Corporate social responsibility reporting: a survey of ...

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J. International Business and Entrepreneurship Development, Vol. 6, No. 2, 2012

Corporate social responsibility reporting: a survey of listed Sri Lankan companies A.A.J. Fernando* and I.M. Pandey School of Management, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani, 12120, Thailand E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: This paper aims to collect and document evidence on the corporate social responsibility reporting practices in Sri Lanka. Data is gathered from public reports and questionnaires. A content analysis and a comparison between adopters and non-adopter on selected profitability aspects and company size are carried out. The level of the CSR reporting is not satisfactory while large firms tend to engage in CSR than other firms. The adopters are significantly different from the non-adopters with respect to return on total assets, return on equity, MCAP and revenue but not with respect to profit for the year, EPS and total assets. General perception of the CEOs is supportive for the CSR engagement. Keywords: corporate social responsibility; CSR; agency theory; stakeholders theory; legitimacy theory; sustainability; advocacy advertising; adopters; non-adopters; GRI; CSR reporting; Sri Lanka. Reference to this paper should be made as follows: Fernando, A.A.J. and Pandey, I.M. (2012) ‘Corporate social responsibility reporting: a survey of listed Sri Lankan companies’, J. International Business and Entrepreneurship Development, Vol. 6, No. 2, pp.172–187. Biographical notes: A.A.J. Fernando is currently working as a Senior Lecturer at the Department of Accounting of the University of Sri Jayewardenepura, Sri Lanka. He completed his doctoral degree in Business Administration at the Asian Institute of Technology (AIT) in May 2012. He is also a Chartered Accountant and engaged in various assignments with the corporate sector. I.M. Pandey is a Professor of Finance. Currently, he serves as the Vice President for academic affairs at AIT and was a former Dean of the School of Management of AIT. He has a wide range of teaching experience at many universities around the word and held corporate positions in various organisations including Indorama Limited, Thailand, Hindustan Petroleum Company Limited, India and Industrial Finance Corporation of India (IFCI).

1

Introduction

This is a survey study of the corporate social responsibility (CSR) reporting practices by Sri Lankan companies listed on the Colombo Stock Exchange (CSE). Financial reporting Copyright © 2012 Inderscience Enterprises Ltd.

Corporate social responsibility reporting

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has surpassed its traditional role of providing only financial information (Gray et al., 1983) and consequently, many organisations around the world show high interest in and carry out CSR reporting (Douglas et al., 2004). The term CSR generally emphasises the need for organisations to contribute to society and the environment while conducting their operations in a sustainable manner. Despite the fact that business organisations interact with society and the environment by providing goods and services, they also consume public goods freely, dump waste and damage the environment through, say, carbon emission. Negative consequences of these activities cause environmental degradation, depletion of resources, exploitation of workers, manufacturing of unsafe products and use of inappropriate materials (Bebbington et al., 1994). Hence, CSR can be viewed as a tool for dealing with such consequences and building relationships with stakeholders to minimise the negative impacts and to create sustainable value for all. The CSR reporting measures and discloses organisational performance with respect to organisational accountability towards the sustainable development. The attention on the CSR engagement and reporting has been increasing worldwide, and it is undertaken to show the depth of and focus on the CSR engagement. Hence, the CSR reporting assists stakeholders to understand the extent of the CSR engagement of companies and their contribution to the society and environment. Sri Lanka is an emerging economy in the South Asian region. CSR reporting is not mandatory in Sri Lanka as in the case of many other countries (Douglas et al., 2004). Hence, it is likely that voluntary CSR reporting by Sri Lankan firms may show structural diversity and contain disclosures varying from low to standard levels, in line with GRI G3 sustainability reporting guidelines, which are considered to be a global benchmark for sustainability reporting. Some firms may carry out CSR activities without realising that they are doing so and they do not even report them. On the other hand, some firms may try to boost the company image through CSR reporting without effectively engaging in those activities. There is hardly any research evidence on the structure and content of the CSR reporting in Sri Lanka. Hence, this study was carried out with a view to provide a basis of general understanding on current status of the CSR reporting and the management perception on CSR.

2

Research problem and objectives

Strong theoretical support for CSR has been built on the arguments that business organisations are bound with social contracts to carry out business operations in a legitimate manner while contributing towards social development (Campbell et al., 2003). The evidence shows that there is an increasing tendency to promote CSR reporting around the world (Adams and McNicholas, 2007) even though such reporting is not mandatory. CSR is believed to have the potential of winning the support of stakeholders to run the business operations (Freeman, 1984). On the other hand, it is argued that the CSR reporting is used as advocacy advertising through which firms try to build and improve the company image as a responsible citizen (Milne, 2002). However, it is not well known what the firms are really doing in the name of CSR (Blum-Kusterer and Hussain, 2001).

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A.A.J. Fernando and I.M. Pandey

Questions such as ‘what would be the consequences of the CSR reporting?’, ‘does CSR allow a firm to increase future earnings or to build the company image?’, and ‘does a firm report CSR just for social reasons or without having any reason?’ are yet to be answered. Hence, a need arises to examine various aspects of the CSR engagement and reporting in order to meaningfully deal with the phenomenon of CSR. As an initial attempt, this survey examined current status of the CSR reporting practices of listed companies on the CSE to provide a basis of understanding the extent, content and level of the CSR reporting by achieving the following objectives: •

to assess the nature and the extent of the CSR reporting in Sri Lanka

•

to distinguish the characteristics of the adopters and non-adopters of the CSR reporting

•

to assess the perceptions of the corporate managers towards the CSR engagement and reporting.

3

Literature survey

Financial reporting took a new direction with the introduction of triple bottom line accounting, which usually encourages firms to disclose not only the financial performances but also the environmental and social performance. Non-financial reporting of firms, including the CSR disclosures, has been continuously and tremendously increasing around the world in the recent past (Harte and Owen, 1991). As a result, it has increased about six-fold within a period of less than a decade (Bebbington et al., 2009). Further, the nature, purpose, content, structure and the readership of reporting have also been changing (White, 2005). However, there are some organisations that still show a reluctance to contribute for CSR (Ofori and Hinson, 2007) and disclose them, mainly for prevailing contextual reasons, such as the nature, complexities and expectations of the society, which are likely to influence the CSR engagement (Carnegie, 1900, cf. Dunne, 2009). Both external and internal variables and diverse expectations of stakeholders have the potential to influence the need, practice and disclosures of CSR (Carroll, 1979) and as a result, the CSR reporting has become a highly subjective practice (Churchill, 1974). The definition of CSR given by Gray et al. (1987) considers this broader view and emphasises the importance of the CSR engagement as a process of communicating the social and environmental outcome of organisations’ economic activities and operations to interested parties and to the society at large. Therefore, it is argued that the CSR engagement is well connected with organisational values and behaviours and the expectations and needs of stakeholders including the society as a whole (Network, 2008) in order to achieve a sustainable development. Context-specific evidence showed that firms in Germany and Sweden reported more environmental information whereas firms in France disclosed more employee-related information (Roberts, 1991). Malaysian companies with significant shareholdings of directors were found to have disclosed less CSR information, whereas government controlled companies did the opposite by disclosing more CSR information (Ghazali, 2007). Large companies were found to have given prominence for the CSR disclosures when compared with other companies (Owen and Swift, 2001).


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Hence, it is likely that CSR reporting practices can vary from country to country and from time to time, even within the same country, depending on many internal and external factors. The relevance and applicability of the CSR reporting has to be judged from the contextual perspective. For example, the scope of CSR may range from basic philanthropies to sustainable development programmes interwoven with corporate strategies. Adopters of the CSR reporting have the flexibility of using any reporting structure ranging from their own format to generally accepted guidelines and principles, such as GRI G3 sustainability reporting guidelines. Such reporting guidelines and principles include AA1000 series of principle-based standards covering Accountability, Assurance and Stakeholder Engagement, Social Accountability International’s SA8000 standards to improve workplaces and communities, ISO 14000 environmental management standards, the United Nations Global Compact (UNGC), Millennium Development Goals (MDGs) and Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines. GRI G3 has incorporated the substance of most of the guidelines referred above and is generally regarded as a global base for sustainability reporting (Morris and Chapman, 2010). Adopters of CSR reporting may have different motives to do so. It is commonly argued that the CSR engagement will have a positive impact on financial performance of the organisation in the long run. McWilliams and Siegel (2000) found mixed results with respect to the relationship between the CSR reporting and the company performance measured in accounting profits. Aupperle et al. (1985), and Walter and Monsen (1979) found that there were no relationship between the CSR reporting and profitability of the firm. On the other hand, it has been found that CSR had the potential to increase the profitability of the firm and the value of equity in the long run through sales growth (Zairi and Peters, 2002). Further, it was found that the profitability of older firms positively correlated with the CSR reporting (Cochran and Wood, 1984), thus revealing the fact that adopters of the CSR reporting could be old firms. Professional organisations conduct various types of competition among companies with a view to motivate the CSR reporting. The Association of Certified Charted Accountants (ACCA) is pioneering in this exercise in Sri Lanka and has been actively involved with sustainability reporting since 1990. ACCA has established awarding systems in Asia, Europe, North America, and Australasia to reward innovative attempts of firms to communicate their CSR performance. Accordingly, John Keels Holdings Plc., Aitken Spence Hotel Holdings Plc., Diesel and Engineering Motors Plc., and HDFC Bank were the recent winners of ACCA sustainability awards in Sri Lanka (ACCA, 2011). However, mere winning of awards does not warrant that the sustainability reporting in Sri Lanka is at a satisfactory level. We do not have clear idea on how sustainability reporting takes place in Sri Lanka. Therefore, this study attempts to survey on the current status of the nature and extent of the CSR reporting and the perception of managers on the CSR engagement and reporting. Legitimacy theory argues that any business organisation has implicit or explicit social contracts that hold the organisation responsible for conducting its operations in a transparent manner while contributing to social development (Campbell et al., 2003). Management of a firm has to play an important role in order to establish the legitimacy. Adams and McNicholas (2007) found that the senior managers were of the view that the primary motive for sustainability reporting was to enhance corporate legitimacy.

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Stakeholder theory argues that the CSR engagement would provide a leverage for the managers to run the business operations with the support of stakeholders through series of connections that the firm has with stakeholders (Freeman, 1984). Further, the evidence has been found that CSR was directly used as a mode of communication to build the company image and therefore, the CSR reporting indirectly served as advocacy advertising (Milne, 2001). Political economy theory suggests that firms tend to carry out CSR campaigns in the media to avoid political costs that may arise in a political economy (Deegan and Carroll, 1993). CSR can also be viewed from the institutional theory perspective and it argues that the nature of CSR depends on the practices of the context and therefore, it becomes an accepted institution (Dacin et al., 2002) so that firms work accordingly. Hence, the perception of managers in relation to the CSR practices would certainly help improve the quality of understanding the current status of the CSR reporting. These theoretical underpinnings provided a basis for managers to deal with CSR and therefore, the perceptions of managers will certainly have a big impact on the CSR engagement (Barkemeyer, 2011) since they have the authority for decision making and are separate from ownership of the firm (Berle and Means, 1932). Significant differences in the perceptions of managers on understanding and knowledge of CSR concept were seen in the UK, other European countries and China (Hind, 2004). This study found that the UK managers had shown a broad knowledge and understanding followed by other European countries whereas Chinese managers had relatively little knowledge and understanding on CSR. The same study found that Chinese managers were of the view that CSR should be voluntary while others were on the side for the need of more regulations and codes for the CSR practices. The review of literature revealed that there is a growing concern for and tendency of the CSR reporting around the world. Similarly, guidelines and principles have also been continuously developed to streamline the CSR reporting around the world. Managers who really drive the business operations to achieve firms’ goals have shown high interest on CSR and its impact on the sustainability and long-term corporate strategies. However, being an emerging economy, Sri Lanka does not have updated knowledge on various dimensions of the CSR engagement and reporting practices. This situation has created a research gap in relation to the CSR reporting practice in Sri Lanka and hopefully, the study will help bridge that gap by providing a basis on which the CSR reporting in Sri Lanka could be properly understood.

4

Methodology

This study was carried out as a survey of listed companies on the CSE. Listed companies are supposed to actively interact with and have significant influence on the economy, society and environment. Market capitalisation (MCAP) of the CSE as at 31st March 2010 was Rs. 1210.8 billion (US$11 billion) (CSE, 2010) and this accounted for 25% of the gross domestic production (GDP) of the country for the year 2010. There were 232 firms representing 20 business sectors as per the classifications given by CSE for trading purposes at the end of year 2010. Other forms of organisations were excluded from the survey despite the fact that they may have engaged in CSR. Both quantitative and qualitative data on the CSR reporting was collected from annual reports and from other reports namely CSR reports, corporate responsibility reports and


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sustainability reports. Cross-sectional data was used to analyse the current status of the CSR reporting in relation to nature, scope and content of the CSR engagement and reporting. Firms were grouped into two categories as ‘adopters’ and ‘non-adopters’ of the CSR reporting for data analysis purposes. Adopters are the firms that have reported CSR either in the annual reports or in the separate sustainability reports whereas firms that have not disclosed CSR separately in any report were regarded as non-adopters. The variables namely firm size, return on total assets (ROA), return on equity (ROE), earnings per share (EPS), total assets, revenue, profit for the year and the business sector, were analysed between adopters and non-adopters. Adopters were further grouped as adopters based on GRI G3 sustainability reporting guidelines and as others. The CSR reporting of adopters of GRI G3 were reconciled with GRI G3 while that of other adopters was analysed by grouping them into economic, social and environmental categories. With respect to adopters, a content analysis, focusing on number of words used, number of pages allocated, number of projects carried out, number of images shown, and number of tables used, CSR categories, number of projects carried out and awards received, was carried out. Firm size was determined based on MCAP. The highest MCAP of a firm was Rs. 188,294 million (US$1712 million) (8.59%) whereas the lowest amounted to Rs. 3.5 million (US$32,000) (0.02%). A firm with a MCAP of Rs. 10 billion or above was treated as ‘large’ and a firm with a capitalisation of less than Rs. 1 billion was labelled as ‘small’. The rest of the firms were grouped as ‘medium’ size. This basis is judgemental and decided by looking at the range of distribution of MCAP of each firm. Accordingly, 65 small firms, 125 medium firms and 42 large firms are in the sample of 232 firms which represent 20 business sectors as per the classifications given by the CSE for trading purposes. Managers’ perceptions were gathered through a questionnaire sent to all (78) CEOs of adopters. The questionnaire comprised of 40 questions covering the areas of general aspects of CSR, CSR focus, arguments against CSR, reasons for engaging in CSR and CSR policy related aspects. It was possible to collect 47 responses from adopters and this turned out to be 60% of adopters. Managers’ perceptions were obtained on a five-point scale preference ranging from ‘strongly agreed’ to ‘strongly disagreed’ positions. These perceptions were analysed with descriptive statistics and explanations and interpretations were given accordingly. A score which is greater than 3 was regarded as a positive perception to the given statement and a score less than 3 was regarded as not as a favourable response. The score of 3 reflected a neutral perception.

5

Analysis

5.1 Overview It was revealed that only 78 (34%) firms out of 232 had adopted the CSR reporting. These adopters accounted for about 72% of MCAP. There were significant differences in the number of firms that adopted the CSR reporting in different business sectors. As indicated in Table 1, all firms operating in sectors namely ‘constructions and engineering’, ‘information technology’, ‘oil palms’, ‘services’ and ‘stores and supplies’

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and more than 75% of firms in ‘hotels’, ‘investment trusts’, ‘land and property’, and ‘trading’ sectors were non-adopters of the CSR reporting. ‘Telecommunication’ sector comprised of only two companies and both had reported CSR. These two companies accounted for 8.36% of MCAP. Around one-third of companies operating in ‘food, beverages and tobacco’, ‘chemicals and pharmaceutical items’, ‘footwear and textiles’, ‘healthcare’, ‘manufacturing’ and ‘motors’ sectors and more than 50% of firms in the rest of the sectors were adopters of the CSR reporting. Table 1

Summary of adopters and non-adopters of the CSR reporting Adopters of CSR

Total no.

No.

As a %

% of MCAP

Telecommunications

2

2

100.00

8.36

0

Diversified holdings

11

9

81.82

20.46

2

Plantations

18

11

61.11

1.46

7

Banking, finance and insurance

34

20

58.82

21.35

14

Power and energy

4

2

50.00

0.61

2

Manufacturing

33

12

36.36

2.56

21

Chemicals and pharmaceutical items

9

3

33.33

0.76

6

Healthcare

6

2

33.33

0.45

4

Business sector

Non-adopters

Motors

6

2

33.33

0.75

4

Footwear and textiles

3

1

33.33

0.09

2

Food, beverages and tobacco

18

5

27.78

8.00

13

Trading

8

2

25.00

1.46

6

Hotels

32

5

15.63

5.18

27

Investment trust

11

1

9.09

0.12

10

Land and property

16

1

6.25

0.09

15

Services

7

0

0.00

0.00

7

Oil palms

5

0

0.00

0.00

5

Stores and supplies

5

0

0.00

0.00

5

Constructions and engineering

3

0

0.00

0.00

3

Information technology

1

0

0.00

0.00

1

232

78

33.62

71.70

154

Total

5.2 Space allocation for the CSR disclosures Majority of firms had allocated less space for the CSR reporting despite the fact that there is a growing interest in CSR. The smallest space allocated for the CSR reporting by a firm was one (1) page whereas the highest number of pages used was 58. Accordingly, eight firms had allocated only one page and 15 firms had used just two pages for the CSR reporting. Fifty firms (64%) of adopters had used five or less pages for the CSR reporting


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whereas only 16 (21%) firms had assigned 10 or more pages. The average number of pages for CSR reporting was nine. This implies that the majority of the firms did not have much to disclose in the name of CSR but wanted to claim that they are reporting CSR and build a good corporate image. Hence, it cannot be regarded as good practice of the CSR reporting. Adopters that used GRI G3 guidelines for the CSR reporting were large firms and had allocated more space than other adopters. The average number of pages assigned by an adopter with GRI G3 reporting was 36 whereas the lowest was 12 pages. Hence, the space allocated for the CSR reporting significantly changed when adopters that used GRI G3 were excluded from the analysis. Accordingly, the highest number and the average number of pages reduced to 16 and four respectively when GRI G3 adopters were excluded. This indicates that firm size has a significant bearing on the space allocated for CSR. A comparison of pages used by adopters with GRI G3 and other adopters is given in Table 2. Table 2

Number of pages allocated for the CSR reporting

No. of pages

Adopters without GRI G3

Adopters with GRI G3

No. of firms

As a %

No. of firms

As a %

1

8

10

0

0

2 to 5

42

54

0

0

6 to 10

12

15

0

0

11 to 25

9

12

5

42

26 to 50

4

5

4

33

More than 50

3

4

3

25

Total

78

100

12

100

It was further revealed that the total number of words used for the CSR reporting by a firm ranged from as low as 145 to as high as 22,453 with an average of 3052 words when all the adopters were considered. The highest and the average numbers of words used without adopters based on GRI G3 guidelines, changed to 4776 and 1174, respectively. Due to changes in reporting structure and content, the number of words per page varied from 109 to 767. This implies that large firms use more space and other means of presentations in the CSR reporting in addition to the use of words when compared with other firms. It was further revealed that there was a tendency of using images such as photographs and pictures, to make the CSR reporting attractive. All the adopters except seven had used various types of images in the CSR reporting. The highest number of images included in a CSR report by a firm was 40 whereas the average number was nine. Six firms had used more than 20 images in a report. Frequent number of images (mode) was six which was seen in seven firms. Thirty (38%) adopters had used only five or less images. There were instances of presenting photographs with political figureheads who took part in some company related occasions. However, the most of the images were presented in the CSR reporting without or with a suitable caption by referring to the corresponding event or CSR activity carried out. Therefore, the usefulness and relevance of such images

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as sources of CSR information were limited despite the fact that it improves the appearance of the report. It was revealed that those photographs have captured scenes of social activities such as sports competitions, religious ceremonies, environmental programmes such as tree planting, distribution of stationeries and books to school children. The use of irrelevant images had to some extent increased the space allocated for CSR; thus covering up low engagement of CSR. Table 3 gives an analysis of number of images shown in the CSR disclosures. Table 3

Number of images used in the CSR reporting

No. of images

No. of firms

%

0

7

9

1 to 5

23

29

6 to 10

26

33

11 to 20

16

21

21 to 40

6

8

78

100

In addition to the images, tables, graphs, figures and charts were used in the CSR reporting. However, 44 firms did not use a single table to present data. The highest number of tables used by a firm was 27 and the lowest was two. Firms which adopted GRI G3 guidelines had relatively used higher number of tables when compared with others.

5.3 CSR projects carried out In addition to general and specific disclosures, information about different CSR activities with set objectives was disclosed. Such a disclosed activity is referred as a CSR project in this study. The size of each project was disregarded and only the number of projects was considered in the analysis. Accordingly, the average number of CSR projects carried out by a firm for the year was 12. The lowest number was one whereas the highest was 112. Most of the projects were linked to environmental and community related activities. The frequency analysis revealed that the highest number of firms has conducted eight projects a year and 49 firms (63%) had conducted ten or less number of projects. Only six firms (5%) were found to have conducted 30 or more projects during the year. Most of the projects were started and completed during the same year while few projects are being carried out on continuous basis.

5.4 Money spent on CSR None of the firms has disclosed the total amount of money spent on CSR except some ad hoc disclosures on money spent as donations and for other charitable purposes. A few firms had disclosed the amount of money spent on selected projects but not all. None of the firms has provided adequate information which will enable readers to figure out the total amount of money spent on the CSR engagement by a firm. The descriptive explanations given on CSR projects implied that a considerable amount of money might


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have been spent on CSR but readers have no clue as to how the magnitude of such expenses is assessed. Non-provision of such information block the users of CSR information to assess the outcome of the CSR engagement against the actual cost incurred.

5.5 Disclosure categorisation It was noted that the judgement of and subjectivity associated with the reporting entity had a significant bearings on how CSR activities have been grouped into different categories. The common categories of the CSR reporting were ‘social’, ‘environment’, ‘community’, and ‘economy’. The lowest number of CSR categories used by a firm was two namely ‘environmental’ and ‘community’ while the highest was ten. These ten categories were identified within main categories of economic (‘food safety’ and ‘alternative energy’), environmental (‘environment’, environmentally-friendly land management’ and ‘protection of bio-diversity’) and social (‘ethical business conduct’, ‘training and skill development’, ‘health and nutrition’, ‘community capacity building’ and ‘empowerment of youth’). In relation to employee related activities, categories of ‘community development’, ‘employee benefits’, ‘employee welfare’ and ‘empowering employees’ were found. Information on one such employee empowering programme has been extensively disclosed. Accordingly, the firm has provided employees with farming equipment free of charge to grow vegetables at their home gardens and given necessary training and chicks for poultry farming and training for manufacturing of joss sticks (incense) as suggested by the company. This programme had become very popular among employees but no information was found as to whether the firm has carried out an assessment on how these extra activities had affected the work performance of employees. Some of the other grouping labels were ‘recognition of quality assurance efforts’ (economic/social), ‘responsible manufacturing’ (economic), ‘responsible sourcing’ (economic), ‘responsible product innovation’ (economic/social), ‘responsible marketing’ (economic), ‘youth development’ (social), ‘natural resource utilisation’ (environmental) and waste management (environmental)’, ‘training and development’ (social), ‘responsible employer’ (social), ‘health’ (economic) and ‘safety at work’ (economic).

5.6 Firm size and the CSR disclosures Thirty large firms out of 42 had reported CSR. Total market capitalisation of all the large firms was about 77%. Six of the large adopters had reported CSR based on GRI G3 sustainability reporting guidelines. There were 125 medium size firms that accounted for about 21% of total market capitalization. However, only 44 medium size firms (35%) had reported CSR. Of them, four had followed GRI G3 guidelines. It was noted that only four (0.06%) small firms had reported CSR whereas only two of them were found to have followed GRI G3 sustainability reporting guidelines. In addition to adopting CSR reporting, it was found that there was a significant positive correlation between the firm size and the space allocated in terms of number of pages, words count and projects carried out with correlation coefficients of 0.347, 0.319, and 0.276, respectively. Further, there was a significant positive correlation between the

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firm size and adoption of GRI G3 sustainable reporting guidelines with a Pearson correlation coefficient of 0.374. Large firms tend to go for extensive CSR disclosures by adopting GRI G3 guidelines when compared with small and medium size firms. Perhaps, the large firms are intending to build the corporate image through the CSR reporting and such attempts are in conformity with the political economy theory which suggests that large firms face a high proportion of political cost and therefore, they try to avoid such political cost by engaging in CSR with a view to enhance the corporate image (Deegan and Carroll, 1993). Table 4 gives a summary of firm size and the CSR reporting information. Table 4 Size

Firm size and CSR reporting No. of firms

Firms reported CSR

Firms followed GRI G3

MCAP (%)

Large

42

30

6

77.53

Medium

125

44

4

21.06

Small

65

4

2

1.41

Total

232

78

12

100

5.7 GRI G3 guidelines-based reporting Out of 78 adopters, only 12 (5.2%) companies, comprising six large firms, four medium firms and two small firms had reported CSR based on GRI G3 sustainability reporting guidelines which are considered as the global benchmark for the sustainability reporting. These 12 companies had high MCAP (32%) while the other 64 adopters accounted for about 39%. ‘Banking, finance and insurance’ sector was leading in the CSR reporting on GRI G3 as it comprised five out of 12 firms (42%) followed by ‘diversified holding’ with three firms and the other sectors of ‘hotels’, ‘telecommunication’, ‘beverage, food and tobacco’ and ‘motors’ accounted one firm from each sector. MCAP of these 12 firms amounted to 32.23%. Two firms had not clearly disclosed as to how and what level of GRI G3 guidelines was applied instead it was mentioned that GRI (not GRI G3) was followed in the CSR reporting. Accordingly, GRI G3 application level was not disclosed and disclosures were made on their own formats and structures. Another firm had specifically mentioned that it followed GRI G3 guidelines but did not declare the level of application as required by the guidelines. However, this firm had been awarded the best Sustainability Reporting by the ACCA in 2008 and by the Institute of Chartered Accountants of Sri Lanka (ICASL) in the years 2003 and 2004. Only a single firm had declared the application level of ‘A+’ which is the highest level and another firm had declared application level of ‘A’. Application level ‘B’ had been declared by two firms while ‘B+’ level was also declared by a single firm. Four firms had declared the level of application within the range of ‘C’ and ‘C+’. Application level C is for the beginners of sustainability reporting. Table 5 gives a summary of GRI G3 application levels declared by the firms.

Corporate social responsibility reporting Table 5

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GRI G3 application level of firms

Name of the firm

Business sector

GRI G3 application level

Dialog Telecom

Telecommunication

A+

HNB


A

DIMO

Motors

B+

Aitken Spence Hotels Holdings Hayleys Aitken Spence

Hotels

B


B


C

Commercial Bank


C

HNB Assurance


C


C+

John Keels Holdings HDFC


General GRI

Seylan Bank


General GRI

Beverages food and tobacco

Not declared

Ceylon Tobacco CTC

5.8 Adopters versus non-adopters of the CSR reporting Multivariate Hotelling’s analysis showed that there were significant difference between adopters and non-adopters of the CSR reporting in relation to ROA, ROE, revenue, and MCAP and company size. With respect to ROA and ROE, the p-values of 0.004 and 0.000 suggest that ROA and ROE of adopters are different from that of non-adopters. Accordingly, it was found that ROA and ROE of adopters were higher than that of non-adopters of the CSR reporting. Similarly, independent t-test also indicated that significant differences were seen between adopters and non-adopters under both assumptions of equal variances and not equal variances. It produced p-values of 0.004 and 0.002 for ROA and 0.000 and 0.000 for ROE, thus indicating a significant difference. The significant values generated by multivariate analysis with respect to revenue, MCAP and company size were almost zero, thus indicating a significant difference between adopters and non-adopters. However, no significant differences were found between adopters and non-adopters with respect to total assets, profit for the year and EPS.

6

Perceptions of CEOs

CEOs had positively perceived general aspects of CSR by giving an average score of 3.98. 64% (30) of the CEOs were of the view that firms have a responsibility and should contribute to the society and environment. The support from top management was viewed as an important factor for the success of CSR by giving an average score of 4.47. 96% (43) CEOs was of the view that the CSR reporting should be mandatory with an average score of 4.45. Only 11% (five) of CEOs mentioned that a firm should have generated adequate profits to contribute for the society and did not admit the idea that it should contribute towards CSR when there is no profits earned. Further, CEOs admitted that CSR could help organisation to comply with various rules and regulations applicable.

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With respect to the areas of CSR, 98% (46) of CEOs perceived contribution for education, health and other basic needs as important aspects in CSR with an average score of 4.51. Programmes to run along with national development and poverty alleviation were also highly scored as important CSR areas. Role of intervening for social activities, such as awareness programmes for prevention of HIV/AIDS and healthcare, obtained a perception score of 3.36. Offering donations and environmental protection were perceived as modes of the CSR engagement with an equal average score of 3.55. Safer working conditions and welfare for employees were positively perceived by 53% (25) of CEOs as critical CSR areas. However, safeguarding labour rights, and human rights, assuring gender equalities, non-use of child labour at work place did not carry high preference scores. Arguments against CSR on the ground that it is trivial and disturbs the core objectives of a firm were not accepted by CEOs and it produced an average score of less than 3. The idea of government mediation through an effective tax system in lieu of CSR was also rejected by majority of CEOs. Therefore, CEOs have perceived CSR as an important task which should not be neglected. However, a score of 3.47 was given on the point which says that the overall cost of conducting CSR was likely to be greater than the perceived benefits of CSR. This perception poses a question on the usefulness and relevance of the CSR engagement. Perception on why firms should engage in CSR carried an average score of 3.71. Among such reasons, the ability to increase profits in the long run and building relations with stakeholders captured high preferences over the ability of increasing corporate image, avoiding additional regulations and maintaining corporate legitimacy. With respect to the aspects on CSR policies more than 60% (29) of respondents perceived CSR as a long process through with management can pass benefits to the society and environment in a systematic way by engaging with significant stakeholders. The main idea of CSR was identified as empowering stakeholders by identifying their potential of building networks with the operations of the firm in a sustainable manner. Accordingly, 68% (32) of respondents viewed CSR as a sustainable programme through which management can incorporate CSR into corporate mission, vision and strategies to gain the benefits of CSR for all the stakeholders. Further, the importance of being ethical in conducting business operations instead of simply complying with rules and regulations was highlighted in the CEO’s perceptions.

7

Summary and conclusions

The majority of the Sri Lankan firms listed on the CSE do not report CSR despite the fact that CSR is being talked about within the corporate sector. 78 firms were identified as adopters of the CSR reporting and of them only 12 firms had followed globally accepted GRI G3 sustainability reporting guidelines. The number of CSR adopters varied among different business sectors. Accordingly, not a single firm in four business sectors had disclosed CSR while all the firms in telecommunication made CSR disclosures. CSR adopters had won many awards for their social responsibilities and other economic achievements as well. These recognitions in turn might have encouraged firms to engage in CSR.


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Disclosure of CSR content significantly varied among firms. Only a very few firms had allocated adequate space for the CSR reporting while the majority had just used only one page for the CSR reporting by claiming that they are socially responsible and taken measures to contribute for the society and environment through the CSR engagement. Some CSR reports were found to have been prepared in an attractive manner by including colourful pictures and photographs with political figureheads just ignoring the substance of information content. Disclosures included a wide range of CSR categories among them economic, social and environmental were the common ones. However, no attention was paid to disclose adequate information on the total money spent for CSR programmes and administration. Firm size was found to be a major determinant of the CSR reporting. Accordingly, large firms had shown a tendency to adopt CSR reporting. Therefore, the MCAP of adopter amounted to 72% even though the proportion of the adopters was 34% (78 firms). Comparison between adopters and non-adopters of the CSR reporting showed that there were significant differences in relation to ROA, ROE, MCAP and revenue. On the other hand, total assets, profit for the year and EPS were not significantly different between adopters and non-adopters. The majority of the CEOs of CSR adopters have high positive perception on the CSR engagement and reporting. They perceived the CSR engagement as a process that should be incorporated in corporate vision, mission and objectives; thus enabling the management to create value for all the stakeholders. Only few CEOs perceived philanthropic aspects and popular social issues should be considered in determining the scope of CSR. CEOs further mentioned that the support of top management is crucial for the success of CSR engagement. The outcome of this study will pave the way for corporate managers and business community to have a general idea on how CSR is taking shape in Sri Lanka and to create a forum for discussion on their presence in CSR and contribution to the society and the environment. All in all, it was revealed that the level of the CSR reporting in Sri Lanka is not very encouraging. Hence, the current status of low level of the CSR reporting raises a question as to why firms are reluctant to engage in CSR in Sri Lanka despite a conducive environment. Such efforts will certainly improve the body of knowledge in the CSR reporting and find new avenues for future research on the CSR engagement and reporting. Further, the knowledge on what is really happening in the CSR reporting can be incorporated into teaching-learning processes at various levels to improve the quality of learning. Professional accounting bodies and other interested parties can make use of the results of this study to develop new CSR principles and guidelines or to improve the existing ones to fit the local context whereby enhancing the quality of the CSR reporting in Sri Lanka. General public at large can be aware of how firms interacted with the environment and the society and the significance of such involvement to their lives. By referring to this outcome, stakeholders can suggest the ways and means in which they could actively engage in sustainability programmes of firms to create value to the society as a whole.

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