Corporate social responsibility (CSR) has been a buzzword for long time and is now part of everyday life in business.
The common rationale for business to be proactive in demonstrating CSR relies on its relationship with society.
For companies to remain sustainable in an increasingly competitive economic environment, they have to live up to society’s expectation of them.
They have to be socially and environmentally responsible in their business decisions and operations, in addition to pursuing higher economic performance.
Some have argued companies that have adopted this strategy have yielded many competitive advantages over their competitors, such as an increase in market share, enhancement in reputation and brand value, reduced operating costs, improvement in financial performance, increased sales and customer loyalty.
Growing affluence has given consumers the power to make purchasing decisions based on preferences for companies.
With increasing awareness about global warming and the importance of protecting the environment, consumers’ selection criteria for purchases have expanded beyond price and quality of products to factors such as companies’ corporate image and their social responsibility policies.
Companies are now especially cautious about the type of image they project to consumers as the internet has made information readily available and easily accessible globally.
The increasing power of the media, environmentalists and other activist groups are also driving forces for companies to demonstrate good social responsibility.
Accordingly, it is important for companies to be more transparent about their business activities and operating policies, through provision of non-financial information, such as social and environmental disclosures in their annual and/or other reports.
A survey conducted by PricewaterhouseCoopers in 2014 shows that investors considered issues such as CSR and climate when they made decisions about their investment strategies.
According to the survey, mitigating risk is a major factor behind investors considering corporate responsibility issues in their investment decisions.
Other significant drivers include enhancing investment returns and avoiding business corporations which demonstrate unethical conduct.
With increasing demand from stakeholders, such as investors and consumers, for information on CSR, companies have found themselves obliged to provide the details.
Companies with business activities that involve possible significant impacts on the environment are especially subjected to higher public scrutiny and to provide environmental disclosures.
In Australia, companies operating in the environmentally sensitive industries, such as the resources industry, are required by legislation to provide mandatory environmental disclosures in their annual reports.
Other companies that do not fall under this jurisdiction may disclose this information voluntarily.
Hence, CSR reporting in Australia remains predominantly voluntary, especially in relation to social issues, since mandatory reporting only applies to environmental disclosures, and is confined to companies bound by environmental regulations.
We recently conducted a study to evaluate the quality of CSR reporting in the Australian resources industry.
We collected a sample from the top 100 companies based on market capitalisation, which are listed on the resources index of the Australian Securities Exchange.
Data was collected from the annual financial reports and the standalone sustainability reports of 133 companies. We developed a scoring index to evaluate these companies’ disclosures in three aspects of CSR – economic, environmental and social.
Companies were given higher scores for disclosing verifiable disclosure items that could be identified as making a genuine contribution towards good CSR performance.
Interestingly, our study found that companies in the Australian resources industry generally made minimal CSR disclosures.
The reported items were also mostly generic disclosures that were difficult to verify.
This suggested most companies tended to take a tokenistic gesture towards mandatory requirements for CSR.
Companies were also producing vastly different disclosure items that hindered comparability.
While a range of stakeholders want to see companies improve their CSR reporting and performances, a lack of a standardised reporting framework, ambiguity in legislation requirements, and additional costs for CSR reporting and initiatives, remain as huge challenges for companies.
When companies do not disclose their CSR performances adequately, it is difficult to confirm whether their CSR practices have actually occurred.
There is still a need to increase awareness of the importance of CSR disclosure and to establish clearer guidelines on CSR reporting.
Otherwise, CSR may remain a buzzword rather than reality.
• Dr Tricia Ong, PhD
School of Business and Law
Edith Cowan University
• Associate Professor Hadrian G. Djajadikerta
Associate Dean Research
School of Business and Law
Edith Cowan University