclusion.
- The health and safety of workers with voluntary control systems and certification schemes of management systems. Having as criteria health and safety, general procurement systems were created, based on uniform requirements regarding training and management systems, implemented by the contractors in the health and safety issues at work. For example, the procurement system of the Danish Social Security provides guidelines that determine the prerequisites for bidding tenders for cleaning companies. In addition, these criteria are included in the existing certification and labelling for products and equipment such as the Swedish system TCO Labeling Scheme, which is a voluntary label for the security of office equipment.
• The management of change in the operational environment, which now encourages the involvement of all stakeholders by providing information and consultation. The restructuring in a socially responsible manner means that the interests and concerns of all those affected by the changes and decisions are taken into consideration. At European level, this phenomenon that usually appears as a reduction in personnel or closure of a factory, is evident in many industries, including the industries of steel, coal and shipbuilding. Through CSR companies are responsible for ensuring the employability of their staff (Crane and Matten 2005:167).
The environmentally responsible practices are included in practices and policies that seek to reduce resource consumption or pollutant emissions and waste aiming at reducing the environmental impact. In this area, the environmental investments are recognized as “double profit opportunities” for both the company and the environment.
Examples include the Integrated Product Policy, an approach that allows the government to work with companies and take into account the impact of products at all stages of their life cycle (introduction, growth, maturity, decline) and urges business and other stakeholders to discuss in order to find an approach with the best cost – benefit analysis, having the effect of creating a strong framework for corporate social responsibility. In addition, EMAS ISO19000, a community management and control plan of the environment, which encourages companies to voluntarily set up management and control systems that promote continuous improvements in environmental performance. The environmental statement is made public, and it is validated by accredited environmental organizations that verify it.
Regarding the second dimension (external), the corporate social responsibility of a business extends beyond the company to the local community. A wide range of stakeholders is involved i.e. shareholders, business partners (suppliers, customers, consumers, contractors), public authorities and NGOs, representing local communities or dealing with the environment (European Multistakeholder Forum 2004).
CSR is the integration of businesses in their local environment. The way they contribute to it is through job offers, salaries and social benefits. They are involved in community problems, support charity events, sponsor cultural and sporting events. In addition, the existence of interaction with the local environment leads them to a greater awareness of the environmental protection, since a cleaner environment can facilitate the process, or attract more labour force.
Through close collaboration with business partners, enterprises can reduce perplexity and costs while increasing quality. The creation of such relationships leads in the long term to a fair price, conditions and expectations, as well as to quality, reliable delivery or execution. CSR appears in business activities at the area where the business is located. It focuses on the CSR of its suppliers or the dissemination of CSR in small or new innovative companies locally (through venture capital).
Finally, as part of CSR, the companies must offer products and services that consumers need in an efficient, ethical and environmentally friendly way. The lasting relationships with customers lead to more profitable enterprises. An important example of CSR is the concept of planning for all, even for consumers with disabilities.
The external dimension of CSR is shown in the co-operation of the business with non-governmental organizations, trade unions and public authorities on matters of vital importance, such as respect for human and labor rights in international and global supply chains (Holme and Watts 2000).
On the one hand, there are national, community, international laws and binding rules, which provide minimum standards for all. On the other hand, there are voluntary codes of conduct, which are voluntary initiatives to complement and promote international labor standards for those who adopt them, as it happens in the various productive sectors (textile, apparel trade). The effectiveness of the latter depends on the proper implementation and verification, and it should be based on ILO conventions (Declaration on Fundamental Principles and Rights at Work) and OECD (Guidelines for Multinational Enterprises) (European Commission 2004). The verification should be carried out based on defined standards that apply to organizations and individuals that carry the “social control”.
TOOLS OF CORPORATE SOCIAL RESPONSIBILITY
The growing interest of governments, society and the business world in the concept of CSR has led to a significant increase in the number of management tools, measurement, communication and rewards regarding the performance of corporate social responsibility. These institutions of CSR range from general guidelines and codes of conduct that set ambitious CSR principles, to complex management systems, control and communication tools or examination methodologies (filtration – screening) of investments. All these play a key role in providing guidance for sustainable operation, for proper quality management of the processes, systems and practices aiming at sustainable development.
SOCIALLY RESPONSIBLE MANAGEMENT
It includes codes of conduct, management standards and reporting, which help the companies to integrate CSR principles in their strategy and business operations by offering principles, sets of procedures, implementation steps, indicators and methods of measurement, evaluation and reporting.
The codes of conduct are innovative and important tools for the promotion of fundamental human, labor and environmental rights, as well as for practices against corruption, particularly in countries where governments fail to reinforce such standards (Holme and Watts 2000). They are an official statement of the principles and business practices of a company. They express statements of minimum standards and a promise of the company to maintain them and demand from contractors, subcontractors, suppliers and recipients to apply them as well.
Some examples are (Crane and Matten 2005:166):
- ILO – Tripartite declaration of principles concerning multinational enterprises and social policy.
- ILO – Declaration on fundamental principles and rights at work.
- OECD – Guidelines for multinational enterprises (MNEs).
- United Nations – Draft guidelines for companies.
Multilateral Codes of Conduct
- Ethical Trading Initiative.
- Voluntary Principles on Security and Human Rights for the extractive sector.
Model Codes of Conduct designed by NGOs, trade unions and other organizations
- Amnesty International – Amnesty International human rights principles for companies.
- United Nations – UN global compact.
The management standards are a set of frameworks, processes and practices for quality, environment, health and safety as well as the workplace itself (Denison 1990). They are internal tools for businesses and organizations to facilitate the integration of CSR into their activities on a daily basis. There are standards that focus on procedures and standards relating to performance measurement and reporting. Especially the management systems provide models and standards for the way of managing a process or an activity. Typically, large companies adopt them.
The above tools improve the strategic management and reliability of the company.
Examples of management models (Crane and Matten 2005:170):
Standards for the workplace
- Social Accountability (SA 8000) (on working conditions)
- ILO-OSH 2001-IOC – ILO “Guidelines on occupational safety and health management”
- OHSAS 18001 (health in the workplace and safety)
Quality Management Standards
- ISO 9000 (International Organization of Standardization)
- EFQM (European Foundation for Quality Management) – a model for achieving operational excellence.
- AA (AccountAbility) 1000.
- ISO CR MSS (management systems standards for corporate responsibility ISO).
Environmental Management Standards
- EMAS (Eco-management and audit scheme) – a voluntary program initiated by the European Commission.
- ISO 14000.
The reports are documents, which announce the results of assessing the social impact of a CSR policy. The demand for greater transparency and social reporting from the business side has led to a recent increase of the interest in sustainability reporting, covering economic, social and ecological aspects. These reports exist since 1970s as a supplement of the annual report (Callaghan and Elkins 1981). Nowadays, with the recognition of the importance of the ‘triple bottom line’ for sustainable development, social, ethical and environmental issues were added to the reports. Unlike financial reports, sustainability reports include a set of qualitative information, which is difficult to measure, especially in social indicators, which are still at an experimental stage.
Regarding the concept of “triple bottom line”, it should be emphasized that it is the idea according to which “the overall performance of a company is measured based on its combined contribution to economic prosperity, environmental quality and social capital” (Crane and Matten 2005:169). The European Commission (2004) itself has given special attention in this matter. In its notification on ” Communication on the EU strategy for Sustainable Development “- COM (2001) 264” it called publicly traded companies with at least 500 employees to introduce the’ triple bottom line “in their annual statements so that shareholders can measure and evaluate its performance against economic, and social and ecological criteria.
Some characteristic examples of initiatives in this area are:
- Global Reporting Initiative (GRI) with the Guidelines for Reporting (2002), which included reference files, content of reports and indicators for performance.
- AA1000s – AccountAbility – Model of results validation (assurance) by the Institute of Social and Ethical Accountability (European Commission 2004).
SOCIALLY RESPONSIBLE CONSUMPTION
In the context of socially responsible consumption social and environmental signals are used. These terms describe tools based on the market, aimed primarily at consumers and showing that the production of specific product and commercial transactions and procedures that are followed, have respected a given set of criteria and standards. However, consumers today are interested in issues of ensuring the environment, health and safety at work and respect for human rights, particularly on child and forced labor. Overall, these signs are a way to convert concern into positive action and direction of consumer behavior to social and environmental domains.
In the modern, globalized economy, the terms ‘fair trade’ and ‘ethical trade’ are dominant. The first concept refers to fair procedures, aim at supporting marginalized producers in rural industries and handicrafts, in developing countries (Phatak 1997). These objectives, which are developmental, are achieved through better access to the market, ensuring fair prices in the negotiations and stability in the revenue, by providing direct payments or prepayment. The second concept refers to activities by companies aiming at highlighting their moral, social and environmental responsibilities and promoting human rights and decent working conditions in global supply chains and production of products.
Some examples are the following (Crane and Matten 2005:170):
- FLO International (Fair-Trade Labeling Organizations) – world-class organization that sets standards and certification of fair trade.
- IFAT (International Federation for Alternative Trade) – a network of institutions, which aims to provide opportunities, information and technical support and better access to markets.
- EFTA (European Fair Trade Association) – an association of importers aiming at achieving the most fair trade effective imports, promote cooperation and information, awakening of public opinion and decision-makers.
- Belgium Social Label – Legal Framework of the Belgian government in 2001 that gave the right to companies to acquire a sign which is used in products produced in a production chain that is compatible with the rules of conduct of the International Labour Organisation.
- Rugmark Label – it concerns the production of carpets in India and aims to eliminate child labor. The participants agree to ban child labor and to allow non-communicated controls at their factories.
- Flower Label Program – aims at ensuring fair labor and environmental conditions in the industry of flower trade, such as respect for the principles of the ILO and the non-use of toxic pesticides and chemicals.
- EU ECO LABEL – a voluntary programme that started in 1992 to encourage the production and consumption of green products in Europe. It is used in products with reduced environmental impact, in compliance with established standards. These ecological standards are determined by a committee (EU ECO-LABELING BOARD) and take into account all phases of the ‘life’ of a product from the production up to its use and its dismissal.
- FOREST STEWARDSHIP COUNCIL – the international non-profit organization has launched a global program, which covers forest products and provides a credible guarantee that the product comes from a forest, whose management is assessed and certified in accordance with the agreed social, economic and environmental standards.
- PAN EUROPEAN FORESTRY CERTIFICATION – a voluntary private sector initiative which aims to promote sustainable forest management at the local and national level.
SOCIALLY RESPONSIBLE INVESTING
Through socially responsible investment (socially responsible investment – SRI) a variety of approaches, products and tools offered to the social responsibility investors is shown. The socially responsible investment has become very popular in ordinary investors, because it combines financial objectives with their concerns regarding moral, social and environmental issues. This way, it represents a powerful means to change business behaviour, by translating values into positive action and promotion of social and environmental procedures and practices (Holme and Watts 2000).
The investment for social purposes supports a specific purpose or activity and their funding through investments. Unlike donations, investors for social purposes are interested in the return of the initial investment, either through reward (for loans) or through shares.
In this kind of investment individual investors can be involved. These investors can be either individual investors who are interested in private capital investments or institutional investors for investments within a context which is shaped by institutions and organizations such as pension funds, banks, insurance and asset management companies. There are the following ways for institutional investors to follow their social and ecological values:
Through filtering (screening) which concerns the inclusion or exclusion of shares in investment portfolios based on ethical, social or ecological criteria. This can be achieved either by excluding companies involved, for example, in the production of nuclear weapons, or by selecting companies based on the evaluation of their social and environmental performance.
Through activism or the involvement of shareholders, where in this case, the investors by using their shareholder identity support their social and environmental concerns and seek ways to influence the behavior of the enterprise through consultation with the management of the compan
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