Tag Archives: ESG Reporting

Integrated Reporting: Valuing the Financial, Social and Natural Capital

The end of year financial statements usually focus on financial capital, whereas organisational performance relies on resources – such as the expertise of people, intellectual property that was developed through research and development, and interactions with the environment and the societies in which they operate.  In this light, Integrated Reporting (<IR>) was developed to fill such reporting gaps. The IR Framework categorises different stocks of value, including; Financial Capital; Manufactured Capital; Intellectual Capital; Human Capital; Social (and Relationship) Capital; as well as Natural Capital.

 

 

The International Integrated Reporting Council (IIRC) has promoted the concept of integrated thinking and reporting. In 2013, the International Integrated Reporting Council (IIRC) released a framework for integrated reporting. By doing so, IIRC has paved the way for the next generation of annual reports that enable stakeholders to make a more informed assessment of the organisation’s strategy, governance, performance and prospects. IIRC has aligned capital allocations and corporate behaviours with the wider goals of financial stability and  sustainable development. Its framework established the following ‘Guiding Principles’ and ‘Content Elements’:

Guiding Principles

  1. Strategic focus and future orientation –gives an insight of the organisation’s strategy;
  2. Connectivity of information – provides a holistic picture of the combination, inter relatedness and dependencies between the factors that affect the organisation’s ability to create value over time;
  3. Stakeholder relationships – describes the nature and quality of the organisation’s relationships with its key stakeholders;
  4. Materiality – discloses relevant information about matters that substantively affect the organisation’s ability to create value over the short, medium and long term;
  5. Conciseness – provides sufficient context to understand the organisation’s strategy, governance and prospects without being burdened by less relevant information;
  6. Reliability and completeness – includes all material matters, both positive and negative, in a balanced way and without material error;
  7. Consistency and comparability – ensures consistency over time and enabling comparisons with other organisations to the extent material to the organisation’s own ability to create value.

Content Elements

  1. Organisational overview and external environment – What does the organisation do and what are the circumstances under which it operates?
  2. Governance – How does an organisation’s governance structure support its ability to create value in the short, medium and long term?
  3. Business model – What is the organisation’s business model?
  4. Risks and opportunities – What are the specific risk and opportunities that affect the organisation’s ability to create value over the short, medium and long term, and how is the organisation dealing with them?
  5. Strategy and resource allocation – Where does the organisation want to go and how does it intend to get there?
  6. Performance – To what extent has the organisation achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
  7. Outlook – What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
  8. Basis of preparation and presentation – How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?

The ‘Guiding Principles’ underpin the preparation of an integrated report, whilst, the ‘Content Elements’ are the key categories of information that should be included in an integrated report according to the IR Framework. There are no bench marking for the above matters and the report is primarily aimed at the private sector; but IR could be adapted to the public sector and to not-for-profit organisations. The IIRC has set out a principle-based framework rather than specifying a detailed disclosure and measurement standard. This way each company sets out its own report rather than adopting a checklist approach. Hence, the report acts as a platform which explains what creates value to the business and how management protects this value. This gives the report more business impetus rather than mandating compliance-led approaches.

For the time being, the integrated reporting is not going to replace other forms of reporting but the vision is that large undertakings, including corporations, state-owned entities and government agencies, among others, may be expected to pull together relevant information already produced to explain the key drivers of their non-financial performance. Relevant information will only be included in the report where it is material to the stakeholder’s assessment of the business. The term ‘materiality’ suggests that there are legal connotations that may be related to environmental, social and governance (ESG) reporting, Yet, some entities out of their own volition are already including ESG information in their integrated report.

In sum, the integrated reports aim to provide an insight into the company’s resources, relationships (that are also known as the capitals) and on how the company interacts with its external environment to create value.

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An Introduction to Socially Responsible Investment

Socially responsible investment (SRI) is the practice of incorporating social and environmental goals into investment decisions. Therefore, SRI is a strategy that encourages corporate practices that promote social responsibility and laudable initiatives such as impact investing, shareholder advocacy and community investing (Sparkes & Cowton, 2004; Guay, Doh & Sinclair, 2004; Schueth, 2003). At the same time, the rationale behind SRI is to consider both financial return as well as responsible investments for societal development. Its goals are based upon environmental issues, human rights, community involvement and labour relations (Ooi & Lajbcygier 2013; Sparkes, 2003; Friedman & Miles, 2001).

SRI’s professionally managed assets have emerged as a dynamic and quickly growing segment of the U.S. financial services industry (Schueth, 2003). In many cases, responsible and sustainable investments are influencing how asset managers invest in diversified portfolios (Lemke & Lins, 2014). This term refers to responsible investments that seek to avoid negative externalities. In fact, the investment portfolios of listed companies are often screened by SRI contractors (Renneboog, Ter Horst & Zhang, 2008). In fact, in recent years, SRI funds have become a popular investment opportunity. Many investors are attracted to businesses that will yield return on investment. Yet, it may appear that a large and growing segment of the population possess a spiritual yearning to integrate personal values into all aspects of life, including finance and investing (Schueth, 2003). As a result, many conscientious investors were avoiding businesses that are involved in alcohol, tobacco, fast food, gambling, pornography, weapons, contraception and abortion, fossil fuel production, and / or the military industries, among others (Logue, 2009; Ronneborg et al., 2008; Ghoul & Karam, 2007; Statman, 2000). In addition, responsible investors have become increasingly aware about the numerous instances of accounting fraud and other scandals that may have eroded their trust in corporate leadership. The areas of concern recognised by the SRI practitioners are often denoted under the heading of environmental, social and governance (ESG) issues, including social justice, human rights, anti-corruption and bribery issues and diversity on the boards (Camilleri, 2015).

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Corporate Governance Regulatory Principles and Codes

The corporate governance principles have initially been articulated in the “Cadbury Report” (Jones and Pollitt, 2004) and have also been formalised in the “Principles of Corporate Governance” by the Organisation for Economic Cooperation and Development (Camilleri, 2015a; Lazonick and O’Sullivan, 2000). Both reports have presented general principles that help large organisations in corporate governance decisions. Subsequently, the federal government in the United States enacted most of these principles that were reported in the Sarbanes-Oxley Act in 2002 (Abbott, Parker, Peters and Rama, 2007). Different governments and jurisdictions have put forward their very own governance recommendations to stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers, sometimes with the support of intergovernmental organisations. With regards to social and employee related matters, large organisations could implement ILO conventions that promote fair working conditions for employees (Fuentes-García, Núñez-Tabales and Veroz-Herradón, 2008). The corporate disclosure of non-financial information can include topics such as; social dialogue with stakeholders, information and consultation rights, trade union rights, health and safety and gender equality among other issues (EU, 2014). The compliance with such governance recommendations is usually not mandated by law. Table 1 presents a selection of corporate governance principles:

 

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Most of these principles have provided reasonable recommendations on sound governance structures and processes. In the main, these guidelines outlined the duties, responsibilities and rights of different stakeholders. In the pre-globalisation era, non-shareholding stakeholders of business firms were in many cases sufficiently protected by law and regulation (Schneider and Scherer, 2015). In the past, the corporate decisions were normally taken in the highest echelons of the organisation. The board of directors had the authority and power to influence shareholders, employees and customers, among others. Sharif and Rashid (2014) suggested that non-executive directors had a positive impact on the CSR reporting. Moreover, Lau, Liu and Liang (2014) examined how board composition, ownership, and the composition of the top management team could influence corporate social performance. However, with the diminution of public steering power and the widening of regulation gaps, these assumptions have become partly untenable (Lau et al., 2014). In many cases, stakeholders of business firms lack protection by nation state legislation. Notwithstanding, with the inclusion of stakeholders, corporate governance may compensate for lacking governmental and regulatory protection and could contribute to the legitimacy of business firms (Miller and del Carmen Triana, 2009). Schneider and Scherer (2015) argued that the inclusion of stakeholders in organisational decision processes on a regular basis can be regarded as the attempt of business firms to address the shortcomings of a shareholder-centred approach to corporate governance. The casual consultation with stakeholders is often characterised by unequal power relations (Banerjee, 2008).

Previous research may have often treated the board as a homogeneous unit. However, at times there could be power differentials within boards (Hambrick, Werder and Zajac, 2008). Boards are often compared to other social entities, in that they possess status and power gradations. Obviously, the chief executive will have a great deal of power within any organisation. In addition, the directors may include current executives of other firms, retired executives, representatives of major shareholders, representatives of employees and academics. Who has the most say? Is it the directors who hold (or represent) the most shares or does it reflect the directors’ tenures? Alternatively, it could be those who hold the most prestigious jobs elsewhere, or the ones who have the closest social ties with the chairman. These power differentials within top management teams could help to explain the firms’ outcomes. Ultimately, the board of directors will affect processes and outcomes.

A more macro perspective on informal structures opens up new questions regarding the roles of key institutional actors in influencing the public corporation (Hambrick, Werder and Zajac, 2008). Although researchers have long been aware of different shareholder types, there has been little consideration of the implications of shareholder heterogeneity for the design and implementation of governance practices. Managers and shareholders, as well as other stakeholders, have wide variations of preferences within their presumed categories. For instance, there are long-term- and short-term-oriented shareholders, majority and minority shareholders, and active and passive shareholders. In addition, the rise of private equity funds have created a whole new shareholder category, which is becoming more and more influential. The idea of heterogeneity within stakeholder categories, including diversity among equity shareholders, will become a popular topic in future governance research (Miller and del Carmen Triana, 2009). Growing shareholder activism raises questions that could have been overlooked in the past. Who runs, and who should run the company? Corporate governance does not begin and end with principals, agents, and contracts. Beyond the obvious roles of regulatory authorities and stock exchanges, we are witnessing an increasing influence from the media, regulatory authorities, creditors and institutional investors, among others. These various entities may have a substantial effect on the behaviours of executives and boards of public companies. Arora and Dharwadkar (2011) had suggested that effective corporate governance could discourage violation of regulations and standards. Jizi, Salama, Dixon, Stratling (2014) examined the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Jizi et al. (2014) implied that the larger boards of directors and the more independent ones are in a position to help to promote both shareholders’ and other stakeholders’ interests. They found that powerful CEOs may promote transparency about banks’ CSR activities for reputational concerns. Alternatively, the authors also pointed out that this could be a sign of managerial risk aversion.

Recently, many businesses have linked executive pay to non-financial performance. They tied executive compensation to sustainability metrics such as greenhouse gas (GHG) reduction targets, energy efficiency goals and water stewardship, in order to improve their financial and non-financial performance (CERES, 2012). Interestingly, the latest European Union (EU) Directive 2014/95/EU on non-financial disclosures EU directive has encouraged corporations and large undertakings to use relevant non-financial key performance indicators on environmental matters including; greenhouse gas emissions, water and air pollution, the use of (non) renewable energy and on health and safety (Camilleri, 2015b).

References

Abbott, L. J., Parker, S., Peters, G. F., and Rama, D. V. (2007). Corporate governance, audit quality, and the Sarbanes-Oxley Act: Evidence from internal audit outsourcing. The Accounting Review, 82(4), 803-835.

Arora, P., and Dharwadkar, R. (2011). Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack. Corporate governance: an international review, 19(2), 136-152.

Banerjee, S.B. (2008). Corporate social responsibility: The good, the bad and the ugly. Critical sociology, 34(1), 51-79.

Camilleri, M. A. (2015a). Valuing stakeholder engagement and sustainability reporting. Corporate Reputation Review, 18(3), 210-222.

Camilleri, M. A. (2015b). Environmental, social and governance disclosures in Europe. Sustainability Accounting, Management and Policy Journal, 6(2), 224-242.

CERES (2012). Executive compensation tied to ESG performance. The CERES roadmap for sustainability. http://www.ceres.org/roadmap-assessment/progress-report/performance-by-expectation/governance-for-sustainability/executive-compensation-tied-to-esg-performance-1 accessed on the 2nd February 2016.

EU (2014). EU adopts reporting obligations for human rights and other “non-financial” information. Lexology http://www.lexology.com/library/detail.aspx?g=41edd30b-e08c-4d26-ba6f-b87158b5ee85 accessed on the 10th February 2016.

Fuentes-García, F. J., Núñez-Tabales, J. M. and Veroz-Herradón, R. (2008). Applicability of corporate social responsibility to human resources management: Perspective from Spain. Journal of Business Ethics, 82(1), 27-44.

Hambrick, D. C., Werder, A. V. and Zajac, E. J. (2008). New directions in corporate governance research. Organization Science, 19(3), 381-385.

Jizi, M. I., Salama, A., Dixon, R. and Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601-615.

Jones, I., and Pollitt, M. (2004). Understanding how issues in corporate governance develop: Cadbury Report to Higgs Review. Corporate Governance: An International Review, 12(2), 162-171.

Lau, K. L. A. and Young, A. (2013). Why China shall not completely transit from a relation based to a rule based governance regime: a Chinese perspective. Corporate Governance: An International Review, 21(6), 577-585.

Lazonick, W., and O’sullivan, M. (2000). Maximizing shareholder value: a new ideology for corporate governance. Economy and society, 29(1), 13-35.

Miller, T. and del Carmen Triana, M. (2009). Demographic diversity in the boardroom: Mediators of the board diversity–firm performance relationship. Journal of Management studies, 46(5), 755-786.

Schneider, A. and Scherer, A. G. (2015). Corporate governance in a risk society. Journal of Business Ethics, 126(2), 309-323.

Sharif, M. and Rashid, K. (2014). Corporate governance and corporate social responsibility (CSR) reporting: an empirical evidence from commercial banks (CB) of Pakistan. Quality & Quantity, 48(5), 2501-2521.

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Call for Chapters on CSR

Corporate  Sustainability and Responsibility: The New Era of Corporate Citizenship
CSR Chapter
 This edited book will be published by IGI Global (USA)
Proposals Submission Deadline: January 31, 2016
Full Chapters Due: April 30, 2016
Submit your Chapter here.

 

 

Introduction

The contemporary subject of Corporate Social Responsibility (CSR) has continuously been challenged by those who want corporations to move beyond transparency, ethical behavior and stakeholder engagement. Today, responsible behaviors are increasingly being embedded into new business models and strategies that are designed to meet environmental, societal and governance deficits.

This book builds on the previous theoretical underpinnings of the corporate social responsibility agenda, including Corporate Citizenship (Carroll, 1998; Waddock, 2004; Matten and Crane, 2004), Creating Shared Value (Porter and Kramer, 2011; 2006), Stakeholder Engagement (Freeman, 1984) and Business Ethics (Crane and Matten, 2004) as it presents the latest Corporate Sustainability and Responsibility (CSR2.0) perspective. The CSR2.0 notion is increasingly being recognized as a concept that offers ways of thinking and behaving that has potential to deliver significant benefits to both business and society (The International Conference(s) on Corporate Sustainability and Responsibility, organized by the Humboldt University Berlin in 2014, 2016).

This ‘new’ proposition is an easy term that may appeal to the business practitioners as it is linked to improvements in economic performance, operational efficiency, higher quality, innovation and competitiveness. At the same time it raises awareness on responsible behaviors. Therefore, CSR2.0 can be considered as strategic in its intent and purposes, as businesses are capable of being socially and environmentally responsible ‘citizens’ as they pursue their profit-making activities.

 

Objective

 This book is a concise and authoritative guide to students and well-intended professionals. CSR is moving away from ‘nice-to-do’ to ‘doing-well-by-doing-good’ mantra. This contribution covers many aspects of Corporate Sustainability and Responsibility (CSR2.0).

It will include relevant theoretical frameworks and the latest empirical research findings in the area. It shall provide thorough understanding on corporate social responsibility, sustainability, stakeholder engagement, business ethics and corporate governance. It also sheds light on environmental, social and governance (ESG) disclosures and sustainability reporting; CSR and digital media, socially responsible investing (SRI); responsible supply chain management; the circular economy, responsible procurement of sustainable products; consumer awareness of sustainability / eco labels; climate change and the environmental awareness; CSR in education and training; and responsible behaviors of small enterprises among other topics.This publication will explain the rationale for CSR2.0 as a guiding principle for business success. It shall report on the core aspects of contemporary strategies, public policies and practices that create shared value for business and society.

References

Carroll, A. B. (1998). The four faces of corporate citizenship. Business and society review, 100(1), 1-7.

Crane, A., & Matten, D. (2004). Business ethics: A European perspective: managing corporate citizenship and sustainability in the age of globalization. Oxford: Oxford University Press.

Freeman, R. Edward (1984). Strategic Management: A stakeholder approach. Boston: Pitman. ISBN 0-273-01913-9.

Matten, D., & Crane, A. (2005). Corporate citizenship: Toward an extended theoretical conceptualization. Academy of Management review, 30(1), 166-179.

Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility. Harvard business review, 84(12), 78-92.

Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard business review, 89(1/2), 62-77.

Waddock, S. (2004). Parallel universes: Companies, academics, and the progress of corporate citizenship. Business and society Review, 109(1), 5-42

 

Target Audience

This book introduces the concept of corporate sustainability and responsibility (CSR2.0) to advanced undergraduate and / or post graduate students in a structured manner. It is also relevant to policy makers, business professionals, small business owners, non-profit organizations and charitable foundations.

 

Recommended Topics

• Theoretical Underpinnings on Corporate Sustainability and Responsibility;
• The Evolution of Corporate Sustainability and Responsibility;
• International Policies and Regulatory Instruments for Engagement in Corporate Sustainability and Responsibility;
• Responsible Corporate Governance and Sustainable Business;
• Environmental, Social and Governance (ESG) Disclosures of Sustainable and Responsible Businesses;
• Corporate Citizenship and Sustainable Business;
• Socially Responsible Investing (SRI) for Sustainable Business;
• Responsible Supply Chain Management for Sustainable Business;
• Responsible Procurement of Sustainable Products;
• Corporate Sustainability and Responsibility Communications;
• Corporate Sustainability and Responsibility Reporting and Digital Media;
• Consumer Awareness of Sustainable Products and Responsible Businesses;
• The Use of Eco labels by Responsible Businesses;
• Global Issues, Climate Change and the Environmental Awareness of Sustainable and Responsible Businesses;
• Corporate Sustainability and Responsibility Initiatives in Education and Training;
• Corporate Sustainable and Responsible Behaviors;
• The Business Case for Responsible Behaviors among Small and Medium-Sized Enterprises.

 

Submission Procedure

Researchers and practitioners are invited to submit on or before January 31, 2016, a chapter proposal of 1,000 to 2,000 words clearly explaining the mission and concerns of his or her proposed chapter. Authors will be notified by February 15, 2016 about the status of their proposals and sent chapter guidelines. Full chapters are expected to be submitted by April 30, 2016, and all interested authors must consult the guidelines for manuscript submissions at http://www.igi-global.com/publish/contributor-resources/before-you-write/ prior to submission. All submitted chapters will be reviewed on a double-blind review basis. Contributors may also be requested to serve as reviewers for this project.

Note: There are no submission or acceptance fees for manuscripts submitted to this book publication, CSR 2.0 and the New Era of Corporate Citizenship. All manuscripts are accepted based on a double-blind peer review editorial process.
All proposals should be submitted through the E-Editorial DiscoveryTM online submission manager.

 

Publisher

This book is scheduled to be published by IGI Global (formerly Idea Group Inc.), publisher of the “Information Science Reference” (formerly Idea Group Reference), “Medical Information Science Reference,” “Business Science Reference,” and “Engineering Science Reference” imprints. For additional information regarding the publisher, please visit http://www.igi-global.com. This publication is anticipated to be released in 2016.

Important Dates

January 31, 2016: Proposal Submission Deadline

February 15, 2016: Notification of Acceptance
April 30, 2016: Full Chapter Submission
June 30, 2016: Review Results Returned
July 31, 2016: Final Acceptance Notification
August 15, 2016: Final Chapter Submission

 

For Further Inquiries:

Mark Anthony Camilleri, Ph.D.

Department of Corporate Communication

Faculty of Media & Knowledge Sciences

Room 603, MaKS Building

University of Malta

Msida, MSD2080

MALTA

Tel: +356 2340 3742

Mob: +356 79314808

Email: Mark.A.Camilleri@um.edu.mt

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