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Chapter 15:
International
Corporate Social
Reporting
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter Topics
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Theories to Explain CSR Practices
Drivers of CSR Practices by Companies
Implications of Climate Change for CSR
Regulating CSR Practices
Global Reporting Initiative (GRI)
CSR Practices by MNCs
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Learning Objectives
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Explain the meaning of corporate social reporting (CSR).
Identify theories used to explain the CSR practices of companies.
Describe the current international trend of external reporting.
Describe the steps taken at the international level to regulate
CSR practices of companies.
Discuss the factors that drive CSR practices of MNCs.
Identify the organizations that promote CSR at the international
level.
Discuss the role played by Global Reporting Initiative (GRI).
Explain the diversity in CSR disclosures by companies at the
international level, with possible reasons for the current trends in
this area
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Corporate Social Reporting (CSR)--Background
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Also known as:
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Ecological footprint reporting
Economic, social, and governance (ESG) reporting
Triple bottom line (TBL) reporting
Goal of sustainable development
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Meet the needs of the present
Without compromising the ability of future to meet needs
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The Meaning of Corporate Social Reporting
(CSR)
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Derived from notion of organizational societal
responsibility:
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Which comes from notion of stewardship—the accountability
of management for the resources entrusted to an
organization
Accountable to shareholders and other stakeholders
(employees, creditors), and society at large
Accountability is proactive—not reactive
Example—morally irresponsible for corporations to profit by
depleting natural resources or polluting the environment
Recognize the need to take responsibility for one’s actions
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Theories to Explain CSR Practices
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Stakeholder theory
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Environmental disclosures made in response to stakeholder
demand for environmental and social information
Major problem-- fails to explain different disclosures by
similar industries in same geographic area
Legitimacy theory
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CSR is means to deal with firm’s exposure to political,
economic and social pressures
Behavior motivated by society’s perceived goals to legitimize
their performance
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Theories to Explain CSR Practices
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Legitimacy theory (continued)
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Society’s perceived goals represented by various interest
groups such as environmental public interest groups (e.g.
motivation for disclosures by other petroleum firms after
Exxon Valdez oil spill and expected disclosures from firms
other than BP after 2010 Gulf of Mexico oil spill)
Has sometimes led to increased skepticism, such as in Ireland
who has no demand for CSR, so any attempt at CSR is
questioned
Australian managers, on the other hand, consider CSR
disclosures useful for maintaining or reestablishing legitimacy
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Current International Trends and Drivers of
External Reporting
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Largely voluntary in most countries
Wide diversity based on different countries’ drivers
National culture affects CSR practices:
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E.g. Spanish culture differ from Anglo-Saxon countries closer to
Latin-European and Latin-American countries
Remember Hofstede's four societal cultural dimensions:
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Individualism vs. collectivism
Large vs. small power distance
Strong vs. weak uncertainty avoidance
Masculinity vs. femininity
Also remember Gray’s relationship between accounting values:
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Secrecy vs. transparency (e.g. Spain secretive in CSR disclosures)
Conservatism vs. optimism
Uniformity vs. flexibility
Statutory control vs. professionalism
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Current International Trends of External Reporting
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Influenced by organizational culture:
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Attitude of top management toward its stakeholders
“Tone at the top” identified in U.S. Treadway Commission
Report
Managers determine relevant audience
Foreign subsidiaries may disclose information in line with
parent—not local culture
Rate of development of CSR internationally is slow due to
cultural factors—economic, political, capitalism, lethargy,
inertia and resistance to change by accounting profession
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Regulating CSR Practices
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Significant shortcomings with voluntary CSR practices
Biased and self-laudatory disclosures—minimal disclosure
of negative environmental information
CSR practices insufficient and low in credibility—lack
independent verification of performance and selectivity
Difference between accountability and forced
accountability, where spirit of accountability may not exist
in the latter
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Regulating CSR Practices
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Problems of regulation through legislation
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Lobbying in favor of economic over social/environmental
interests may undermine regulatory enforcement
If corporate legitimizing activities successful—public pressure
for governmental disclosure legislation may be low leaving it
up to managers to control details of social reporting
Needs to be stringent enforcement mechanism (e.g. Thailand’s
social and environmental legislation hasn’t promoted more
management CSR disclosure)
Regulatory agencies weak due to dependency on expertise
and information of those they are trying to regulate
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Regulating CSR Practices
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Regulation of CSR in the United States
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Chicago Climate Exchange is the only cap and trade system for all
six greenhouse gases (GHGs) in North America
Emitting members—voluntary but legally binding commitments to
meet annual GHG reduction targets:
 If below target—can sell or bank surplus allowances
 If above target—purchase CCX Carbon Financial Instrument
contracts—tradable commodities (each contract = 100 metric tons of
CO2 equivalent and comprised of exchange allowances and offsets)
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CCX failed since:
 Governing agencies issue certificates for a fictional commodity of
emissions not emitted
 Carbon offsets are nearly impossible to verify as to legitimacy
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California and nine Eastern Seaboard states have formed Regional
Greenhouse Gas Initiative to introduce regulations on GHG
emissions
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Regulating CSR Practices
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Regulation of CSR in the United States (continued)
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SEC has taken steps to introduce greater regulatory scrutiny
“Superfund” legislation in the ’80s required corporations to
actively remediate past problems (even if not responsible for
the contamination)
“Superfund” reporting also helped more positive
environmental informational financial reporting
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Regulating CSR Practices
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Regulation of CSR in other countries and regions
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Environmental laws increased dramatically in Australia, New
Zealand, U.K., and the European Union
Environmental Protection Agency establishes behavioral
standards/enforces compliance through punitive measures
The Asia-Pacific Partnership on Clean Development and
Climate signed in mid-2005 to deploy clean energy
technology
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Regulating CSR Practices
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International Arrangements to Regulate CSR
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Bodies such as World Bank and IFAC and organizations such
as Kyoto protocol and GRI promote CSR practices
 World Bank set up PCF to stimulate development of the emissions
trading market and assist investment in carbon credits
 IFAC developed Sustainability Framework to influence the way
organizations integrate sustainability
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SO 26000: 2010 provides guidance on social responsibility
Kyoto Protocol (2005), created under UNFCCC is a
combination of country-specific GHG emission reduction
targets and emissions trading mechanisms
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Drivers of CSR Practices of MNCs
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Climate change
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International Panel on Climate Change (IPCC) has found
concentration of carbon dioxide in the atmosphere has
increased by 35% in the past 250 years
1995-2006: rank among warmest years for global surface
temperature
2007 Stern Report in the United Kingdom on the Economics of
Climate Change: our actions resulting in climate change risk
major disruption in economic activity (e.g. could cost .5% to
1% of world GDP per annum by mid-century and could
approach to economic depression of first half of twentieth
century)
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Drivers of CSR Practices of MNCs
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Climate change—key concepts
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Emissions Trading—tradable carbon credits must be purchased or
pay a fine if certain emission limits exceeded
Carbon Footprints—represents a range of concerns about
environmental impacts and degradation
Carbon Funds and Emissions Brokerages—funds set up to purchase
carbon credits and brokerages mediate between buyers and
sellers of the credits
Clean Development Mechanism (CDM)—promotes reductions in
emissions of developing countries
Carbon Neutral—emissions offset by removal of an equal amount
of gas from the atmosphere
Carbon Tax—tax on use of fuels causing carbon dioxide and
greenhouse gas emissions—based on type and quantity—
promotes fuel efficiency
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Organizations that Promote CSR
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Kyoto Protocol
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Effective from early 2005
Created under UNFCCC
Combination of country-specific GHG emission reduction
targets and emission trading mechanisms
Companies ratifying it provide greater pollution disclosures
Global Reporting Initiative
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Formed by U.S.-based nonprofits Ceres and Tellus Institute
with support of UNEP
Developed world’s most widely used sustainability reporting
framework
Assists reporting organizations in understanding biodiversity
issues
Launched international certified training program in 2007
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Global Reporting Initiative (GRI)
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Formed by the U.S.-based nonprofits Ceres and Tellus Institute
Independent, yet remains a collaborating centre of UNEP and
works in cooperation with the United Nations Global Compact
Developed the world’s most widely used sustainability
reporting framework
GRI Sustainability Guidelines have two parts:
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Part I—provides reporting principles and guidance on content,
ensuring quality, and setting boundary
Part II—provides standards for disclosure, specifies base content,
and identifies types of disclosure: namely, strategy and profile,
management approach, and performance indicators
G3, third generation of GRI, outlines core content for reporting
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Global Reporting Initiative (GRI)
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Biodiversity—A GRI Reporting Resource (2007) assists in
understanding biodiversity issues, relationship with
organizations, and offers insight to biodiversity reporting
Other initiatives:
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GRI-Certified Training Program- to create worldwide common
understanding of the sustainability reporting process
Sponsored Global Conference on Sustainability and Transparency
to discuss issues on reporting and assurance
G4—standardized approach to reporting, encouraging the
degree of transparency and consistency
Formation of the International Integrated Reporting Committee
(IIRC)—to develop globally acceptable framework that brings
together financial, environmental, social, and governance
information in a clear, concise, consistent, comparable, and
integrated manner
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Exhibit 15.1— GRI Reporting Framework
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Diversity in CSR Disclosures by Companies
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UPS 2009 annual report states that it follows GRI
guidelines:
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GRI research indicates worldwide trend towards sustainability:
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Shows plans to cut airline carbon emissions
Shows how it responds to each of G3 indicators
Helps build and maintain brand
Strong correlation between high profitability and
sustainability in top international businesses (e.g. Coca-Cola,
Microsoft, IBM, GE and Nokia)
Senior management clearly express commitment to CSR
Hard to find examples of companies quantifying financial
cost or benefit of reducing greenhouse emissions
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Diversity in CSR Disclosures by Companies
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Items disclosed and methods of CSR disclosure vary in
different countries
Items Disclosed:
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U.S., U.K. and Australia mostly disclose human resources and
community involvement
Thailand mostly discloses employee and environmental
information
Methods of Disclosure:
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U.S. and U.K. use both monetary and nonmonetary disclosure
Australia usually discloses nonmonetary and more favorable
to company even around time of negative events:
 Also haven’t adopted compliance-with-standard style of
stakeholder reporting as in Europe
 Little reference to reporting standards or necessity of disclosure
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Diversity in CSR Disclosures by Companies
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Extent of Environmental Disclosure varies:
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Canada more extensive than U.S.
Firms from countries that ratified Kyoto Protocol seem to have
higher disclosure indices related to pollution and greenhouse
gas emissions
Japan stands out as a country with high rate of reporting on
climate change
Extent of Environmental Disclosure Varies
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Few companies report on risk of legal action or business
disruptions caused by climate issues
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End of Chapter 15
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