Introduction
A sustainability report is a document that addresses the company’s performance in terms of economic, environmental, and social issues affecting the society within which operates. It goes beyond what a normal report provides. It improves an organization’s commitment to sustainable development through making recommendations that are relevant in achieving it. The consumers of such reports are both external and internal stakeholders. A comprehensive sustainability report should address transparency, traceability, and compliance with the set standards. Global Reporting Initiative’s Sustainability Reporting Framework (G3.1) provides guidelines that should be followed in sustainability reporting. The guidelines have gained prominence throughout the world and they enable greater organizational transparency. There are principles and standard disclosures that organizations may use to improve their reporting on economic, environmental, and social performance during a given reporting period of time (Laszlo and Krippner, 2009). According to Global Reporting Initiative (2010), sustainable development ensures that the resources are not overexploited leaving the future generations with nothing to depend on. Organizations have a key role to play in achieving this goal. Their initiative and commitment to sustainable development are shown to stakeholders through corporate sustainability reports.
The purpose of Corporate Sustainability Reporting
According to Global Reporting Initiative (2010), “Sustainability reporting is the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development” (Global Reporting Initiative (2010, p. 1). Many scholars take sustainability reporting to mean the same as the triple bottom line and corporate responsibility reporting.
The report should reflect on the comprehensive and reasonable sustainability performance of an organization. The initiatives undertaken by the organization to achieve sustainable development should be presented in the report. The negative and positive contributions of the company towards sustainable development should be part of the report.
According to the GRI reporting framework (G3.1), the outcomes and results related to the period covered by the report should be disclosed. The disclosures should be made within the commitments, strategy, and management approach of the reporting organization. Sustainability reports also serve the following purposes:
- The reports are used to benchmark and assess the sustainability performance of the organization. This is done based on the prevailing laws, norms, and performance standards that have been put in place.
- The manner in which the organization is influenced by the expectations of stakeholders about sustainable development is demonstrated in the report. The reporting organization may also influence the expectations and this needs to be disclosed in the report.
- The sustainability performance of an organization is compared over a given period of time. It is also compared with that of other organizations. The report, therefore, acts as a tool of comparison.
Critique of System Oriented Theories
These theories focus on information and disclosures and the role they play in ensuring a healthy relationship between organizations and their stakeholders. Organizations operate in a society that influences them and their decision-making process. They also influence society in some manner (Lilienfeld, 2000).
Political Economy Theory
This theory comprises stakeholder theory and legitimacy theory. Human life takes place within a social, political, and economic framework. These aspects define the concept of Political economy. Economic activities thrive within a political, social, and institutional framework and all economic issues should be addressed within the same framework. The theory recognizes the reports as a product of interchange between the organization and its environment. The political economy theory has two major streams. These are classical and bourgeois streams. The classical political economy theory takes into consideration class interests, structural and state roles in sustainable reporting. According to this theory, the reports and disclosures are means of declaring the stand on who controls scarce resources. The structural conflicts within the society are at the center of concern of this theory.
The bourgeois political economy theory has no consideration for structural conflicts and class struggles. It concentrates on the interactions of people within groups in a pluralistic world. The various class structures within the society are not given attention to this theory.
Legitimacy theory
This theory branches from the Bourgeois political economy theory. The organizations operating under the tenets of this theory have a major role in ensuring that they operate within the norms and bounds that are upheld by society. All activities that are carried out under these norms and bounds are considered legitimate. The norms and bounds are dynamic and organizations must be responsive to changes that arise over time. The theory has a lot to do with the notion of the social contract. Legitimacy is, therefore, attained by an organization when its value system rhymes with that of the society. The process of attaining this status is called legitimation. The social contract concept gives the expectations of society regarding the operations of an organization. This is a significant departure from the traditional measure of performance where profit maximization was the only parameter. Due to change in public expectations, organizations now addresses human, environmental, and other social issue as they are valued in society.
With the failure of an organization to meet the social contract, the organization will find it hard to obtain the necessary resources to operate within the society. Society embraces the organization based on the extent to which it meets its expectations. The implications of failure to meet social contract are enormous. The organization may face sanctions like legal restrictions on operations within the society. Lack of adequate resources provision and reduced demand for the organization’s products are also likely to happen.
The organization serves society. Providing goods and services to society is the major reason behind the establishment of organizations. However, the organization only does this role as long as it remains profitable. The organization should not forget the traditional performance measure of profit maximization. It cannot meet the social contract at the expense of profitability.
Stakeholder theory
This theory has two branches namely Ethical theory and positive theory. The ethical branch of stakeholder theory holds the premises that all stakeholders have the right to be treated fairly even if their power is not of direct importance to the organization. Stakeholders may be divided into primary and secondary stakeholders. A primary stakeholder is one whose participation in the organization plays a key role in its going concern. The secondary stakeholders are those who affect or are affected by the activities of the organization but they are not directly engaged in the affairs of the organization. They are not essential for the survival or going concerned of the organization.
The theory asserts that the benefits of stakeholders should be a priority to every organization. The interest of the stakeholders in the activities of the organization is what makes them play a role in decision making. This is according to the normative approach.
According to the positive or managerial branch of stakeholder theory, the stakeholders influence the actions of the organization (Deegan, 2009). The power and influence of the stakeholders are what determine the extent to which the organization will consider them in decision making. The power of stakeholders is measured by the degree of control that they exercise over the organization’s resources.
Reporting of Multinational Companies: Comparison
The two companies selected in this case are China National petroleum and Samsung Electronics. These are multinational companies operating in different parts of the world. They are in different industries. According to CNN Money (2013), China National Petroleum is in the petroleum industry while Samsung Electronics is in the manufacturing industry for electronics (Samsung Electronics, 2012). China National Petroleum is the biggest oil and gas producer in China and is currently operating in the global oil industry. It has been in partnership with the governments of oil-rich countries to ensure proper services are delivered to clients. Samsung Electronics is leading globally in mobile phone manufacturing and shipment garnering about 25% of the global market.
China National Petroleum Sustainability Report
The company produces its corporate social sustainability report on an annual basis. The report records what happened during the year and in and the extent to which the company’s commitment to the economy, the environment, and society.
According to China National Corporation (2012), the responsibility has a strong ground. It states that “[To fulfill corporate social responsibility is the basic premise and principle of our operations and sustainable development. CNPC strives to operate in an environmentally friendly, safer and more efficient way to continuously supply quality and clean energy and create a better life for all]” (CNC, 2012, P 6). The company values its stakeholders, both primary and secondary stakeholders. This is in compliance with the stakeholders’ theory. In its social responsibility report, the company recognizes that people are the most important resources that the world has. The company, thus, engages in responsibility operations. Caring for lives and protecting the environment are among the top priority activities that the company has. The company seeks to ensure that in the course of running a business, zero injuries and accidents are encountered, and no pollution is suffered in the environment.
They regard providing quality energy, mitigating environmental impact, and emissions as the building blocks of the company’s sustainable development. In asserting a commitment to this course, the report stated that “[We promote safe, environmentally-friendly and resource-saving operations…We continue to improve quality management in order to deliver better products and services to our customers]” (China National Petroleum, 2012, p. 22). This shows that the company seeks to inculcate a Health, Safety, and Environmental management culture. The company treats nature as the most precious resource. Promoting environmentally friendly development is one of the main agendas of the company according to their 2012 social responsibility report. The company abides by the laws, regulations, and societal norms. The company, therefore, discloses several strategies that it has in place meant to comply with G3 rules and standards. The company has put in place a committee responsible for formulating the policies for social responsibility. The company maintains a strong relationship with its stakeholders as shown in the chart below.
The company puts a high premium on the expectations and concerns of both primary and secondary stakeholders. The government, shareholders, employees, clients, consumers, communities, and other agencies are among the stakeholders that CNPC recognizes. The sustainability and social responsibility of CNCP could be summarized in the chart below
CNCP shows a high level of commitment to promoting the social, environmental, economic, and social aspects of the society that it operates in. There is a recognition of the social contract.
Samsung Electronics Sustainability Report
Samsung Electronics reports are compiled in incompliance with G3.1 guidelines developed by Global Reporting Initiative. The reports comprise the company profile, economic, environmental, and social performance indicators which are the main areas advocated under G3.1 guidelines.
The company maintains a close relationship with its stakeholders. It puts in place several communication channels like online blogs and stakeholders forums to give a chance to them to air their views and expectations about the company. This shows the way the stakeholders influence the organization. The stakeholders drive the organization into ensuring there is constant communication with them. Gathering stakeholders’ expectations and views about the organization is a big step towards sustainable development. The company’s stakeholders include shareholders, customers, NGOs, local communities, and government among others. The company considers every piece of feedback from these stakeholders and makes effort to address them under corporate policies and actions. A specialized communication department for each of the stakeholders’ groups has been put in place in order to facilitate this noble course. These departments hold forums with stakeholders to gather views from them and respond to their queries and concerns. The chart below shows the communication channels used.
There is a special committee for every group of stakeholders. This enhances communication and all stakeholders are taken care of. The stakeholders have different views based on their professional fields or social groups.
Comparing the two companies
The two companies have a lot of similarities in the manner in which they engage stakeholders in social responsibility. They divide stakeholders into different groups and each group is assigned a special committee to listen and respond to their views. However, Samsung uses online blogs and stakeholders forums in engaging stakeholders. CNCP has created a website for CSR (Environment and society) and holds forums. A CSR reporting mechanism ([email protected]) is made open to the public. Both companies use charts to show the flow of information between them and the stakeholders. The two companies follow G3.1guidelines in reporting on their sustainable development.
In reporting on the CSR activities which have been accomplished or are taking place, the two organizations used case studies. They include pictures showing various projects which are ongoing and the complete ones. They present tangible evidence of what is happening on the ground.
Managing Legitimacy through reporting by the two companies
Legitimacy means that the organization is operating within the given norms and standards. Managing legitimacy means that the organization has ensured that reporting is done according to the guidelines that have been put in place. In this case, the norms and standards are those stipulated by Global Reporting Initiative. The organizations seek to ensure that their activities are legitimate; that is they are done within the norms and set standards. Legitimacy theory argues that the organization should consider the rights of the public at large and not only the primary stakeholders. To gain or maintain legitimacy in reporting, organizations should ensure that their annual reports disclose their level of compliance with the prevailing standards.
The two organizations in their sustainability reporting have shown compliance to the rules stipulated in Global Reporting Initiative. Samsung Electronics and China National Petroleum in their 2012 sustainable reports dividend their stakeholders into several categories. Each category was assigned a special committee to address any concerns they may have regarding the operations of the company. Samsung Electronics has an online blog where all stakeholders give their views about the company. Every issue raised by stakeholders is addressed and considered in decision-making.
NCNP has a CSR reporting mechanism ([email protected]) that the public uses to give feedback about CSR activities. They also have a website for Environment and Society where they educate the public on their CSR activities.
In their reporting, the two companies use case studies to demonstrate their level of compliance with G3.1 guidelines. They use charts to show how the interest of all stakeholders in every category is addressed. The pictures of various CSR activities carried out during the year are included in the reports with descriptions on what was done at a given period in time (Wan, 2011). The strategy that the two organizations used to communicate to the stakeholders Iis also presented. This communication is used to ensure that all stakeholders are engaged in the activities of the organization.
As noted in the Legitimacy system-oriented theory, organizations should be managed for the benefit of stakeholders (Baldegger, 2012). The intention of the two organizations to benefit their stakeholders is clear in their sustainable reporting. Maintaining close interaction with stakeholders is a manner of listening to them and incorporating their views in decision-making. Consumers are rational beings and they will always choose an alternative that will benefit them. When they are given a chance to give their views, they will only concentrate on what benefits them. This means when organizations are willing to listen to and consider the views of stakeholders in decision making, they are seeking to manage the organization for the benefit of the stakeholders.
Reference List
Baldegger, R 2012, Management in a Dynamic Environment: Concepts, Methods and Tools, Springer, London.
China National Corporation (CNC) 2012, Corporate Social Responsibility, Web.
CNN Money 2013, Samsung Electronics, Web.
Deegan, C 2009, Financial Accounting Theory, 3rd Ed, McGraw Hill, New York.
Global Reporting Initiative 2010, Sustainability Reporting Guidelines, Web.
Laszlo, A & Krippner, S 2009, Systems Theories: Their Origins, Foundations, and Development, Elsevier Publishers, Amsterdam.
Lilienfeld, R 2000, The rise of systems theory: An ideological analysis, Wiley, New York.
Samsung Electronics 2012, Sustainability report, Web.
Wan, P 2011, Reframing the Social: Emergentist Systemism and Social Theory, Ashgate Publishing, New Delhi.