Sustainability Reporting By Mauritian Sector Organisations Accounting Essay

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Recent years have witnessed a substantial increase on social and environmental reporting (SE) issues (Gray, 2006). Concerns about climate change and changes in demographics and society in general have combined to make sustainability a mainstream issue in Mauritius.

The rising concern has triggered a recent trend organisations have moved on from the terms 'social and environmental reporting', to the more vague term, 'sustainability reporting (Adams and Larrinaga-Gonzalez, 2007).

There has been relatively little research into public sector agencies' reporting on these matters. Also, until recently, there has been little interest in ascertaining the views of preparers of account regarding SE and intellectual capital reporting (Unerman and Guthrie, 2007)

Purpose: the main aim is to investigate 'Why' sustainability reporting has been undertaken. The motivations and benefits associated with sustainability reporting, the medium used to communicate and the framework used for sustainability reporting and further who are the target groups.

Methodology: A survey of firms listed on the official market of the Stock Exchange will be carried out


There is growing concern about the social and environmental impact of organisational activities. A recent trend indicates that organisations have moved on from the terms 'social and environmental reporting' to the more vague term of sustainability reporting (Adams and Larrinaga-Gonzalez, 2007)

Over the past decades there has been increasing pressure on businesses to report on the social and environmental impact of their activities. Public bodies and companies are now more aware and responsive to sustainability issues (ACCA, 2009:3). This practice has developed from almost nothing to turn into one of the most significant manifestations of business-environment interactions and is now a major instrument in discharging accountability to a wide range of audiences. The subject is of prime importance for a small island state like Mauritius which is not gifted by nature with rewarding resources but still has placed concerns about the environment high on its agenda.

The subject of sustainability has been fashionable in corporate circles for at least twenty years (Leibs, 2007, December 1). However, traditional financial accounting reporting do not adequately provide for the measurement of social and environmental impact and consequently, there is a need for broader sustainability reporting in organizations (Yongvanich and Guthrie, 2006). A sustainability reporting can be thought of as an impact statement for the entire corporation, which is defined not only in terms of natural resources and climatological effects, but also in terms of economic and social impacts of labor practices, charitable endeavors, and governance structures (Leibs, 2007, December 1).

According to OCED (2001, pp. 5, 8) the meaning of sustainability involves 'linking the economic, social and environmental objectives of societies in a balanced way' and taking a long term perspective 'about the consequences of today's activities…meeting the challenge of sustainable development…requires that the process through which decisions are reached is informed by the full range of possible consequences, and is accountable to the public'. The Global Reporting initiative (GRI) refers to sustainability as including environmental, social and economic issues as is stated within the definition of 'materiality' and 'sustainability context' (GRI, 2007). Sustainability reporting should be a balanced and reasonable representation of the sustainability performance of a reporting organization - including both positive and negative contributions

Mauritius is one of the rare countries which has given a statutory status to CSR. CSR has been embodied in the Income Tax Act 1995 which requires all onshore companies to contribute 2% of their book profit of the preceding year to a CSR fund (Ng Ping Chen, 2009:1). Sustainability reporting is mandatory for public interest entities (which includes listed companies) after the amendment of the Financial Reporting Act (2004) in July 2009.

While the prior literature has primarily explored what organizations report (Parker, 2005), there is still a lack of research into the issue of 'why' organizations report (Adams and McPhail, 2004). There has also been little interest in examining the views of preparer's of accounts regarding SE and intellectual capital reporting (Unerman and Guthrie, 2007). Therefore the aim is to explore the motivations and benefits associated with sustainability reporting, the medium used to communicate and the framework used for sustainability reporting and further who are the target groups.

Literature review

The notion of social responsibility has been growing in importance as organisations contemplate 'sustainable development', defined as 'meeting the needs of the present without compromising the ability of future generations to meet their own needs' (WCED, 1987, p.1). At the 2000 World Economic forum in Davos, Switzerland, business leaders from around the world overwhelmingly voted climate change as the most significant issue facing twenty- first century business (Deegan, 2005). The OECD (2001, p.9) states that "The interaction between economic growth and the natural environment that supports it lies at the core of sustainable development. Economic growth contributes to higher levels of human well being, and provides the resources to address a range of environmental objectives.

Organisations' concern with sustainable development has led to interest in how organizations act and report (GRI, 2006; Gore 2006; Flannery, 2007). The lack of sustainability accountability means confusion as to appropriate methods of social and environmental accounting and reporting (Gray, 2006) and a failure to meet the needs of stakeholders, who are no longer restricted to "traditional" stakeholders, such as customers and shareholders, but can include workers, environmentalists, and other stakeholder groups (Ricceri, 2008, forthcoming).

The traditional financial accounting and reporting framework provides an insufficiency account of organisation's SE activities (Gray et al., 1993). In the past two decade research studies have identified disclosures practices around the world of sustainability reporting (Gutherie and Parker, 1989; Gray et al., 1995 b; Adams et al, 1998; Adams and McPhail, 2004; Lesson et al., 2007). However, while prior studies offer insights into the nature and extent of sustainability disclosures, what is observed is that few studies have attempted to explore sustainability practices within the public sector organizations (Ball, 2006)

There is no agreed upon specific definition for 'sustainability'. According to OECD (2001, pp.5, 8) the meaning of sustainability involves "linking the economic, social and environmental objectives of societies in a balanced way" and taking a long term perspective "about the consequences of today's activities… meeting the challenge of sustainable development… requires that the process through which decisions are reached is informed by the full range of possible consequences, and is accountable to the public".

One reason why an organisation may decide on sustainability reporting is due to the concept of legitimacy theory. Legitimacy theory provides that an organisation must comply with society's expectations if it is to continue to operate successfully. Society is becoming increasingly socially and environmentally mindful, and a failure to disclose such information may result in a company being unable to attract sufficient resources to continue its operations. (Garg 2006, p.497)

Another reason may be due to the concept of Economic interest theory. Sustainability reporting is important for an organisation as Economic interest theory determines that the managers are focus is on increasing personal wealth. The assumption which is made in regards to economic interest theory is that entities will voluntarily disclose social and environmental reports if it leads to maximisation of manager's personal wealth.. (Garg 2006, p.502)

Managing a particular class or group of shareholders may be another possible motivation for organisations to sustainability reporting. The stakeholder theory provides that an organisation needs to satisfy its most powerful stakeholders. A failure to satisfy the powerful stakeholders may result in a bad publicity, fines or loss of capital. (Garg 2006, p.501)

Motivations for sustainability reporting

Economic performance

Most businesses operate with a view to yield profits. Al-Tuwaijiri et al., (2004) observed that good environmental performance and/or environmental disclosures were, in fact, related to good economic performance. Yet, it seems that the findings obtained have been diverse for different researchers and some studies have shown that the correlation between environmental reporting and good economic performance is very immaterial (Balbanis et al., 1998).

Cost savings

As part of sustainability reporting, companies have to assess their environmental performance. This process allows management to identify inefficiencies in operations and spot areas to improve. In doing so, they may identify opportunities for cost savings (UNDSD, 2001).

Compliance with environmental regulations

According to Cordano (1993) rising penalties, fines, and other legal costs instituted the importance of acting in accordance with legislation. Businesses are increasingly aware of the need to conform to green regulations in order to avoid the threat of environmental liabilities. Thus, through sustainability reporting companies are able to show their compliance with regulations that are imposed by relevant authorities. Yet, acting in accordance with legal requirements is unlikely going to be the primary motive, given the scarcity of requirements regarding sustainability reporting disclosures and related verifications (Deegan et al., 2000).

Improve or maintain good reputation

Sustainability reporting is a way for firms to improve their image and maintain their licence to operate. Indeed, it can be considered as a promotional campaign to enhance corporate reputation and public relations (KPMG, 2005).

Research demonstrated that the majority of information available in the reports is more of a positive nature. For instance, in a study conducted by Deegan et al. (1996), it was found that the average amount of positive sustainability reporting disclosures made by their sample firms totalled to 270 words out of which negative disclosures amounted to 6 words.

Increase competitive advantage

Competitive advantage can be achieved through environmental accountability (Bansal and Roth,

2000). Through reporting, firms are able to show their commitment towards the environment and as such gain a real advantage in terms of market share over competitors that do not exhibit any such practice.

Attract personnel

Environmentally-aware corporations are more able to attract quality staff. The workforce usually demonstrates greater loyalty and job satisfaction in a business which is embracing environmental protection. An annual study of the top management graduates in European countries has graphed the increase of green criteria over the past decade. The environment is currently positioned among the four most significant factors for these former students (Management Development Review, 1997). Similarly, a study conducted by Simms (2002) found that 88 percent of British businesses believe that social responsibility of the enterprise will be more important in the future in the recruitment and retention of employees.

Attract ethical investors

The growth in ethical investment has persuaded corporations to give attention to CR (Lydenberg and Grace, 2008). As a matter of fact, various stock exchanges such as the Johannesburg Stock Exchange and the Paris Stock Exchange require listed companies to disseminate sustainability reporting information in their annual report. Such initiative aims at capturing more ethical investors who usually look for companies with positive reputation.

Good corporate governance

Corporate governance is the mechanism by which organisations are directed and controlled. Good governance makes sure that the business environment is reasonable and transparent and that corporations can be held accountable for their activities. Disclosure of green information forms part of sound corporate governance. For instance in section 7 of the Code of corporate governance (2004) which deals with Integrated Sustainability Reporting, it is stated that:

"Every company should regularly report to its stakeholders on its policies and practices as regards to ethics, environment, health and safety and social issues."

The importance of the environment is highlighted as it states that:

"Mauritius' smallness brings with it a fragile ecosystem. This means that corporations need to pay special attention to the environmental aspects of corporate governance."

Contribute to sustainable development

Sustainability or sustainable development highlights environmental and society stewardship (Porter and Kramer, 2006). It is concerned with meeting the present needs of the community without compromising future generations to do so (WCED, 1987). Indexes, such as the Dow Jones Sustainability Indexes, help to assess sustainable performance of companies by ranking them on the basis of their economic, environmental and social performance.

Ethical duty

Companies also have an ethical duty to behave in a socially responsible manner. Research has revealed that businesses that feel concerned for the environment and demonstrate good sustainability practices enjoy increased consumer purchase preference (Gildea, 1994 ; Zaman, 1996).

Stakeholder activism

Pressure groups such as customers, environmental groups, investors, and employees are said to be well aware of the environmental performance of different firms; they are interested in knowing how natural resources are being used and, if need be, take action against organisations which they believe are environmentally irresponsible (Dechant et al., 1994).

Benefits associated with sustainability reporting

"The benefits of sustainability reporting from a company point of view include improved financial performance..., enhanced stakeholder relationships, improved risk management..., as well as improved investor relations..." (KPMG, UNEP, 2006, p.7)

The potential internal and external benefits associated with sustainability reporting are as follows.

Demonstrating transparency

Sustainability reporting demonstrates a company's commitment to managing its environmental, social and economic impacts and, in doing so, establishing a sound basis for stakeholder dialogue and demonstrating transparency. (ACCA - An Introduction to Environmental Reporting)

Creating financial value

Sustainability reporting often involves the collection, collation and analysis of data on resource and materials usage, and the assessment of business processes. This process can help a company to better identify opportunities for cost savings and revenue generation through more efficient use of resources and materials. (Cormier, D. and M. Magnan, 1999. "Corporate Environmental Disclosure Strategies: Determinants, Costs and Benefits." Journal of Accounting, Auditing and Finance) and ("Sustainable Development Reporting: Striking the Balance", World Business Council for Sustainable Development (WBCSD), December 2002)

Enhancing reputation

Corporate reputation is a function of the way in which a company is perceived by its stakeholders on one or more of the environmental, social and economic dimensions. Reporting on economic, social and environmental benefits associated with operating more sustainably

Sustainability reporting can play an important role in managing stakeholder perceptions by enhancing an organisation's reputation (MacDonald & Peters, 2003), and in doing so, help to protect and enhance corporate reputation. (United Nations' Environment Program (UNEP))

Achieving continuous improvement

Internal management reporting of sustainability information focuses management attention on its approach to sustainability. External reporting causes focus not only on the integrity of the data, but also on continuous improvement across areas of reported performance. Furthermore, the establishment of publicly disclosed performance goals and quantified targets may drive internal change. (The World Business Council for sustainable development (WBSCD))

Improving regulatory compliance

Sustainability reporting may assist the company prepare itself to manage emerging areas of compliance (e.g. greenhouse gas emission data) through the establishment of appropriate reporting systems and processes. Reporting may help a company to influence future regulatory responses (e.g. minimising regulations across areas where voluntary disclosure frameworks are seen to be adequate. (Buried Treasure: Uncovering the business case for corporate sustainability ", Sustainability and the United National Environment Program (U N E P), 2001 )

Strengthening risk awareness and management

Sustainability reporting assists a company to demonstrate its commitment to effectively managing risk associated with its sustainability performance factors and to communicate its risk performance. (ACCA - An Introduction to Environmental Reporting)

Encouraging innovation

Sustainability reporting may stimulate leading edge thinking and performance, thereby enabling a company to enhance its competitiveness. For example, the development of innovative products and services may be enhanced through a better understanding of particular stakeholder concerns, needs and expectations. ("Sustainable Development Reporting: Striking the Balance", World Business Council for Sustainable Development (WBCSD), December 2002)

Enhancing management systems and decision making

Sustainability reporting may facilitate more rigorous and robust management systems and decision-making processes to better manage environmental, economic and social risks, opportunities and impacts. (The World Business Council for sustainable development (WBSCD))

Raising awareness, motivating and aligning staff, and attracting talent

Existing and prospective employees have expectations about corporate environmental, social and economic behaviour, and consider such factors in deciding whether to join or remain with an organisation. (Huisman, 2009) Publication of sustainability related information can play a role in positioning a company as an 'employer of choice'. This status can enhance employee loyalty, reduce staff turnover and increase a company's ability to attract and retain high quality employees. (KPMG, Sustainability Reporting A Guide, 2008 and United Nations' Environment Program (UNEP))

Attracting long term capital and favourable financing conditions

A growing number of investors include sustainability considerations within their decision making processes. Responding to investor expectations through the publication of sustainability related information provides a mechanism to ensure a company is aligning its communication with this stakeholder group. There is important potential flow on implications for how the company is assessed and rated by investment analysts and other members of the investment community. (The World Business Council for Sustainable Development (WBCSD)). The timeliness in the increase in sustainability disclosures is consistent with the exponential growth of ethical investment (D'Antonio et al., 2000)

Maintaining licence to operate

Companies are increasingly recognising the link between ongoing business success and their ongoing 'licence to operate', especially in the resources sector where the concept of a social licence to operate has been central for some years. Communities and stakeholders are likely to be more supportive of companies that communicate openly and honestly about their management and performance in relation to environmental, social and economic factors. (The United Nations' Environment Program (UNEP) and KPMG, Sustainability Reporting A Guide, 2008)

Establishing competitive positioning and market differentiation

In response to growing awareness of the importance of sustainability and sustainable development issues (e.g. climate change, human rights and workforce diversity) sustainability related performance attributes are increasingly being used by companies to differentiate their brand, products and/or services. ("Sustainable Development Reporting: Striking the Balance", World Business Council for Sustainable Development (WBCSD), December 2002)

Range of medium used to communicate sustainability information

Sustainability reporting occurs when a company publicises its environmental and social risks, responsibilities, and opportunities (Leibs, 2007, December 1). Various medium are used by companies to convey sustainability information to stakeholders. The annual report remains the most widely used corporate communication tool and probably the most important document in terms of the way an organization constructs its own social imagery to all stakeholders (Grey et al., 1995).The common place for sustainability disclosures, within the annual report are the financial statements, notes to the financial statements, corporate governance and director's report (Gray et al., 1995).

Recently the internet has gained popularity as medium to communicate with stakeholders and disclose sustainability information (Cooper, 2003) but firms have not yet taken advantage of its full potential as a communication tool (Bronn, 2004). A variety of media including company brochures, advertisements and product labelling are also used to disclose sustainability information (Spence and Gray, 2007; Fallan and fallan 2009).

Framework used

Recent years have seen a rapid growth in public sustainability reporting, particularly by the business community. This trend has largely been a response to stakeholder concerns about the social, economic and environmental performance of business, but it is also increasingly linked to investor interests in emerging risk-related aspects of financial performance.

The Global Reporting Initiative (GRI)

The Coalition for Environmentally Responsible Economies originally launched the GRI in 1997. The GRI is a voluntary set of guidelines for reporting on the economic, environmental and social aspects of an organisation's activities. The Global Reporting Initiative (GRI) builds upon the foundations of triple bottom line to provide a framework for reporting and social accounting.

The GRI was established with the goal of enhancing the quality, rigour and utility of sustainability reporting. The initiative has enjoyed the active support and engagement of representatives from business, non-government organisations, accounting bodies, investor organisations and trade unions. Together, these different constituencies have worked to build a consensus around a set of reporting guidelines with the objective of obtaining worldwide acceptance (Fowler, 2002).

The GRI reporting framework, which was designed through a process of multi stakeholder consultation, is relevant to companies of any size, across all industry sectors and geographic locations. The framework contains general and sector specific content that has been agreed by a wide range of stakeholders internationally to be generally applicable for reporting a company's sustainability performance.

The AA1000 Accountability Principles Standard

The AA1000 Accountability Principles Standard series are principles-based standards to help an organisation to involve stakeholders in identifying, understanding and responding to sustainability issues and concerns, and to report, explain and be answerable to stakeholders for decisions, actions and performance. The AA1000 standards are designed for the integrated thinking required by the low carbon and green economy, and support integrated reporting and assurance The AA1000 Accountability Principles are used to guide sustainability assurance in accordance with the AA1000AS (2008).

Corporate governance

Corporate governance is the mechanism by which organisations are directed and controlled. Good governance makes sure that the business environment is reasonable and transparent and that corporations can be held accountable for their activities.

Over the last two decades, corporate governance codes have been the subject of increasing interest worldwide as it is believed they contribute to better organizational outcomes, board effectiveness and efficiency, and greater investor confidence. The adoption of corporate governance code is now viewed as a central criterion by institutional investors, the World Bank, the Organisation for Economic Co-operation and Development (OECD), and the International Monetary Fund, e.g. refer to Krambia-Kapardis and Psaros (2006. p. 127) and Rueda-Sabater (2000).

The Mauritian government saw the introduction of a corporate governance code as a timely development in response to both international and national expectations.

Disclosure of green information forms part of sound corporate governance. For instance in section 7 of the Code of corporate governance (2004) which deals with Integrated Sustainability Reporting, it is stated that:

"Every company should regularly report to its stakeholders on its policies and practices as regards to ethics, environment, health and safety and social issues."

Who are the relevant target group?

The value of a company is influenced by the quality of its relationship with a range of internal and external stakeholders, be they customers, employees, investors, regulators, suppliers or other specific groups. The ability of a company to communicate its activities and performance effectively with its key stakeholders can be critical to its long term success, viability and growth. (KPMG, Sustainability Reporting A Guide, 2008)

Determining the target group and analysing this group's informational needs and interests before the actual report is written is an indispensable prerequisite for a sustainability report. Sustainability reports in the past often failed to put sufficient thought into the identification of the target groups and, therefore, failed to streamline the report's contents according to their needs

Board and senior management team

A well constructed sustainability report is a valuable information source for developing a commonly shared understanding of the dimensions of sustainability performance that may be material to the company, the needs and expectations of various stakeholder groups and dimensions of performance. Such information is important within the strategic decision making processes. (United Nations Environment Programme (UNEP) and the Global Reporting Initiative (GRI))

Investors and their advisers

Are concerned with the risk inherent in, and return provided by, their investment. Sustainability related information (including ESG analysis) is increasingly used as an input within investment decision making processes (e.g. buy, hold or sell, or feedback/influencing activities relating to a company's direction). Investors are normally the ultimate financial risk takers in a company. Addressing long-term shareholder value and maintaining a healthy base of investors remains a company's main interest (Waddock et al, 1997).


Especially those who have a long term involvement with, or are dependent on, a company, have a vested interest in its continuing prosperity. With this in mind, customers may want to know about the values and attitudes that underpin its activities and the societal risks linked to its activities, products and services.

Many customers also want to know that the products they are buying are environmentally and socially friendly. Responding to such expectations may help a company position itself as a 'supplier of choice'. (Source Adapted from KPMG 1997a, 19 )

Non government organisations (NGOs)

Often use sustainability reports as a basis for understanding companies' values, principles, attitudes, performance and goals. For example, in relation to environmental performance and protection, equal opportunities, customer related issues and human rights. (KPMG, Sustainability Reporting A Guide, 2008)

Employees and their representative groups (e.g. unions)

may be interested in information about a company's sustainability performance in order to judge if the company is a stable employer and a respected corporate citizen. They may also be interested in aggregated information about levels of remuneration, retirement benefits and the nature and extent of their employment opportunities. Many employees increasingly choose to work for companies that are contributing to society and are environmentally responsible as well as being economically successful.( Source: Adapted from 'Sustainable Development Reporting - Striking the Balance, WBCSD, 2002')

Governments and regulators

Interest in the performance of companies is broad because they require information to regulate the activities of companies and determine policies regarding competition, taxation, the environment, consumers and social affairs. Sustainability reports may enhance the credibility of a company when responding to tenders or contract opportunities, applying for tenders or trying to influence policy. Such reports may also be used as a source of data when compiling national or regional sustainability related statistics. (KPMG, Sustainability Reporting A Guide, 2008)


Sustainability information can help lenders to determine risk factors associated with the company's business practices. In recent years banks and other lenders have come under scrutiny with regards to the sustainable development impact of particular projects or other business activities in which they have invested (i.e. the 'indirect impact' of lending activities). This pressure has elevated the importance of sustainability related issues within lending assessment processes. ( Source: Adapted from 'Sustainable Development Reporting - Striking the Balance, WBCSD, 2002')


Sustainability reports can help suppliers better understand risks and opportunities that may affect their businesses, for example, by increasing their risk exposure by associating them with questionable business practices. A report can also inform suppliers of the demands they may face from the company as part of its supply chain. For example, relating to customer carbon neutral positioning and ethical behaviour. (John Wiley & Sons, Ltd and ERP Environment 2001)

The public

Companies affect and interact with the public in many ways. For example by providing employment opportunities, sourcing inputs from local suppliers and supporting community projects. The public is also potentially interested in issues such as environmental performance (e.g. noise, pollution). Sustainability reports may assist the public to better understand a company's performance and act as an information source on recent trends, developments and company activities. (George Joseph in Accounting and the Public Interest (2007))