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IJSESD Editorial Board Editor-in-Chief:

Elias G. Carayannis, The George Washington U., USA

Chief Associate Editor:

David F.J. Campbell, U. of Klagenfurt, Austria

Associate Editors:

Siau Ching Lenny Koh, U. of Sheffield, UK Chris Ziemnowicz, The U. of North Carolina, USA

International Editorial Review Board: Dimitris Assimakopoulos, U. of Grenoble, France Yannis Bakouros, U. of Western Macedonia, Greece Ayse Bobeyi, World Bank, USA Carlos Braga, World Bank, USA JJ Chanaron, CNRS and U. of Grenoble, France Denis Cioffi, Solar Institute and The George Washington U. School of Business, USA Phil Cooke, Cardiff U., UK Raoul de Gouvea, U. of New Mexico, USA Sylvie Faucheux, Versailles Saint-Quentin-en-Yvelines U., France Piero Formica, U. of Bologna, Italy Jian Gao, Tsinghua U., China Elie Geisler, Illinois Institute of Technology, USA Susan Holleran, International Finance Corporation (IFC) World Bank, USA Wu Jisong, U. of Beijing, China Aris Kaloudis, NIFU STEP, Norway Sul Kassicieh, U. of New Mexico, USA Nicos Komninos, URENIO and Aristotle U. of Thessaloniki, Greece

Mihalis Koratzinos, CERN, Switzerland Tzong-Ru (Jiun-Shen) Lee, National Chung Hsing U., Taiwan Chun Liao, Shanghai U., China Mathew Manimala, Indian Institute of Information Technology - Bangalore, India Thomas Mickiewicz, U. College London, UK Denisa Popescu, World Bank, USA Norbert Seel, U. of Freiburg, Germany Caroline Sipp, Inter-American Development Bank, USA Mark Starik, Institute for Corporate Responsibility - The George Washington U., USA Fred Steward, PSI, UK Spyros Vliamos, U. of Athens, Greece Max von Zedtwitz, Tsinghua U. & IMD, Switzerland Vivienne Wang, United Nations Development Program, USA Yilu Zhou, The George Washington U. School of Business, USA

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M ission

The mission of the International Journal of Social Ecology and Sustainable Development (IJSESD) is to establish a new set of platforms for intellectual discourse and identification of critical and strategic emerging issues, the formulation of cogent and useful policies, and practice recommendations. IJSESD covers matters that relate to and combine social ecology and sustainable development issues and trends within diverse contexts such as eco-innovation, eco-entrepreneurship, e-development (e-learning, e-health, e-business, e-government, and e-society), governance, environment, education, economy, civil society and policy, health, transportation, defense, energy, and other related global issues with local impact.

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ISSN 1947-8402 eISSN 1947-8410 Published quarterly

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should be e-mailed to: Elias G. Carayannis, Editor-in-Chief [email protected]

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International Journal of Social Ecology and Sustainable Development April-June 2013, Vol. 4, No. 2

Table of Contents

Special Issue on Sustainability Reporting

Editorial Preface

i Elias G. Carayannis, Department of Information Systems & Technology Management, George Washington University, Washington, DC, USA Tim A. Majchrzak, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany Imke Wasner, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany

Research Articles

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Sustainability Reporting in State Universities: An Investigation of Italian Pioneering Practices Brenedetta Siboni, Department of Management, University of Bologna, Bologna, Italy Carlotta del Sordo, Department of Management, University of Bologna, Bologna, Italy Silvia Pazzi, University of Bologna, Bologna, Italy

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Using Sustainability Reports as a Method of Cause-Related Marketing for Competitive Advantage John Kenneth Corley, Computer Information Systems, Appalachian State University, Boone, NC, USA Sandra A. Vannoy, Computer Information Systems, Appalachian State University, Boone, NC, USA Joseph A. Cazier, Computer Information Systems, Appalachian State University, Boone, NC, USA

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Sustainability Performance and CSR Disclosure: The Missing Link Siyuan Seth Li, Terry College of Business, University of Georgia, Athens, GA, USA Marie-Claude Boudreau, Terry College of Business, University of Georgia, Athens, GA, USA Mark Huber, Terry College of Business, University of Georgia, Athens, GA, USA Richard T. Watson, Terry College of Business, University of Georgia, Athens, GA, USA

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The Implementation of Sustainability Reporting in SGR Group: Some Challenges of Transition from “Greenwashing” to Relational Change Maria-Gabriella Baldarelli, Department of Management, University of Bologna, Bologna, Italy Mara Del Baldo, Department of Economics, Society and Politcs, University of Urbino “Carlo Bo”, Urbino, Italy

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74 Sustainability Reporting by Outdoor Equipment Vendors Imke Wasner, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany Tim A. Majchrzak, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany 100

Investing in Sustainability: A Practice-Oriented Approach to Analyze IT-Investments in Sustainability Reporting Systems Christoph Beckers, Department of Information Management, Georg-August-University of Göttingen, Göttingen, Germany Oliver Marz, Business Development Retail and Logistics, CSB-System AG, Geilenkirchen, Germany Lutz M. Kolbe, Department of Information Management, Georg-August-University of Göttingen, Göttingen, Germany

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The International Journal of Social Ecology and Sustainable Development (ISSN 1947-8402; eISSN 1947-8410). Copyright © 2013 IGI Global. All rights, including translation into other languages reserved by the publisher. No part of this journal may be reproduced or used in any form or by any means without written permission from the publisher, except for noncommercial, educational use including classroom teaching purposes. Product or company names used in this journal are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark. The views expressed in this journal are those of the authors but not necessarily of IGI Global.

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Editorial Preface

Special Issue on Sustainability Reporting Elias G. Carayannis, Department of Information Systems & Technology Management, George Washington University, Washington, DC, USA Tim A. Majchrzak, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany Imke Wasner, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany

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INTRODUCTION

Sustainability commonly is used in the sense of sustainable development and describes “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations General Assembly, 1987). Companies that want to act in a sustainable way typically have to address three dimensions, also known as triple bottom line (Elkington, 1997): the economic, the environmental, and the social one. In an ideal setting, a company can fulfill its own economic goals, contribute to the economy in countries affected by productions, distribution and sales, and offer its employees a beneficial setting. Additionally, it would protect or even develop these countries in terms of environment and social issues. The importance of sustainability for companies can partly be attributed to the awareness of end-consumers. To an increas-

ing extent consumers asks about the origin of products, which is reflected in terms such as ethical consumption and ethical consumerism (Newholm & Shaw, 2007; Strong, 1996). This goes along with media coverage that reveals unsustainable production practices such as exploitation of human labor and destruction of environment. As a consequence, not caring for sustainability can have severe economic consequences for companies due to damages to the public perception. A recent example is the report of extremely bad working conditions at a supplier of Apple, namely Foxconn. Its operations in China are reported to be harmful both from an environmental and a social point of view (Duhigg & Barboza, 2012). Despite being an independent business entity, accepting the situation would lead to extremely bad press for Apple. Moreover, sustainability requirements find their way into laws and regulations (Ioannou & Serafeim, 2011). Besides external influences, companies might see economic

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impact in acting sustainable (Beheiry, Chong, & Haas, 2006) – or strive for ethical practices for reasons of idealism. Reporting about issues that can be attributed to sustainability is done for decades: for example, separate environmental reports have been issued as early as 1989 (Kolk, 2004). However, reporting non-financial data such as figures about social responsibility and pollution is a rather new trend that lead to the Global Reporting Initiative (Dumay, Guthrie, & Farnetti, 2010). With sustainability reports, informing stakeholders – including the general public – about a company’s economic, environmental and social performance becomes structured. In the form of frameworks such as provided by the Global Reporting Initiative it also becomes standardized. At the moment, sustainability tools are a mostly voluntary tool – only few countries demand them: Denmark and – for state-owned companies – Sweden are first movers in this respect (Ioannou & Serafeim, 2011). However, market pressure and presumably perceived chances in addressing stakeholders lead to an increasing number of reports. It is subject of discussion to which extent performance of companies is reflected in reports, though (Adams, 2004).

• Are there differences between industrial sectors or with regard to other criteria such as company size? • What is the status of reporting by noncommercial entities such as public organizations? • How feasible are current reporting frameworks and practices? Are there best practices? • What are the links to other disciplines, particularly to business administration, the social sciences, and information technology (including information systems research)? • How is data collected and how is it used for decision making (Adams & Frost, 2008)? • Do company operations change with sustainability reporting or do they merely adapt to issue reports? • Can a shift to sustainability reporting be seen as a strategic investment? • How can the road towards sustainability reporting for late-adopters look like? How can caveats be circumvented? • If sustainability reporting becomes a mandatory practice, how should rules and supervision look like?

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ONGOING RESEARCH Reporting sustainability performance has been extensively studied (cf. e.g. Roca & Searcy, 2012). Even a lot of work on the Global Reporting Initiative has been published. Nevertheless, sustainability reporting is a topic with many open questions for research. This particularly applies to the adoption of reporting, the relationship to stakeholder, and future developments: • Which companies issue sustainability reports? Which departments are responsible for collecting data and for publication? • What is the relation between reporting and actual performance?

Some of these questions have been discussed in neighbouring fields. An integrated view, thus, is another target of future research. This special issue seeks to contribute to answering some of the questions and to provide directions for future investigation.

CONTRIBUTIONS The special issue is formed by six articles. All have an empirical background although emphasizing the theory greatly differs from article to article. They draw from a rich base of previous work particularly on accounting and corporate social responsibility (CSR). At the same time, each article fills a gap in the current literature by not just presenting an additional study on a known topic but by adding a novel perspective or target of study.

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The first article, “Sustainability Reporting in State Universities: An Investigation of Italian Pioneering Practices” by Benedetta Siboni, Carlotta del Sordo, and Silvia Pazzi, focuses on the public sector rather than on companies. Their study scrutinizes the adoption of sustainability reporting by universities in Italy. The following two articles address sustainability reporting quantitatively. Ken Corley, Sandra Vannoy, and Joseph Cazier present a study on the impact of sustainability reporting on consumer behaviour. Their paper “Using Sustainability Reports as a Method of CauseRelated Marketing for Competitive Advantage” describes results from an experimental simulation that tries to measure consumer perception and behaviour during online shopping. Seth Li, Marie-Claude Boudreau, Mark Huber, and Richard T. Watson provide a study on the relationship between organizations’ CSR disclosure and their sustainability performance. Their article “Sustainability Performance and CSR Disclosure: The Missing Link” furthermore describes four archetypes of organizations based on their disclosure levels and sustainability performances. Interestingly, for both papers the perception of sustainability by stakeholder is of great importance. Case studies are the foundation for the three qualitative articles. All of them profoundly address literature at the same time and incorporate case study research with a thorough look at theory. Maria Gabriella Baldarelli and Mara Del Baldo present a case study from Italy. In their paper “The Implementation of Sustainability Reporting in SGR Group: Some Challenges of Transition from ‘Greenwashing’ to Relational Change” they seek to give insights on the impact of sustainability reporting on the mission, governance and accountability of companies. In “Sustainability Reporting by Outdoor Equipment Vendors” by Imke Wasner and Tim A. Majchrzak two international companies for outdoor apparel are assessed with regard to their GRI-based sustainability reports. The authors also compare the companies and

discuss implications for sustainability reporting in general. Particularly notable is the inclusion of ethical theories. Finally, the article by Christoph Beckers, Oliver Marz, and Lutz M. Kolbe, “Investing in Sustainability: A Practice-Oriented Approach to Analyze IT-Investments in Sustainability Reporting Systems”, has a special focus. Sustainability reporting greatly relies on information technology. Therefore, the authors discuss to which extend Enterprise Resource Planning (ERP) systems already support reporting and which investments are required for adequate support. Moreover, they propose evaluation criteria for investment in IT for reasons of improved reporting.

ACKNOWLEDGMENT This special issue would not have been possible without the incredible work of our reviewers. Due to the particularity of the topic, we directly contacted established experts in the field and asked them to review submissions. Reviewing has been very rigorous and the authors of all finally accepted papers could be provided with a high number of suggestions for improvements, ranging from small hints on typos to fundamental ideas for rewriting sections. All papers profited from this process; some saw remarkable improvements from their first state. To make it short: we would like to thank our reviewers for their dedication. The following persons contributed to the quality of this special issue (in alphabetical order):

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Maria Gabriella Baldarelli, University of Bologna Mara Del Baldo, University of Urbino "Carlo Bo" Christoph Beckers, Georg-August-University of Göttingen Mick Blowfield, University of Oxford

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Joseph Cazier, Appalachian State University Charles Cho, ESSEC Business School Ken Corley, Appalachian State University Matias Laine, University of Tampere Seth Li, University of Georgia Gusti A. P. Maharani, Maastricht School of Management Oliver Marz, CSB-System AG Mark McElroy, The Center for Sustainable Organizations Unang Mulkhan, University of Lampung Shona Russell, University of St Andrews Benedetta Siboni, University of Bologna Carlotta Del Sordo, University of Bologna Chris van Staden, University of Canterbury Helen Tregidga, Auckland University of Technology Sandra Vannoy, Appalachian State University Charl de Villiers, University of Waikato Additionally, we would like to thank Jamie Wilson from IGI Global for continuous support in preparing the special issue.

Beheiry, S., Chong, W., & Haas, C. (2006). Examining the business impact of owner commitment to sustainability. Journal of Construction Engineering Management, 132(4), 384–392. Duhigg, C., & Barboza, D. (2012). In China, human costs are built into an iPad. The New York Times. Retrieved January 6, 2012 from http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-humancosts-for-workers-in-china.html Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century business. Oxford, UK: Capstone. Dumay, J., Guthrie, J., & Farneti, F. (2010). GRI sustainability reporting guidelines for public and third sector organizations. Public Management Review, 12(4), 531-548. Ioannou, I., & Serafeim, G. (2011). The consequences of mandatory corporate sustainability reporting (Working Paper No. 11-100). Harvard Business School Research. Retrieved from http://dx.doi.org/10.2139/ssrn.1799589

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Elias G. Carayannis Editor-in-Chief Tim A. Majchrzak Imke Wasner Guest Editors IJSESD

REFERENCES Adams, C. A. (2004). The ethical, social and environmental reporting-performance portrayal gap. Accounting, Auditing & Accountability Journal, 17(5), 731-757. Adams, C. A. & Frost, G. R. (2008). Integrating sustainability reporting into management practices. Accounting Forum, 32(4), 288-302.

Kolk, A. (2004). A decade of sustainability reporting: Developments and significance. International Journal of Environment and Sustainable Development, 3(1), 51-64. Newholm, R. T., & Shaw, D. S. (2007). Studying the ethical consumer: A review of research. Journal of Consumer Behavior, 6, 253-270. Roca, L. C., & Searcy, C. (2012) An analysis of indicators disclosed in corporate sustainability reports. Journal of Cleaner Production, 20(1), 103-118. Strong, C. (1996). Features contributing to the growth of ethical consumerism - A preliminary investigation. Marketing Intelligence and Planning, 14(5), 5-13. United Nations General Assembly. (1987). Report of the world commission on environment and development. Our Common Future.

v Elias G. Carayannis is a professor of Science, Technology, Innovation, and Entrepreneurship. He is the co-Founder and co-Director of the Global and Entrepreneurial Finance Research Institute (GEFRI) and Director of Research on Science, Tech-nology, Innovation, and Entrepreneurship in the European Union Research Center (EURC) at The George Washington University School of Business. Dr. Carayannis’ teaching and research activities focus on the areas of strategic government – university and industry R&D partnerships, technology road-mapping, technology transfer and commercialization, interna-tional science and technology policy, technological entrepreneurship, and regional economic development. Dr. Carayannis has several publications in both academics and practitioners, US and European journals such as IEEE Transactions in Engineering Management (IEEE TEM), Research Policy, Journal of R&D Management,Journal of Engineering and Technology Management, International Journal of Technology Management, Technovation, Journal of Technology Transfer, Engineering Management Journal, Journal of Growth and Change, The Review of Regional Studies, International Journal of Global Energy Issues, International Journal of Environment and Pollution, Le Progres Technique, and the Focus on Change Management. He has also published eleven books to date on science, technology, innovation, and entrepreneurship with CRC Press, Praeger/Greenwood Press, Palgrave/ MacMillan Press, and Edward Elgar, plus several more under contract. He is Editor-in-Chief of The Book Series on Science, Technology, Innovation and Entrepreneurship (Edward Elgar), The Book Series on Technology, Innovation and Knowledge Management (Springer), the International Journal of the Knowledge Economy (Springer), and the International Journal of Social Ecology and Sustainable Development (IGI Global). He is also Associate Editor of the International Journal of Innovation and Regional Development and on the Editorial Board of the IEEE TEM and the International Journal of Nuclear Knowledge Management, as well as he is on the Board of Directors for the International Association for the Management of Technology (IAMOT). He has consulted for several technology driven gov-ernment, private, and large organizations, as well as small organizations such as the World Bank, the European Commission, the Inter-American Development Bank, the US Agency for International Development, the National Science Foundation Small Business Innovation Research Program, the National Institute of Standards and Technology Advanced Technology Program, the National Coalition for Advanced Manufacturing (NACFAM), the USN CNO Office, Sandia National Laboratories' New Technological Ventures Initiative, the General Electric Corporate Training & Development Center, Cowen & Co, First Albany International, Entreprises Importfab, and others. He is fluent in English, French, German, and Greek and has a working knowledge of Spanish. He is citizen of the United States of America and the European Union.

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Tim A. Majchrzak is a research fellow and lecturer at the Department of Information Systems of the University of Münster, Germany, and the European Research Center for Information Systems (ERCIS). He received BSc and MSc degrees in Infor-mation Systems and a PhD in economics (Dr. rer. pol.) from the University of Münster. His research comprises both technical and organizational aspects of software engineering. He has also published work on several interdisciplinary IS topics. Tim’s involvement in work on sustainability is mainly driven by personal interest. He is a member of the IEEE, the IEEE Computer Society, and the Gesellschaft für Informatik e.V.. Imke Wasner is finishing her studies of Business Administration with a focus on accounting at the University of Münster, Germany. She has handed in a Master’s thesis on sustainability business accounting. For the thesis, she conducted a quanti-tative study targeted at SMEs. Imke received a BSc degree in Business Administration from the University of Münster. For-merly, she has been working as a credit analyst in the banking sector. Imke means to continue her business carrier with a position in charge of sustainability practices.

International Journal of Social Ecology and Sustainable Development, 4(2), 1-15, April-June 2013 1

Sustainability Reporting in State Universities: An Investigation of Italian Pioneering Practices

Brenedetta Siboni, Department of Management, University of Bologna, Bologna, Italy Carlotta del Sordo, Department of Management, University of Bologna, Bologna, Italy Silvia Pazzi, University of Bologna, Bologna, Italy

ABSTRACT

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Recent years have witnessed an increasing interest towards sustainability reporting from scholars all over the world, especially focusing on large corporations. Research has only recently been carried out regarding sustainability reporting in the public sector; however, very few studies have been published with reference to universities. In Italy, despite the fact that sustainability reporting is not mandatory, two guidelines have been issued to promote it within state universities. To date, only few studies have been published on this topic. To bridge this gap, the current work aims to review and assess the state of sustainability reporting in Italian state universities and therefore it contributes to the international debate about the development of sustainability reporting in the public sector. In doing so, this paper represents one of the first attempts at investigating sustainability reports in universities, and more broadly in the public sector. Keywords:

Documentary Analysis, Guidelines for Sustainability Reporting, Higher Education, Italy, Reporting, Stakeholder, Sustainability, Universities

INTRODUCTION Internationally there has been a significant amount of research into corporate sustainability reporting, especially focusing on large corporations (e.g. Gray, Kouhy, & Lavers, 1995; Parker 2005). Research on sustainability report in the public sect. has been published only recently (e.g. Ball & Grubnic, 2007; Farneti & Siboni, 2011; Farneti & Guthrie, 2008; 2009). These DOI: 10.4018/jsesd.2013040101

studies found that the reporting practices of Australian public organisations are mainly of a narrative nature, and the organisations choose the GRI indicators they prefer to disclose (Farneti & Guthrie, 2008). Also, it was found that these reporting practices had been developed to disclose information mainly for the benefit of internal stakeholders (Farneti & Guthrie, 2009). Furthermore, Farneti and Siboni (2011)’s study suggests that within Italian local governments sustainability reports are used as a tool for disclosing managerial matters.

Copyright © 2013, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

2 International Journal of Social Ecology and Sustainable Development, 4(2), 1-15, April-June 2013

In the public sector, a particular interest has emerged with reference to sustainability reporting in state universities (Del Sordo, Siboni, & Pazzi, 2010). The university sector has two institutional goals: education through teaching activities and knowledge development via research activities. Therefore, universities play a central role in the economic and social development of a country (Lapsley & Miller, 2004). Over the past three decades the higher education system of most OECD countries has seen significant changes that have increased the demand for more accountability and greater attention to performance (Alexander, 2000). In Italy, the reforming process has highlighted the need to adopt some practices of sustainability reporting in order to promote greater accountability and transparency of activities and results which the funding system is now linked to (Arnaboldi & Azzone, 2004). In the university sector sustainability reporting is still not being explored much either by literature or by practice and most studies are of a normative nature (Del Sordo et al., 2010). According to Speziale and Zanigni (2007) and Meneguzzo and Fiorani (2009) sustainability reports are conceived as a tool for external accountability purposes, as well as for the management control system in universities. Research highlights that the practice of sustainability reporting in the university context is not widespread and the sustainability reports issued are mainly pivotal versions (Frey, Melis, & Vagnoni, 2010). Moreover, it was found a lack of quantitative information and little attention on the disclosure of environmental aspects (Cassone & Zaccarella, 2009). Before 2008 the absence of a guideline for university sustainability reports could be the reason for the limited diffusion of these techniques as well as for the great diversity among the documents issued. Meneguzzo and Fiorani (2009)’s study underlines that the growth in financial autonomy has emphasized the need to demonstrate the universities’ results in order to obtain more funds both from the Government and the private sector. In such a context the practice of sustainability reporting should

become widespread among universities in the near future. Moreover, sustainability reporting could be used to benchmark universities on the basis of their ability to manage resources and achieve results. Currently, only nine pioneering universities in Italy have issued at least one edition of the sustainability report. The present study aims to show the state of sustainability reporting in Italian state universities and to give some insights into this phenomenon. To that end, it provides an in-depth analysis of the extant reports issued by universities in order to underline their main features, identify their strengths and weaknesses, and therefore contribute to the international debate about the development of sustainability reporting in the public sector. The paper unfolds as follows. The next section describes the reforming process that has involved the Italian university system and the Italian guidelines for sustainability reporting in universities. The research method is presented in the section afterwards and the main findings following that. The last section discusses the strengths and weaknesses of sustainability reports in the Italian case, and underlines suggestions for its future development.

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HIGHER EDUCATION SYSTEM AND SUSTAINABILITY REPORTING IN ITALY Universities are organisations aimed at holding and developing a public function serving the community. Currently the Italian university sector consists of 95 universities (Ministry of Higher Education, 2009), which are classified in state (65) and non-state (30). State universities belong to the public sector and are mostly funded by the national Government and, traditionally, the Government also plays a central role in regulating teaching and research activities. On the contrary, non-state universities receive little funding from the national Government (about 10% of their total needs) and have a much higher degree of autonomy.



Over the past three decades the institutional context of Italian universities has significantly changed and there are new challenges to be faced. On the one hand, the growing number of students and the increasing demand for high quality training have forced universities to reshape their educational activities. This phenomenon is common to other OECD countries and is known as the massification of higher education (Alexander, 2000); it implies a rising organizational complexity and a need for the creation of new curricula and the recruitment of new staff members. On the other hand, the Italian reforming process has moved higher education from a centralised system towards a decentralised and more competitive one (Agasisti, 2009), in order to improve its quality and cost effectiveness, as well as to increase its autonomy (Arnaboldi & Azzone, 2004). In particular, in 1989 Law n. 168 identified the five dimensions of the autonomy of Italian universities as follows: educational, scientific, organisational, financial and accounting autonomy. With reference to the accounting autonomy, universities are allowed to create their own autonomous accounting systems with articles of associations and rules. Moreover, since the 1990s the rise of public debt and a general decrease in public financial resources has contributed to accelerating the implementation of financial autonomy. Law no. 537/1993 introduced a new funding allocation system, in accordance to which each university receives a global lump-sum fund (called Fondo di Finanziamento Ordinario [FFO]) from the national Government, partially shaped on the basis of the results achieved. In fact, the funding formula is linked to both educational results (number of students and numbers of graduates) and research performance (success rate in obtaining research grants). Furthermore, the reform process encourages universities to create networks and establish relationships with a wider number of stakeholders. As a result of these changes universities are encouraged to adopt performance measurement systems (Del Sordo, 2006) and provide

a greater level of accountability toward their stakeholders (Frey et al., 2010; Meneguzzo & Fiorani, 2009). To date, Italian universities have a legal requirement to disclosure only on financial matters. However, since the early 2000s the attention to sustainability reporting has increased and some pioneering universities have published a sustainability report, a clear sign of increasing international attention to this issue. To support sustainability reporting in organisations some guidelines have been issued. For instance, GRI (2006) is an international guideline published by the Global Reporting Initiative in order to encourage all the types of organisations to fulfil the stakeholders’needs in relation to information by providing a reliable framework for sustainability reporting. Moreover, the ISEA (1999) is an international guideline issued by the Institute of Social and Ethical Accountability in order to offer common principles and processes for reporting and assurance focused on stakeholder engagement. In addition to these, two Italian guidelines have been issued to support this practice specifically in the university system. The first guideline is the Directive on Social Reporting in the Public Sector of the Italian Minister of Public Affairs (Directive, 2006). It encourages voluntary sustainability reporting practices among public organisations in order to increase accountability and support dialogue with their stakeholders. Moreover, it indicates principles, structure and contents for sustainability reports, and gives insight into the reporting process in order to increase its reliability. Briefly, the Directive suggests the following structure for sustainability reports: Values, vision and programmes; Policies and services provided; Resources available and used. The second guideline is the Document on the Social Reporting in Universities issued by the National Study Group on Social Reporting (GBS, 2008). It is specifically addressed to supporting voluntary sustainability reporting practices in universities in order to allow greater accountability towards stakeholders. In brief, the structure suggested for the sustainability

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report includes five sections: Introduction and methodological note; University identity; Reclassification of financial data; Social relation; Future goals. The main merit of these guidelines is that they promote university sustainability reporting and allow the comparison of the performance of universities through the definition of common information. On the contrary, a drawback is that they are still of a generic nature (Cassone & Zaccarella, 2009) and do not provide a comprehensive list of specific indicators to be reported regarding sustainability.

RESEARCH METHOD The current research was conducted using documentary analysis, that consists in a systematic method for reviewing or evaluating documents (Bowen, 2009). It is a qualitative research method that involves a flexible process for making content-descriptive observations (Alexander, 2006). The analysis was structured in three phases: 1. collection of documents; 2. development of a research framework; 3. study of the documents (Bailey, 2007). In the first phase we analysed sustainability reports issued by Italian state universities before 31 December 2009. The sustainability reports were found on the website of each university. It emerged that out of the 65 Italian state universities, only nine had issued a sustainability report before 31 December 2009. Table 1 lists the nine universities as well as their main features: nature (state or non state), geographical area (North, Centre, South), size (number of students and teachers, and amount of public funding received – FFO). Moreover, the table shows the main characteristics of the sustainability reports: year of publication and reporting period. All the universities that issue a report are state institutions and most of them are located in Central and Southern Italy. The size of the university appears not to affect its decision to

report. In fact, both small organisations (with just 7,000 students and FFO for 21 million euro) and large ones (with more than 55,000 students and FFO for 200 million euro) published a sustainability report. Not surprisingly, sustainability reporting was adopted by big universities, where more funds are available. However, also small universities adopted it, probably for fundraising purposes. In the second phase, a research framework of aspects to be investigated in each document was developed on the basis of a previous study that had explored the emerging practices of sustainability reporting by Italian local governments (De Magistris & Gioioso, 2005). Table 2 shows the framework applied in examining each document, made up by four aspects. The first aspect investigates the extent to which the institutional context has fostered the practice of sustainability reporting. The second aspect enquires into the reporting process followed by each organisation (such as phases, composition of the working teams, stakeholder engagement), since the voluntary basis on which it is drawn could bring to different choices. The third aspect refers to the content and the structure of the document, focusing on elements such as length of the report, reporting period and areas, and guidelines followed. The fourth aspect investigates if the reporting process is linked to the planning system and if the institution intends to replicate the initiative. As to the third phase, one of the authors studied the sustainability reports in order to identify the aspects of the research framework reported in the documents. Moreover, to check for reliability, another author re-examined a sample of sustainability reports, but no major differences emerged.

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FINDINGS This section compares the universities’ sustainability reports focusing on the four aspects investigated in order to find strengths and weaknesses of the Italian case.



Table 1. The pioneering universities Sustainability Report (1st Edition)

Features Universities Nature

Geographical Area

Students (No.)

Teachers (No.)

FFO (Million €)

Year 08/09

Sustainability Report (2nd Edition)

Year of Publication

Reporting Period

Year of Publication

Reporting Period

2005*

20032004

2008*

2007

2009*

2008

Scuola Superiore Sant’Anna of Pisa

State

Centre

Missing

67

3.200

2004

2002-2003

Scuola Normale Superiore of Pisa

State

Centre

Missing

95

3.200

2007*

2004-2006

University of Bari

State

South

56.032

1.861

216.837

2006*

2002-2004

University of Cagliari

State

Centre

35.298

1.184

139.654

2007*

2006

University of Firenze

State

Centre

57.929

2.179

258.159

2007*

2006

University of Insubria

State

North

9.546

391

39.798

2009*

1998-2007

University of Ferrara

State

North

17.403

677

78.133

2007

2006

University of Macerata

State

Centre

11.240

311

38.058

2008*

2007

University of Sannio

State

South

7.430

193

21.269

2008

2007

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* In case of more than one edition found, the study analyzed the latest version.

Table 2. Framework for the documentary analysis Aspect 1: Institutional framework Aspect 2: Reporting process 1. phases 2 composition of the working teams 3. stakeholder engagement Aspect 3: Report content and structure 1. length, structure, and reporting period 2. reporting areas 3. stakeholders 4. guidelines followed Aspect 4: Social reporting and planning 1. links between social reports and plans 2. intention to replicate the initiative



Institutional Framework All the universities mention the institutional changes as a factor that has led them to develop sustainability reporting practices (Table 3). As shown in Table 3, universities mainly refer to two aspects. Firstly, the reduction of public financial resources together with financial autonomy encourage a greater disclosure in order to obtain more funds. Secondly, the stakeholders’ expectations for research and teaching quality services have been increasing; as a consequence, universities have to measure and report their achievements in order to get a higher level of legitimation. For example, the Dean of the University of Sannio stated that: The second edition of the Social Report of the University of Sannio, concerning year 2008, is issued in a time of strong economic and institutional difficulty for all Italian universities. (…) Therefore, our Social Report is a cornerstone in the process of dialogue, not only within the academic community, but in particular in the local context and the local stakeholders in order to communicate what I consider the mission of

our university: to educate not only professionals capable of doing good work, but also conscious and responsible citizens, (…) capable of facing future challenges. (University of Sannio, Social Report, 2008, p. 7, our translation)

Reporting Process Phases The description of the phases of the process and their contents is an essential part of the sustainability report as the two Italian guidelines require. A comprehensive explanation of this information contributes to the document’s reliability, therefore universities should describe governance bodies involved in the process, as well as the methodological choices undertaken (Directive, 2006). Nevertheless, the Italian universities analysed have paid little attention to this aspect, since generally it has only been partially described (by six universities). Only three universities describe the process. For example, the University of Bari emphasises the role played by the university’s governance bodies in drafting and approving

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Table 3. Institutional Factors that affect the adoption of sustainability reporting Reduction in Financial Resources

Universities

Increase in Stakeholders’ Expectations


√


√

University of Bari

√

√


√

√


√


√


√

University of Macerata University of Sannio

√ √

√



the document, but does not show the steps implemented for the reporting phase. On the contrary, the University of Ferrara shows the features of the process (such as the choice of reporting areas, the identification of stakeholders, the selection of performance indicators and the gathering of information), but does not mention the governance bodies involved.

Composition of the Working Team Six universities out of nine have a working team composed of internal employees (both administrative staff and academics). Furthermore, only two universities mentioned the working team being made up of both internal employees and external consultants. Finally, one university does not show the composition of the working team at all. Also, none of the universities assigned the sustainability reports to external consultants alone. As it appears from these findings, universities generally involve internal members in the reporting process, in order to improve the quality of the reporting, given the knowledge that staff have regarding the organization and its activities.

sustainability reports first (Scuola Superiore Sant’Anna of Pisa; Scuola Normale Superiore of Pisa; University of Bari; University of Cagliari; University of Firenze), do not describe this element at all. Table 4 illustrates the methods adopted by the four universities in a progressive order of stakeholder involvement. Before publishing its sustainability report, the University of Sannio submitted a customer satisfaction survey to students, teachers, administrative staff, firms, secondary schools and suppliers, in order to assess the perception about the university’s ability to achieve objectives and meet needs. The results were on one hand displayed in the sustainability report, on the other hand used for the future decision-making process. On the contrary, the universities of Ferrara and Insubria enclosed a questionnaire addressed to the readers of their sustainability reports, aimed at collecting an assessment about the clarity of the document and suggestions for its future improvements. Moreover, the University of Insubria, even before issuing the sustainability report, asked some institutional stakeholders (e.g. the Italian Minister of Education and a member of the National Study Group on Social Reporting) to evaluate the draft of the document in order to assess its usefulness and clarity. However, the stakeholders’ opinions are only disclosed in the sustainability report, without any effect on future editions.

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Stakeholder Engagement The analysis shows that four universities have engaged their stakeholders in the process of reporting, in different ways; on the contrary, five universities, generally the ones which issued

Table 4. Levels of stakeholder engagement



Furthermore, the University of Ferrara organised a focus group on environmental issues in order to agree on a set of indicators for reporting and foster the stakeholders’ cooperation on environmental protection. In addition, a second focus group was set up in order to involve the local firms in explaining their needs and expectations. Finally, the University of Macerata organised meetings with groups of stakeholders (e.g. students, local authorities, financial institutions etc.) in order to present the reporting process and ask for suggestions to improve the future activities of the university.

Report Content and Structure Length, Structure and Reporting Period With reference to the length of the sustainability reports, Table 5 shows that it ranges between 41 pages (Scuola Normale Superiore of Pisa) to 294 pages (University of Ferrara). Similarly, the number of sections goes from three (University of Sannio), to fourteen (University of Ferrara). However, there are generally less than eight sections. The reporting period is generally one year (academic or civil year). Only the University of Insubria discloses ten years, celebrating its first decade of activity.

Reporting Areas Universities tend to focus on issues linked to their traditional missions (research and teaching), as well as to human resources; this finding aligns to a prior study on Italian universities (Frey et al., 2010). Moreover, the University of Macerata has just one reporting area (research), since it is a pilot version. However, the University promises to enlarge the number of areas in future editions. Similarly, the Scuola Normale Superiore of Pisa discloses only one reporting area (counselling), with the purpose of informing potential students about a didactical project; it therefore appears as document specially devised for the disclosure of specific activities. Table 6 lists the reporting areas in each university’s sustainability report. With regard to the teaching activity, most universities report on the number of students and degree courses. The University of Bari accounts for the efficiency of teaching activities using an input-output model that compares financial inputs (total financial resources allocated to the teaching activities) to outputs such as number of degree courses and students’ performance. On the contrary, other universities report on the efficacy of their teaching activities by providing the satisfaction questionnaire filled out by students.

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Table 5. Length, structure and reporting period Length (No. of Pages)

Universities

Structure (No. of Sections)

Reporting Period (No. of Years)


180

6

1


41

5

2

University of Bari

125

7

2


66

4

1


61

4

1


136

7

10


294

14

1


117

4

1


77

3

1



Table 6. Reporting areas Universities

Reporting Areas


Education; Protection of Human Rights; Innovation and Research; Relationships with Local Context; Environment; International Cooperation; Health; Human Capital.


Counselling

University of Bari

Education; Research; Local Relationships


Education; Student Services (e.g. library)


Research; Education; Health; Human capital.


Education; Student Services; Research; Relationships with Local Context


Intellectual capital; Education; Research and Innovation; Relationships with Local Context; International Cooperation; Environment; Culture and Society; Health; Human capital.


Research


Education and Student Services; Research; Human Capital.

The University of Insubria defines the aim of the students’ satisfaction survey as follows:

supports the development of research projects. (University of Firenze, Social Report 2006, p. 24, our translation)

The aims we pursued are: an extensive monitoring of the teaching courses, wide diffusion of the results and their use for continuous improvement of the teaching performance of the University. (University of Insubria, Social Report 2007, p. 82, our translation)

With regard to human resources, universities generally report on the number and gender of employees and academic staff. Moreover, the University of Ferrara includes a chapter devoted to the Intellectual Capital, stating that:

With regard to the research activities, universities report mainly on projects conducted at the national and international level. Moreover, some universities, such as the University of Firenze, emphasises the support given to the development of research and innovation and its benefits for this community:

The reporting of Intellectual Capital is aimed at providing a full and transparent framework of the intangible asset of the University, namely the combination of knowledge, know-how, relations that are the drivers of the value creation process. (University of Ferrara, Social Report 2007, p. 23, our translation)

The Foundation for Research and Innovation is the legal tool through which the University of Firenze, together with other institutions, fosters the qualification of research and promotes the economic and social outcomes of the university. It achieves a permanent relationship of contact, connection and synergy between the university and the local institutions and

Furthermore, several universities devoted a chapter of their report to the relationships with the local context. Notably, the University of Firenze also attempts to quantify its economic impact on the local context, by applying the following methodology:

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The evaluation of the economic outcome was conducted in terms of direct effect of the university on the local context, namely the wages and expenses for the purchase of goods and services. (University of Firenze, Social Report 2006, p. 50, our translation)

universities are usually connected to a greater number of stakeholders compared to small ones. However, the increasing level of autonomy has encouraged universities to develop relationships with a wider number of stakeholders. Table 7 shows that, as Frey et al. (2010)’s study reveals, local authorities, financial institutions, suppliers and firms have become as relevant as the traditional university stakeholder groups (such as students and their families, academic members and administrative staff). Moreover, interestingly, the Scuola Normale Superiore of Pisa identified also its alumni as a stakeholder group to report to, with the intention of encouraging relationships among people with a similar background. Finally, the call for internationalization of Italian universities has encouraged the University of Insubria to identify the International Academic Members as a stakeholder group to report to, in order to foster a connection with the international scientific community.

Furthermore, the current study confirms Del Sordo et al. (2010)’s results concerning the little attention paid to environmental aspects. In fact, it was found that when environmental issues are reported, they refer to financial expenditure and to research and educational activities devoted to the environment. On the contrary, the University of Ferrara reports information about waste management and some environmental indicators suggested by international guidelines (e.g. the total weight of waste by type).

Stakeholders The current research found that the groups of stakeholders mentioned vary depending on the size of the university issuing the report. Large

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Table 7. Stakeholders to report to Traditional Stakeholder Groups

√ √

√

University of Bari

√


√

√


√


√


√

√

√

√


√

√

√

√


√

√

√

√

√

Alumni

International Academic Members

Firms

Sponsors

√

√

Suppliers


√

Local Authorities

√

Administrative Staff


Academic Members

Students and their Families

Universities

New Stakeholder Groups

√ √

√

√ √

√ √

√

√

√

√

√ √

√



Sustainability Reporting and Planning

Guidelines Followed The sustainability reports maintain they follow at least one guideline, except for the Scuola Superiore Sant’Anna and the Scuola Normale Superiore of Pisa which do not mention any standard. As a result a variety of guidelines were followed, both national and international (Table 8): GRI (2006), ISEA (1999), GBS (2001), GBS (2005), GBS (2008), and the Directive (2006). However, the Directive (2006) is the most followed national guideline (five cases) and the GRI the most followed international one (four cases). Interestingly the universities of Ferrara and Insubria have dedicated a part of their sustainability report to explaining which guidelines affected each section and data of the document. For example, the University of Insubria declares that the total number of employees by gender is an indicator suggested by both the GRI and GBS guidelines.

Links between Sustainability Reports and Plans All the sustainability reports studied declare that there is a link between the reporting and planning processes, but only four universities (Scuola Normale Superiore of Pisa; University of Insubria; University of Macerata; University of Sannio) explained how it works. For example, the University of Sannio conducts a survey addressed to stakeholders in order to understand how the university could improve future activities to meet its stakeholders’ needs.

Intention of Replicating the Initiative In their sustainability reports all the nine universities stated their intention of replicating the initiative. Nevertheless, not all of them have carried out this intention.

IGI GLOBAL PROOF Table 8. Guidelines mentioned Universities

GRI (2006)

ISEA (1999)

GBS* (2001)

GBS* (2005)

GBS (2008)

Directive (2006)

Scuola Superiore Sant’Anna of Pisa Scuola Normale Superiore of Pisa University of Bari

√

√


√


√


√


√


√


√

√ √

√ √

√

√

√ √

* The GBS (2001) and GBS (2005) are guidelines issued by the Italian Study Group on Social Reporting. The first is a addressed to all organizations with the aim of establishing general principles of reporting. The second is a specific guideline addressed to the general public sector.



CONCLUSION The last decade has witnessed an increasing relevance for sustainability reporting in Italian public sector organizations. Moreover, two recent sustainability reporting guidelines have been issued to encourage public organisations and universities to undertake a conscious path towards disclosure to their stakeholders. Although there is no mandatory requirement to account beyond traditional financial reporting, some Italian universities have been issuing sustainability reports since 2004. These practices have been conceived in a context of significant changes, drawn from a European common policy aimed at increasing the effectiveness in the use of public funds and improving the outputs of education and research, that have affected both the external environment and the universities’ governance. The reforms have largely decreased public resources and linked the fund allocation system to the measurement of performance. The current study examined the Italian pioneering sustainability reports in order to highlight their characteristics and draw up strengths and weaknesses of the Italian case. It was found that the size of universities does not affect the choice of reporting, since both large and small institutions have published sustainability reports. It could be argued that large universities adopt sustainability reporting to show the efficiency of their expenditure. On the contrary, small institutions seem to be driven by fund-raising purposes, to demonstrate the quality and effectiveness of their services. However, all the universities mentioned the institutional changes as the main factor that led them to developing sustainability reporting. Moreover, there is no single guideline followed for reporting. Universities refer to both Italian and international guidelines. Consequently, we found sustainability reports to be very different one from the other in structure and contents. This diversity on the one hand makes it difficult to compare one performance to another, on the other hand allows universities to learn from the reporting practices of other similar

institutions. This variety, however, hinders comparison among the performance of Italian and European universities. Also, the present study found several areas to be incomplete. These mainly referred to research, teaching and human resources, that represent the core activities of universities. Nevertheless, universities are multi-product organizations (Cohn, Rhine, & Santos, 1989) and their activities affect the growth of society; therefore, they should describe all the activities carried out. Italian universities have paid little attention on the reporting process that is often hardly disclosed at all, and occasionally presents a high level of stakeholder engagement (except for internal employees). Nevertheless, new stakeholder groups to report to have been identified (such as local authorities, sponsors, firms, etc.). Furthermore, there is a declared link between the reporting and the planning processes, but there is no explanation on how it works. Since sustainability reporting is a tool not only for external accountability purposes but also for management control system purposes, the comparison between programmes and results and the stakeholders’ suggestions can contribute to improving the planning of future activities. The creation of this link becomes increasingly relevant for universities in the light of two current trends, that are common to all countries. Firstly, in a context of reducing resources supplied by the national government, universities need to be able to attract and engage external organisations as potential funders. Secondly, the higher education system needs to spread out the results of its research in order to contribute to putting them into practice and therefore to demonstrating its contribution to society. The paper concludes that the Italian guidelines for sustainability reporting in universities seem to have supported the universities’ voluntary reporting practices, but have had just a limited impact with reference to contents. In a context of significant changes of the higher education system led at the European level (Lapsley & Miller, 2004), the paper suggests that sustainability reporting could represent a useful tool to drive both the funding allocation

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system for state universities and the comparison among outputs. For that reason, all European member states should define a common guideline for sustainability reporting. This guideline should provide universities with a precise set of contents and indicators to be displayed in sustainability reports, in order to allow comparison among institutions. The conclusions of the study, however, are affected by three main limitations. First of all, the study was conducted only in the Italian context, therefore it does not give insight into the international practice of sustainability reporting in the higher education system. Second, the novelty of the Italian guidelines for sustainability reporting in universities could have limited their adoption on the part of institutions, and therefore this novelty could have caused the poverty of information provided by some of the reports analysed. Third, the number of Italian universities reporting is still limited, therefore the characteristics highlighted in the current article are based on the analysis of a small sample of reports. If this phenomenon becomes more widespread in the future, the analysis of a wider group of reports could bring to different results. Despite the limitations highlighted, we believe that this work represents a valuable initial step towards analysing sustainability reporting by universities, and it can contribute to the development of an international debate on sustainability reporting in public sector.

Arnaboldi, M., & Azzone, G. (2004). Benchmarking university activities: An Italian case study. Financial Accountability & Management, 20(2), 205–220. doi:10.1111/j.1468-0408.2004.00193.x. Bailey, K. D. (2007). Method of social research. New York, NY: Simon & Schuster. Ball, A., & Grubnic, S. (2007). Sustainability accounting and accountability in the public sector. In J. Unerman, J. Bebbington, & B. O’Dwyer (Eds.), Sustainability accounting and accountability (pp. 243–265). London, UK: Routledge. Bowen, G. A. (2009). Documentary analysis as a qualitative research method. Qualitative Research Journal, 9(2), 27–40. doi:10.3316/QRJ0902027. Cassone, A., & Zaccarella, P. (2009). Il bilancio sociale delle università: inventario dei problemi e analisi comparata delle esperienze italiane (Working Papers n. 130). Alessandria, Italy: Università del Piemonte Orientale Amedeo Avogadro. Cohn, E., Rhine, S. L., & Santos, M. (1989). Institutions of higher education as multi-product firms: Economies of scale and scope. The Review of Economics and Statistics, 71(2), 284–290. doi:10.2307/1926974.

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Frey, M., Melis, M., & Vagnoni, E. (2010). Recent developments in social and environmental reporting among Italian universities: A critical evaluation of leading-edge practices. In M. G. Baldarelli (Ed.), Civil economy, democracy, transparency and social and environmental accounting research role (pp. 251–272). McGraw-Hill. Global Reporting Initiative GRI. (2006). G3 sustainability reporting guidelines. Global Reporting Initiative. Retrieved January, 8, 2013, from https:// www.globalreporting.org Gray, R. H., Kouhy, R., & Lavers, S. (1995). Constructing a research database of social and environmental reporting by UK companies: A methodological note. Accounting, Auditing & Accountability Journal, 8(2), 78–101. doi:10.1108/09513579510086812. Gruppo di studio per la statuizione dei principi per la redazione del bilancio sociale GBS (2001). Principi di redazione del Bilancio Sociale. Milano, Italy: Giuffrè. Gruppo di studio per la statuizione dei principi per la redazione del bilancio sociale GBS (2005). La rendicontazione sociale nel settore pubblico. Milano, Italy: Giuffrè.

Lapsley, I., & Miller, P. (2004). Transforming universities: The uncertain, erratic path. Financial Accountability & Management, 20(2), 103–106. doi:10.1111/j.1468-0408.2004.00188.x. Mathews, M. R. (1997). Twenty-five years of social and environmental accounting research: Is there a silver jubilee to celebrate? Accounting, Auditing & Accountability Journal, 10(4), 481–531. doi:10.1108/ EUM0000000004417. Meneguzzo, M., & Fiorani, G. (2009). Scelte di sviluppo, innovazione organizzativa e rendicontazione sociale: il bilancio di mandato dell’Università degli Studi di Roma “Tor Vergata”. Rivista italiana di ragioneria e di economia aziendale, 109(5), 347-359. Ministry of Higher Education. (2009). Tenth report on Italian university system. Rome, Italy. Parker, L. D. (2005). Social and environmental accountability research: A view from the commentary box. Accounting, Auditing & Accountability Journal, 18(6), 842–860. doi:10.1108/09513570510627739. Speziale, M. T., & Zanigni, M. (2007). Il bilancio sociale dell’Università nel paradigma del network Management. In A. Paletta, & M. Tieghi, (Eds.). Il bilancio sociale su base territoriale. Dalla comunicazione istituzionale alla Public Governance. (187229). Milano, Italy: Isedi.

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Benedetta Siboni, PhD, is Assistant Professor on Accounting at the Alma Mater Studiorum University of Bologna, Department of Management, Italy. Her research interests focus on sustainability planning and reporting and performance measurements in public sector, as well as in intellectual capital in universities. Her publications have appeared in academic journals such as Public Management Review, and Sustainability Accounting, Management and Policy Journal. She has also authored two Italian research books and several Italian book chapters and articles. She is a member of the Editorial committee of Meditari Accountancy Research, and of the Journal of Modern Accounting and Auditing, and referee for several journals on Accounting. She had been member of the Group for Social Report established by the Italian Standard Setter for Accounting Principles for Local Governments (Italian Ministry of Interior), and has coordinated several applied research projects funded by local governments and public utilities, in relation to sustainability reporting and stakeholder engagement.



Carlotta del Sordo, PhD, is Assistant Professor of Accounting and Control at the Alma Mater Studiorum University of Bologna, Department of Management, Italy. She received a PhD in Management of the Public Sector, University of Salerno, Italy. She got a degree in Business Administration from the University of Bologna. She was visiting scholar at Boston University, US, Accounting Department. She has done extensive research and consultancy activities on public management with specific reference to management accounting and control and performance measurement. Her research field and publications focus on new public management and public services, with concern to local governments and universities. More info: www.unibo.it/docenti/ carlotta.delsordo/curriculum Silvia Pazzi, PhD, is a Postgraduate Student in Finance at the University of Leicester (UK). She received a PhD in Business Administration, with a focus on public sector organisations, from the University of Pisa (Italy). She got a degree in Business Administration from the University of Bologna. Her research interests are mainly related to the field of Financial management both in private and public sector. During her doctoral course she was involved in research projects concerning social reporting in public sector organizations, as well as on financial performance measurement in local government and in local public enterprises.

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Using Sustainability Reports as a Method of CauseRelated Marketing for Competitive Advantage John Kenneth Corley, Computer Information Systems, Appalachian State University, Boone, NC, USA Sandra A. Vannoy, Computer Information Systems, Appalachian State University, Boone, NC, USA Joseph A. Cazier, Computer Information Systems, Appalachian State University, Boone, NC, USA

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ABSTRACT

This study explores the impact of sustainability reporting on consumer behavior. In this study, the authors measure consumer perception and behavior using the constructs value congruence, trust, loyalty, and purchase intention. To test otheur research model and hypotheses they collected survey data during an online experimental simulation. During the simulation participants were presented with information about a fictional retailer of digital music, movies, and MP3 players. Consumer behavior data were collected from participants before and after presenting information about the sustainability report of the fictitious retailer. The results of the study suggest sustainability reporting has a significant and positive impact on consumer behavior. Therefore, it may prove to be an effective method of cause-related marketing used to attract conscientious consumers. Keywords:

Cause-Related Marketing, Consumer Loyalty, Ethical Consumerism, Purchase Intention, Sustainability, Sustainability Reports, Value Congruence

INTRODUCTION The modern business environment is extremely volatile. This is especially true for organizations competing in electronic commerce (ecommerce) markets. Prior to the development of the Internet traditional businesses focused DOI: 10.4018/jsesd.2013040102

on the widely accepted four P’s (product, price, promotion, and place) of marketing. The four P’s have been extensively studied in the research literature (Anderson & Taylor, 1995), and in the pre-Internet era ‘place’ was determined to be a key component of a company’s competitive advantage. However, in the context of e-commerce within current era ‘place’ has become irrelevant (Wilson & Abel,



2002). Consequently, creating and maintaining a competitive advantage is extremely difficult in e-commerce markets because business strategies incorporating the remaining 3 P’s (product, price, and promotion) are quickly and easily duplicated by competitors. Wilson and Abel (2002) note the former strategic significance of ‘place’ has been transferred to new critical factors. Cazier, Shao, and St Louis (2006), suggest ‘perception’ has replaced ‘place’ in the current era of e-commerce. They further define perception as a “consumer’s perceptions of trust, value congruence, and other factors that motivate customers to complete a transaction.” This could help explain the strategic focus modern businesses place on building up their reputation. Sustainability has become a strategic focus within many modern organizations. This is attributed to changes in public awareness and consumer behavior. The increase in media coverage of environmental issues and changes in general consumer behavior patterns have given rise to what is known within the research literature as ‘ethical consumption’ and ‘ethical consumerism’(Newholm & Shaw, 2007; Strong, 1996). That is, consumers are purchasing goods and services from businesses that share their values. Organizations have responded to ethical consumerism with ‘cause-related marketing’ (CRM) to attract conscientious consumers (Barone, Miyazaki, & Taylor, 2000). In fact, recent studies including surveys by McKinsey & Company, the United Nations Global Compact led by Accenture, and the Boston Consulting Group indicate “strengthening reputation and trust are prime motivators for companies to be involved with sustainability (O’Brien, 2010).” Sustainability reporting is emerging as a method of implementing CRM to create a competitive advantage that is not easily replicated. To better understand the impact of sustainability reporting on consumer behavior and consumer perception we developed a research model designed to address the following research questions; (a) ‘does sustainability reporting positively impact consumer behavior?’ (b) ‘does value congruence (the alignment between the values of consumers and an organization)

positively impact consumer behavior?’ and, (c) ‘do pre-existing general attitudes toward sustainability significantly impact value congruence?”

THEORETICAL BACKGROUND One of the earliest definitions of sustainability can be traced to a 1987 United Nations conference where sustainability is defined as developments that “meet present needs without compromising the ability of future generations to meet their needs” (WCED, 1987). For the purposes of this study we closely adhere to the United Nations definition of sustainability, and further define ‘sustainability reporting’ as documentation of an organization’s focus on environmental issues as a central component of normal business operations. These business operations include waste reduction, eliminating pollution, recycling & the use of materials that are easily recycled, utilizing energy efficient operations, the use of green power (solar, wind, hydro, etc.), and supporting non-profit environmental organizations and initiatives. Based on previously published literature we use two constructs (consumer purchase intentions and consumer loyalty) to measure consumer behavior and two constructs to measure consumer perception (consumer trust and value congruence).

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Consumer Purchase Intentions Taylor and Strutton’s (2010) meta-analysis of 112 Internet-related marketing studies found several commonalities related to constructs used to measure consumer behavior. Behavioral intention or ‘purchase intention’ was included in almost all studies in Taylor and Strutton’s (2010) meta-analysis. Behavioral intention is based on several widely accepted theories including the theory of reasoned action (Fishbein & Ajzen, 1975), the theory of planned behavior (Ajzen, 1991), the technology acceptance model (Davis, 1989), and flow theory (Csikszentmihalyi, 1988; Hoffman & Novak, 1996). Given its extensive use within consumer behavior research, pur-



chase intention was included in this study as a measure of consumer behavior. For the purpose of this study, consumer purchase intention is defined as consumers’ intention to purchase specific products or services from a particular vendor. Therefore we hypothesize: Hypothesis 1: “Sustainability reports will have a significant positive effect on consumer purchase intentions.”

Consumer Loyalty Consumer loyalty is considered a post-purchase attitude. Taylor and Strutton (2010) define consumer loyalty as a consumers’ favorable attitude toward a business resulting in repeat business or ‘re-purchase intentions.’ This has implications for continuing patronage of company’s products or services in the future. As such it is a valuable construct to understanding consumer behavior. Therefore we hypothesize:

zation’s trustworthiness. Trust is included in our study as an important construct used to better understand consumer behavior. Therefore, we hypothesize: Hypothesis 3a: “Sustainability reports will have a significant positive effect on consumer trust;” Hypothesis 3b: “Consumer Trust will have a significant, positive affect on consumer purchase intentions;” Hypothesis 3c: “Consumer Trust will have a significant, positive affect on consumer loyalty.”

Value Congruence Values are referred to as desirable states, objects, goals or behaviors, transcending specific situations and applied as normative standards to judge and to choose among alternative modes of behavior (Elizur & Sagie, 1999). Examples of values include but are not limited to equal rights in the workforce, ecological diversity, and environmental stewardship. Cazier, Shao, and St Louis (2007) indicate that value congruence is a vital component of consumer perception and further define value congruence as “the amount of overlap between a consumer’s personal values and the values he perceives to exist in an organization.” Cazier et al. (2007) suggest an organization can be described as (a) Value Neutral (an organization’s values are perceived not to provide any meaningful support either for or against the causes an individual is interested in), (b) Value Positive (an organization is perceived to have high compatibility between the individual’s values and the organization’s values), and (c) Value Negative (an organization’s values and an individual’s values are perceived to be negatively correlated). We expect participants to report a higher correlation or value congruence with a company that publishes a sustainability report. Therefore we hypothesize:

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Hypothesis 2a: “Sustainability reports will have a significant positive effect on consumer loyalty;” Hypothesis 2b: “Consumer Loyalty will have a significant, positive affect on consumer purchase intentions.”

Consumer Trust Trust has also been identified as the most widely included construct used to understand pre-purchase consumer behavior, particularly in studies related to consumer purchases online (Bhattacherjee, 2002; Cazier, 2006; Cazier et al., 2006; Eastlick, Lotz, & Warrington, 2006; Lee & Turban, 2001; McKnight, Choudhury, & Kacmar, 2002; Milne & Boza, 1999; Taylor & Strutton, 2010). For the purposes of this study we defined trust as “a consumer’s willingness to rely on the seller and engage in behaviors that make the consumer vulnerable (Jarvenpaa & Tractinsky, 1999).” In short, this construct represents a consumer’s perception of an organi-



Hypothesis 4a: “Value Congruence will have a significant, positive affect on consumer trust;” Hypothesis 4b: “Value Congruence will have a significant, positive affect on consumer loyalty.”

General Attitudes toward Sustainability VC measures the level of value alignment between an individual consumer and a business organization. We will later describe the fictional IT business and its sustainability report presented to participants during the online experimental simulation developed for this study. However, to better understand the impact of pre-exiting general attitudes toward sustainability (GATS) and their effect on CV we adopted a measure of GATS used to collect data prior to beginning the simulation. For purposes of this study, we have defined GATS as “an individual’s general attitude toward sustainability and the environment (Johnsson & Reiner, 2007).” Therefore, we hypothesize (See Table 1 and Figure 1):

Hypothesis 5: “An individual’s attitudes toward sustainability in general will have a significant, positive affect on value congruence.”

RESEARCH METHODS Participants The use of students as surrogates in social science research is a controversial issue and has often been debated within the IS research literature. Burnette and Dunne (1986) suggest that students should only be used as subjects when they represent the subject of interest. Bass and Firestone (1980) note that research findings which are not widely generalizable beyond a specific population can provide evidence of causal relationships and testable hypotheses that can be extended to other subject populations. Despite the controversy, previous social science research seems to indicate that it is suitable to use students as surrogates when the participants’ skills and experiences are considered appropri-

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Table 1. Summary of hypotheses Hypothesis

Symbol

Description

H1

PI

Sustainability reports will have a significant positive effect on consumer Purchase Intentions

H2a

Loyal

Sustainability reports will have a significant positive effect on consumer Loyalty

H2b

L → PI

Loyalty will have a significant, positive effect on Purchase Intentions

H3a

Trust

Sustainability reports will have a significant positive effect on consumer Trust

H3b

T → PI

Trust will have a significant, positive effect on Purchase Intentions

H3c

T→L

Trust will have a significant, positive effect on Loyalty

H4b

VC → T

Value Congruence will have a significant, positive effect on Trust

H4c

VC → L

Value Congruence will have a significant, positive effect on Loyalty

H5

GSA → VC

General Sustainability Attitudes will have a significant, positive effect on Value Congruence

GATS = General Attitude toward Sustainability L = consumer loyalty towards an organization Purchase Intention (PI) = a consumer’s intention to purchase a good or service T = consumer trust towards an organization VC = an individual’s value congruence with an organization



Figure 1. Proposed research model

ate for an experimental task (Chi & Glaser, 1985; Hughes & Gibson, 1991). It has been noted that university students represent one of the largest target markets for MP3 players and digital downloads of both music and movies (Ipsos_Research, 2006). Since participants are asked to behave in their normal capacity, the use of students is considered appropriate (Gordon, Slade, & Schmitt, 2002). Consequently, undergraduate students were recruited to participate on a voluntary basis from a medium sized university in the southeastern United States. A total of 363 participants (61.2% males and 38.8% females) with an average age of 23.3 years (age range from 18 to 50) completed the research study.

players and seller of downloadable digital songs and movies. There are several established companies that bear resemblance to aspects of our company’s business including Apple (iPod and iTunes), Microsoft (Zune), and Amazon (digital downloads). In step one of the simulation participants were given some basic facts about the fictitious company called Media Magic. The basic facts provided to our participants stated that the company was founded in 2001, it has over $100 million a year in sales, consumers consistently rate its products very high, and its products are reasonably priced. Participants were also told that they were looking for a gift for a close friend, and they have decided to buy an MP3 player along with a downloaded song and a downloaded movie as a gift. In step two of the simulation consumer behavior data was collected. This included data collected on the participants’ future purchase intentions, loyalty, and trust. The initial data collection in steps one and two serves as our neutral consumer behavior data since participants had no knowledge of Media Magic’s sustainability reports. In step three participants were told Media Magic has issued a sustainability report. The summary of the sustainability report notes that Media Magic supports the environment and

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Procedure In order to test our proposed hypotheses, we conducted an online simulation. During the simulation a fictitious company was presented to help control for possible bias during data collection. For example, if Amazon.com were incorporated into the study participants who have purchased goods or services from Amazon.com might rely on previous experience to answer consumer behavior questions rather than information provided during the study. Therefore, we created a fictional company — a manufacturer and retailer of digital media



gives back to local communities by (a) avoiding the use of toxic elements in its products, (b) supplementing its energy needs with renewable power, (c) promoting an initiative to be “good stewards” of the environment as the central mission of the company, and (d) the company donates a set percentage of profit from each MP3 player sold to various environmental organizations. In step four of the simulation consumer behavior data was collected a second time. This included data collected on the participants’ future purchase intentions, loyalty, trust, and value congruence. The data collection in step four serves as the consumer behavior data for an organization with a published sustainability report since participants were presented with additional information regarding Media Magic’s published sustainability report. Steps one through four are summarized in Figure 2.

Measures Survey items were used to measure two consumer behavior constructs (purchase intention and loyalty), two consumer perception con-

structs (trust and value congruence), and general attitude toward sustainability. A complete list of all items can be found in Table 2.

Consumer Purchase Intention The consumer behavior construct, purchase intention, was measured using four Likerttype questions. Participants were asked to rate their level of agreement with each statement on a scale of one to seven. For example, ‘It is _______________ I will buy these items from The Company rather than a competitor’ (1 = Likely, 7 = Unlikely).

Consumer Loyalty The consumer behavior construct, loyalty, was also measured using four Likert-type questions. Participants were asked to rate their level of agreement with each statement on a scale of one to seven. For example, ‘I would ________ to buy from The Company.’ (1 = Prefer To, 7 = Prefer Not To). These four items were also adopted from previously published studies (Cazier, 2006; Cazier et al., 2006, 2007).

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Figure 2. Experimental procedure



Table 2. Survey items used to measure constructs Construct GATS

Purchase Intention

Loyal

Identifier

Questions

Response

GATS1

We should ____ the environment.

1 – Very Strongly Protect to 7 – Very Strongly Exploit

GATS2

I want to ____ the planet

1 – Very Strongly Protect to 7 – Very Strongly Exploit

GATS3

We should ____ organizations that support environmental causes.

1 – Very Strongly Support to 7 – Very Strongly Oppose

GATS4

We should ____ green business practices.


PI1

It is _______________ I will buy these items from The Company rather than a competitor.

1 - Likely to 7 - Unlikely

PI2

It is ________ I will purchase the digital song from The Company rather than a competitor.


PI3

It is __________ I will purchase the digital movie from The Company rather than a competitor.


PI4

It is ________ I will purchase the MP3 player from The Company rather than a competitor.

1 - Likely to 7 – Unlikely

Loyal1

I would ___________ The Company to others.

1 - Recommend to 7 - Criticize

Loyal2

I would ________ to buy from The Company.

1 - Prefer to 7 - Prefer Not

IGI GLOBAL PROOF Trust

Value Congruence

Loyal3

I will say _____ things about The Company.

1 - Positive to 7 - Negative

Loyal4

I will ______ others to do business with The Company.

1 - Encourage to 7 - Discourage

Trust1

The Company is _____________.

1 - Trustworthy to 7 - Untrustworthy

Trust2

I _________ The Company.

1 - Trust to 7 - Distrust

Trust3

The Company deserves _________.

1 - My Trust to 7 - Distrust

Trust4

I feel ___________ trusting The Company.

1 - Comfortable to 7 - Uncomfortable

VC1

I ___ Media Magic’s environmental practices.


VC2

Media Magic and I ___ in our environmental views.

1 – Very Strongly Agree to 7 – Very Strongly Disagree

VC3

Media Magic’s environmental values appear to be ___ with my own.

1 – Very Strongly Congruent to 7 – Very Strongly Incongruent

VC4

My environmental values are ___ with Media Magic’s values.

1 – Very Strongly Congruent to 7 – Very Strongly Incongruent




Consumer Trust

ANALYSIS AND RESULTS

Survey items were also used to measure each of the two consumer perception constructs. The consumer perception construct of trust was measured using four Likert-type questions. Participants were asked to rate their level of agreement with each statement on a scale of one to seven. For example, ‘The Company is _____________.’ (1 = Trustworthy, 7 = Untrustworthy). These four items were adopted from previously published studies (Cazier, 2006; Cazier et al., 2006).

Analysis 1: Paired Sample T-Test’s

Value Congruence The second consumer perception construct, value congruence, was only captured in the second round of data collection after the participants were presented with a sustainability report. This allowed us to compare consumer perceptions of a company with a self-generated sustainability report to a company with a sustainability report generated by a third party auditing agency. Value congruence was measured using four Likert-type questions adopted from prior research studies (Cazier, 2006; Cazier et al., 2006, 2007). Participants were asked to rate their level of agreement with each statement on a scale of one to seven. For example, ‘Media Magic’s environmental values appear to be ___ with my own.’ (1 = Very Strongly Congruent, 7 = Very Strongly Incongruent).

In an effort to operationalize our first research question (does sustainability reporting positively impact consumer behavior?) and test hypotheses 1, 2a, and 3a (see Table 8) we conducted a set of t-tests on the consumer behavior and perception data. Table 3 contains the results of the t-tests between the data collected for a company with no sustainability report versus a company with a sustainability report. The results of the t-tests reported in Table 3 indicate that all items measuring consumer behavior and consumer perceptions were significantly higher for an organization that issued a sustainability report when compared to an organization with no sustainability report. That is, evidence suggests a sustainability report has a significant, positive effect on (a) consumer purchase intentions, (b) consumer loyalty, and (c) consumer trust.

Analysis 2: SEM using PLS IGI GLOBAL PROOF

General Attitude toward Sustainability GATS were measured using four Likert-type questions adapted from prior research studies conducted by the Alliance for Global Sustainability (Johnsson & Reiner, 2007). Participants were asked to rate their level of agreement with each statement on a scale of one to seven. For example, ‘We should ____ the environment.’ (1 = Very Strongly Protect, 7 = Very Strongly Exploit).

Before beginning structural equation modeling (SEM) using partial least squares (PLS) to address our remaining research questions, principal component analysis using SPSS Statistics 17.0 was conducted to test whether items were consistent with the nature of the hypothesized construct, i.e., items that are conjectured to measure a specific phenomenon load together on one component. The Kaiser-Meyer-Olkin Measure of Sampling Adequacy (KMO) statistic was calculated to determine whether the measurement items would yield distinct factors. The KMO statistic was .884, well above the minimum acceptable threshold of .50. Measurement items that loaded above .50 and did not cross-load on another component at .50 or greater were retained for PLS analysis (see Table 4). Items that loaded on a component at less than .50 were considered poor loading



Table 3. Group A - no report vs. report No Report Item

Mean

Std. Dev.

Report Mean

Std. Dev.

Difference Mean Diff.

t Stat

Sig (1t)

Trust 1

5.033

0.782

4.720

0.666

0.313

5.462

0.000

Trust 2

4.907

0.826

4.599

0.659

0.307

5.304

0.000

Trust 3

4.855

0.828

4.557

0.712

0.298

4.850

0.000

Trust 4

4.988

0.769

4.687

0.715

0.301

5.150

0.000

Loyal 1

4.105

0.902

4.705

0.698

0.401

9.042

0.000

Loyal 2

4.979

0.918

4.392

0.857

0.587

11.668

0.000

Loyal 3

5.193

0.872

4.711

0.669

0.482

12.293

0.000

Loyal 4

5.084

0.896

4.590

0.696

0.494

11.494

0.000

PI 1

5.172

1.101

4.831

0.999

0.340

4.325

0.000

PI 2

5.018

1.212

4.762

1.069

0.256

3.076

0.004

PI 3

4.985

1.215

4.708

1.081

0.277

3.215

0.002

PI 4

5.084

1.160

4.620

1.113

0.464

5.448

0.000

Loyal = consumer loyalty towards an organization Purchase Intention (PI) = a consumer’s intention to purchase a good or service Trust = consumer trust towards an organization

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and were not considered for retention (Kaiser 1974). Items that loaded below .40 are not reflected in Table 4. Partial least squares (PLS) (Chin, 1998; Tenenhaus, Vinzi, Chatelin, & Lauro, 2005; Wold, 1975), a variance-based structural equation modeling (SEM) analysis technique (Bollen, 1989; Kaplan, 2000) was used as the data analysis method to test our proposed research model. PLS, an alternative to historically predominant covariance-based methods (Haenlein & Kaplan, 2004), focuses on maximizing the variance of the dependent variables explained by the independent variables instead of reproducing the empirical covariance matrix. PLS has an advantage in that it “involves no assumptions about the population or scale of measurement” (Fornell & Bookstein, 1982, p. 443) or distributional assumptions (Chin, 1998; Fornell & Cha, 1994). The PLS technique has become a widely used alternative to the covariancebased SEM technique and can either be applied for theory confirmation or theory development (Chin, 1995; Chin, 1998; Hair, Black, Babin,

Anderson, & Tatham, 2006). PLS has been applied across a wide range of studies in the information systems literature, including: Compeau and Higgins, (1995), Hwang (2005), Karimi, Pavlou, and Dimoka (2006), Somers and Gupta (2004), Rivard and Huff (1988), and Wixom and Watson (2001), among others. In fact, Goodhue, Lewis, and Thompson (2006) suggest that “…PLS has been wholeheartedly accepted as an important statistical method in the MIS field” (p. 2). SmartPLS 2.0 (Ringle, Wende, & Will, 2005) with the bootstrap resampling method (200 re-samples) was used to test the measurement and structural models.

Measurement Model Consistent with established practice, PLS was used to specify the measurement model before evaluating the structural model (Bagozzi, 1994; Jöreskog, 1993). Each construct and item was examined using PLS confirmatory factor analysis (CFA) in order to establish validity and reliability of the measurement model. Item



Table 4. SPSS rotated component Matrixa Component 1

2

3

GATS1

.899

GATS2

.849

GATS3

.859

GATS4

.849

4

VC1b

.789

VC2b

.814

VC3b

.850

VC4b

.847

T1b

.871

T2b

.893

T3b

.895

T4b

.876

L1b

.859

L2b

.844

L3b

.857

L4b

.844

PI1b

.493

5

IGI GLOBAL PROOF .797

PI2b

.863

PI3b

.887

PI4b

.448

.755

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 8 iterations. GATS = General Attitude toward Sustainability L = consumer loyalty towards an organization Purchase Intention (PI) = a consumer’s intention to purchase a good or service T = consumer trust towards an organization VC = an individual’s value congruence with an organization

reliability was evaluated by examining the item loadings, or the correlation between each item and its specific construct (Fornell, Lorange, & Roos, 1990). While there is no definitive rule regarding minimal factor loadings in PLS, a value of 0.70 has been acknowledged as an acceptable retention threshold (George & Mallery, 2003; Hulland, 1999) and was adopted in the current study. As seen in Table 4, loadings on specified factors were well above the .70 minimum threshold.

As seen in Table 5, items loaded well above the .70 threshold on their specific constructs. Additionally, each construct exhibits strong communality values at greater than the minimum communality value of .50 (George & Mallery, 2003; Hulland, 1999; Wixom & Watson, 2001). Construct validity was evaluated through measures of convergent and discriminant validity. Convergent validity, or evidence that items are associated a specific construct converge,



Table 5. Cross-loadings and construct communality GATS

L

PI

T

VC

GATS1

0.9120

-0.0079

-0.0272

0.2192

0.4252

GATS2

0.8460

0.0251

-0.0029

0.2092

0.3783

GATS3

0.8935

0.0568

0.0320

0.2224

0.4280

GATS4

0.8955

0.0979

0.0150

0.1848

0.4511

L1b

0.0308

0.9145

0.6569

0.0051

0.1154

L2b

0.0661

0.9182

0.6993

-0.0344

0.0324

L3b

0.0562

0.9228

0.6855

0.0204

0.1182

L4b

0.0317

0.9381

0.7266

0.0095

0.1262

PI1b

0.0170

0.7468

0.9442

-0.0128

0.0045

PI2b

0.0351

0.6761

0.9224

0.0212

0.0591

PI3b

0.0114

0.6619

0.9353

0.0104

0.0357

PI4b

-0.0450

0.6814

0.8921

-0.0320

-0.0360

T1b

0.2309

0.0075

0.0054

0.9391

0.6398

T2b

0.2282

-0.0057

-0.0103

0.9465

0.6228

T3b

0.2087

0.0219

-0.0022

0.9129

0.5644

T4b

0.2084

-0.0209

-0.0079

0.9357

0.6230

VC1b VC2b VC3b VC4b

IGI GLOBAL PROOF 0.4362

0.0861

0.0194

0.5968

0.8991

0.4666

0.0926

-0.0067

0.6280

0.9417

0.4357

0.1034

0.0167

0.6223

0.9542

0.4411

0.1162

0.0334

0.6120

0.9474


was examined through calculations of Cronbach’s alpha, composite reliability, and communality coefficients (Fornell & Larcker, 1981; Hulland, 1999). This study relied upon the recommended minimum Cronbach’s alpha and composite reliability thresholds of 0.70 (George & Mallery, 2003; Nunnally & Bernstein, 1994; Wixom & Watson, 2001). Cronbach’s alpha implicitly assumes that each item carries the same weight. However, composite reliability relies on the actual loadings to construct the factor score and thus may be a better measure of internal consistency (Chin, Marcolin, & Newsted, 1996; Wixom & Watson, 2001). Ideally variables load significantly on a single

factor that has a communality measure greater than 0.50. Communality represents the total amount of variance the specific variable shares with all other variables included in the factor analysis. Thus, communality values less than 0.50 do not provide adequate explanatory value. As seen in Table 6, Cronbach’s α, composite reliability, and communality of each construct was well above the minimum specified coefficient threshold. Discriminant validity, the extent to which two constructs are distinct, was assessed using the squared average variance extracted (AVE) procedure (Fornell & Larcker, 1981). The AVE is the “average variance shared between a



Table 6. Construct validity Composite Reliability

Cronbach’s Alpha

Communality

GATS

0.9365

0.9096

0.7869

L

0.9586

0.9424

0.8527

PI

0.9588

0.9425

0.8532

T

0.9645

0.9509

0.8717

VC

0.9657

0.9525

0.8758


Table 7. Latent variable correlations with square root AVE on diagonal GATS

L

PI

T

GATS

0.8871

L

0.0500

0.9234

PI

0.0052

0.7502

0.9237

T

0.2348

0.0003

-0.0040

0.9336

VC

0.4756

0.1064

0.0166

0.6571

VC

IGI GLOBAL PROOF

0.9358


construct and its measures…This measure should be greater than the variance shared between the construct and the other constructs in the model” (Hulland, 1999, p. 200). Table 6 provides the results of this test of discriminant validity. As recommended by the literature, the on-diagonal values (the square roots of the AVEs) reflect values above the minimum threshold of .50 and are greater that their respective off-diagonal values, indicating acceptable discriminant validity in this model.

Structural Model and Hypothesis Testing The structural model was tested by estimating structural path coefficients and corresponding t-statistics (see Figure 3 and Table 8). Bootstrap-

ping with a 200 re-sampling with replacement technique was used to estimate standard errors, sample mean, and path significance (Efron & Gong, 1983). It has been suggested that path coefficients of 0.20 or greater provide adequate explanatory power (Chin, 1998).

Model Fit Unlike covariance-based SEM, PLS models are not evaluated using traditional measures of model fit indices. Instead, goodness of fit for PLS models is assessed using the strength of path coefficients and R2 variance explained (Chin, 1995; Chin, 1998; Chin, 1998). As indicated in Table 8 and Figure 1, statistically significant structural paths in our theoretical model were quite strong. The R2 statistic for



Figure 3. Structural model displaying results of PLS analysis

Table 8. Summary of hypotheses tests

Hypothesis

Symbol

Structural Path Coefficients (T-Statistics)

Description

IGI GLOBAL PROOF

Hypothesis Supported?

H1

PI

N/A (T-Test)

Sustainability reports will have a significant positive effect on consumer Purchase Intentions

YES

H2a

Loyal

N/A (T-Test)

Sustainability reports will have a significant positive effect on consumer Loyalty

YES

H2b

L → PI

0.750 (29.880)

Loyalty will have a significant, positive effect on Purchase Intentions

YES

H3a

Trust

N/A (T-Test)

Sustainability reports will have a significant positive effect on consumer Trust

YES

H3b

T → PI

-0.004 (0.112)

Trust will have a significant, positive effect on Purchase Intentions

NO

H3c

T→L

-0.123 (1.739)

Trust will have a significant, positive effect on Loyalty

NO

H4a

VC → T

0.657 (19.220)

Value Congruence will have a significant, positive effect on Trust

YES

H4b

VC → L

0.187 (2.585)

Value Congruence will have a significant, positive effect on Loyalty

YES

H4

GSA → VC

0.476 (9.932)

General Sustainability Attitudes will have a significant, positive effect on Value Congruence

YES

Value Congruence is .23, indicating that General Sustainability Attitudes explain approximately 23% of the variance in this construct. The R2 statistic for Loyalty is .02, indicating that Value Congruence and Trust explain approximately

2% of the variance in this construct. Extant literature provides little guidance regarding thresholds for R2, since “meaningfulness is specific to a given research area” and can vary significantly between researchers, domains



and phenomenon (Pedhazur, 1982, p. 25). In fact, Cohen (1992) suggests that given certain considerations, an R2 as small as 0.0196 may provide valuable information. The R2 value for Trust is .43, indicating that Value Congruence has good deal of explanatory power with regards to the Trust construct. Likewise, the R2 value for Purchase Intention is quite strong at .56, indicating that Trust and Loyalty together explain approximately 56% variance in this construct. In summary, the proposed model in this study is well-supported, with four of the six hypotheses being statistically significant at p < .01. Our proposed research model has been evaluated and validated through a number of well-vetted processes. First, steps were taken to ensure that items would load on distinct factors. Then, an appropriate measurement model was verified. Item loadings on their specified constructs were evaluated based on minimum threshold of 0.70 (Hulland, 1999) and communality threshold of .50 (Hair et al., 2006). Convergent validity was demonstrated using Cronbach’s alpha, composite reliability, and communality measures (Fornell & Larcker, 1981). Discriminant validity was demonstrated using the squared AVE approach (Fornell & Larcker, 1981), with squared AVE’s being above .50 and well above cross-loadings on latent constructs. The model fit was determined through strength of path coefficients and R2 values, or the amount of variance explained in endogenous constructs by their associated exogenous constructs.

our student indicate consumers who generally express a strong commitment toward supporting sustainability will tend to experience a higher level of value congruence with organizations that publicize a strong commitment to sustainability. Finally, our study suggests higher levels of value congruence between a consumer and an organization seems to have significant, influence on consumer trust and loyalty toward the organization. In summary, our study does indicate that sustainability reporting can have a positive influence on consumer behavior. Therefore, practitioners in the corporate sector could find it beneficial to use cause-related marketing to target groups of conscientious individuals who seek to consume goods and services offered by organizations who share their personal values.

Limitations No research study is perfect and every research method has advantages and disadvantages associated with it (survey items versus direct observation, etc.). Therefore, each research method is inherently flawed in one manner or another. The current analysis of our study is not without limitations that should be offset through future research efforts. For example, our simulation did not involve a time lapse and data collection was completed in sequential order over a period of 15 to 30 minutes. Consumer loyalty is a measure of future purchase intentions. Therefore, there is a temporal component that may require some constructs within our model which may require data to be collected over an extended period of time (several days or weeks). This would allow participants an opportunity to gain experience interacting with an organization before reporting future purchase intentions. Additionally, multiple research methods are often employed to offset the inherent weaknesses of an individual research method. For example, a primary field study or case study may be conducted for initial data collection on a particular phenomenon which can then be used to fine tune measurement items for a follow up sample survey. In our study we in-

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CONCLUSION Discussion and Implications The results of our research study suggests sustainability reporting could be an effective method of cause-related marketing (CRM) capable of attracting conscientious consumers who practice ethical consumerism. More specifically our results suggest sustainability reports have a significant, positive impact on consumer perception and behavior. Additionally, the results of



corporated two research strategies. Following Scandura & Williams (2000) a sample survey and a simulation involving the introduction of a fictitious company. The simulation was used to allow us to collect consumer behavior data, related to an organization with and without a sustainability report, from the same participants. While this was intended to improve our study and the quality of the data collected, it could also have an inverse effect. Scandura & Williams (2000) note that a sample survey maximizes generalizeability to a target population, but its degree of ‘precision measurement’ and ‘realism of context’ is low. In contrast, they note an experimental simulation has low generalizability to a target population and a moderate degree of both ‘precision measurement’ and ‘realism of context.’ Therefore, we would hope that employing both a sample survey and a simulation would maximize the generalizability to target population and increase the degree of ‘precision measurement’ and ‘realism of context’ from low to moderate. However, we realize the potential for the both the strengths and weaknesses of these two research strategies to complement each other. The unexpected results regarding the relationships between trust, loyalty, and purchase intention could simply be caused by the survey items chosen to measure each construct in the model. Purchase intention is closely related to future purchase intentions, and items measuring value congruence and loyalty could also be too closely related. Also, while students were deemed appropriate candidates for participation there is much controversy suggesting students simply represent a population of convenience. Future research studies should collect data from nonstudent participants. Perhaps patrons of an ecommerce web site would make better a better participant pool for data collection.

both loyalty and purchase intention. This is counter intuitive and contradicts much of the research regarding the theoretical relationships between loyalty, trust, and purchase intentions. This is definitely an area that should be explored in future research studies. Perhaps value congruence measures an emotional response between a consumer and an organization that similar in nature to the factors influencing future purchase intentions. That is, loyalty could involve an emotional commitment to an organization similar to a fan’s emotional commitment to a sports team. Also, other research strategies such as field studies, field experiments, laboratory experiments, and judgment tasks could be used to explore the impact of sustainability reports on consumer behavior.

Future Research

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John Ken Corley, Assistant Professor, Appalachian State University. Dr. Corley is an Assistant Professor of Computer Information Systems at Appalachian State University. He received his PhD from Auburn University. His current research interests include sustainability, information privacy and security, and human computer interaction. Prior to academia, he worked as the general manager of corporation servicing the petro-chemical industry and in marketing communications within the industrial manufacturing industry. Sandra A. Vannoy, Assistant Professor, Appalachian State University. Dr. Vannoy is an Assistant Professor of Computer Information Systems at Appalachian State University. She received her PhD from the University of North Carolina at Greensboro. Dr. Vannoy’s current research interests lie primarily in the areas of the role of information systems in competitive interaction, social computing, and sustainability. In addition to working in the academic setting, Dr. Vannoy has owned her own software company, and has worked in the healthcare and banking industries. Joseph A. Cazier, Assistant Dean, Appalachian State University. Dr. Cazier received a PhD from Arizona State University. He actively does research in the areas of sustainability, information security, trust & ethics and has taught courses in network security, information systems, database, and ecommerce. Prior to academia, he worked as a data analyst and a research scientist in the biotech industry.

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Sustainability Performance and CSR Disclosure: The Missing Link

Siyuan Seth Li, Terry College of Business, University of Georgia, Athens, GA, USA Marie-Claude Boudreau, Terry College of Business, University of Georgia, Athens, GA, USA Mark Huber, Terry College of Business, University of Georgia, Athens, GA, USA Richard T. Watson, Terry College of Business, University of Georgia, Athens, GA, USA

ABSTRACT Sustainability disclosure is a topic of great interest among academics and practitioners. As a key means of disclosing an organization’s sustainability information, the corporate social responsibility (CSR) report is adopted by most organizations nowadays. It also becomes an important information source for stakeholders. However, there is a concern that many stakeholders perceive CSR reports are reflections of the sustainability performance of organizations. This misunderstanding could lead to undesired outcomes (e.g., lower the expected risks than actual risks). In this study, the authors explore the relationship between organizations’ CSR disclosure and their sustainability performance. Their result shows that there is a significant relationship between an organizations’ sustainability performance and its sustainability disclosure level. At the same time, they observe many organizations that have inconsistent levels of sustainability performance and disclosure (e.g., good sustainability performance but low level of CSR disclosure). In order to a have comprehensive view of all possible scenarios, the authors propose four archetypes that categorize organizations according to their CSR disclosure levels and sustainability performances. Underpinning theories and rationales are discussed for each archetype.

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Keywords:

Corporate Social Responsibility (CSR) Report, Global Reporting Initiative (GRI), KLD Index, Legitimacy Theory, Sustainability

INTRODUCTION To attract future investments, maintain their public image, and retain competitive advantages, many organizations are adding environmental sustainability as an important organizational goal (Clarkson, Li, Richardson, & Vasvari, DOI: 10.4018/jsesd.2013040103

2010; Dhaliwal, Li, Tsang, & Yang, 2011; Dreessen 2010; Lo & Sheu, 2007). To demonstrate their organizational commitment to stakeholders and wider audiences, some organizations are using a corporate social responsibility (CSR) report as a key means to disclose sustainabilityrelated information, including environmental and social concerns. As more and more organizations worldwide committed to this type of



disclosure, the number of CSR reports based on the Global Reporting Initiative framework (the most widely accepted reporting framework), grew from very few in the mid-1990s to over 2,185 CSR reports in 2011 (GRI, 2011). Research conducted by KPMG in 2011 indicates that 95% of Global 250 companies disclosed their environmental data in 2011, compared to 45% in 2002. Stakeholders of all kinds use CSR reports to learn about an organization’s sustainability performance (Rowbottom & Lymer, 2009). Regardless of CSR reports’ popularity with organizations and stakeholders, an important question remains: do CSR reports accurately and reliably depict the sustainability performance of an organization? This study examines different patterns of relationships between CSR disclosure and organizational sustainability performance. An organization that publishes a CSR report chooses to initiate an information exchange about its social and environmental impacts, and its CSR report prompts a conversation among interested parties and key stakeholders. Because, in most countries, sustainability reporting is voluntary, the quality and quantity of information disclosed within CSR reports vary across organizations and may even vary within a single organization over time. Such variations lead to inconsistencies and confusions for stakeholders to evaluate an organization’s sustainability performance. Given these concerns, recent studies raised several issues related to CSR reports. Aras and Crowther (2009) argue that a CSR report might mislead investors to think that a firm’s level of risk (especially environmental risk) is lower than it actually is. Looking internally, Adams (2004) finds differences in organizations’ motivations for achieving sustainability and greater accountability. Hess and Warren (2008) argue that voluntary reporting can work against the attainment of sustainable development goals by hampering the implementation of other mechanisms that would be more effective in advancing these goals. Partly because these reports are written for a readership of existing or potential customers, employees, and investors, it has been suggested that CSR reports

tend to over-emphasize the positives, and thus deemphasize the less effective aspects of an organization’s sustainability efforts, or lack thereof (Frost, Jones, Loftus, & Van Der Laan, 2005; O’Dwyer & Owen, 2005). Accordingly, a CSR report might be used to improve an organization’s green reputation, while not really impacting the organization’s efforts towards becoming more sustainable (Makower, 2010). Hence, the relationship between an organization’s sustainability performance and its CSR disclosure level (i.e., via CSR report) remains uncertain. In this research, we intend to achieve three objectives: (1) test the relationship between an organization’s sustainability performance and its CSR disclosure level; (2) articulate different archetypes of relationships between an organization’s sustainability performance and its CSR disclosure level, and (3) qualitatively assess organizations within these archetypes to better understand the intricacies of the relationship between an organization’s sustainability performance and its CSR disclosure level. In the next sections, we first discuss CSR reporting and sustainability performance; second, we investigate the relationship between sustainability disclosure level and performance, suggesting a matrix of their archetypes; and finally, we discuss each archetype in detail, providing implications for academics, practitioners, and suggest future research to build upon our findings.

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CORPORATE SOCIAL RESPONSIBILITY REPORT The Global Reporting Initiative (GRI) is the most widely used sustainability reporting framework1. From nine reports in 1999 to 1,851 in 2010 and more than 2,750 expected reports in 20112 (PRIZMA, 2011), the number of GRI reports is increasing at a significant rate (see Figure 1). European organizations are more frequent GRI reporters; indeed, in 2011, 44.5% of GRI reports were from European organizations. For 2011, the countries that were most active



Figure 1. The increase of GRI reports from 1999 to 2011

in terms of GRI reporting included the United States of America (237 reports), followed by Japan (156 reports), and Spain (152 reports). To assess an organization’s CSR disclosure level, GRI assigns an application level to each CSR report. Specifically, GRI has a series of social and environmental indicators that organizations can choose to report. Based on the number of reported “core” and “additional” indicators, and whether or not the overall report has received a third-party assurance, GRI, following its latest guideline (called “G3.1”) assigns an application level from A (a high level of disclosure) to C (a low level of disclosure). It adds a “+” sign to show that a report was externally assured (GRI, 2011). Although many organizations are willing to disclose their sustainability information, a minority seek external assurance (i.e., get the “+” sign for their reports). For every geographic region, the majority of CSR reports are without external assurance. Again, Europe fares better than other regions, as many European organiza-

tions are required to have their sustainability checked by a third-party.3 Without external assurance, an organization’s CSR could be biased (Lyon & Kim, 2008), as the reliability and validity of the disclosed contents cannot be guaranteed. Since CSR reports are readily accessible to most stakeholders, it is the major information source for stakeholders to evaluate and compare organizations’ sustainability performance (Rowbottom & Lymer, 2009). Because of this, organizations also consider using CSR reports as an important method to demonstrate their fulfilment of social responsibilities and sustainable operations (Anderson & Bieniaszewska, 2005; Bebbington, Larrinaga, & Moneva, 2008). However, relying solely on a firm’s CSR report and the disclosed contents might lead to incorrect conclusions regarding a firm’s sustainability performance. Indeed, even with high application level (i.e., high disclosure level) and external assurance, one cannot directly infer that an organization has a good sustainability perfor-

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mance. To investigate the relationship between the CSR disclosure level and an organization’s sustainability performance, we need to introduce a measure of performance, that is, KLD STATS.

SUSTAINABILITY PERFORMANCE There are several sustainability performance metrics on the market (e.g., FTSE, Dow Jones Sustainability Metrics, etc.). Among them, KLD STATS was used by many previous sustainability-related studies. It was found to be a valid construct as a proxy for sustainability performance (Sharfman, 1996) and is the best measure of sustainability performance to date (Hillman & Keim, 2001; Nelling & Webb, 2009). Therefore, in this study, we adopted KLD STATS as our proxy for sustainability performance. KLD is an investment research firm (now owned by Morgan Stanley Capital International (MSCI)) that provides corporate sustainability performance information for investment decision-making. Around 3,000 companies listed on the U.S. market are included in this data set. According to its research methodology, KLD STATS uses five major sources of data to compose an evaluation of organizational sustainability performance – self-reported company information, information from other environment, social, and government (ESG) research companies outside the U.S., public documentation (e.g. U.S. Securities and Exchange Commission (SEC) filings), 14,000 global news sources, and government and nongovernmental organizations (NGO) information (KLD, 2010). KLD STATS covers five major categories of corporate performance: environment, community and society, employees and supply chain, customers, and governance and ethics. Within each category, there are two types of indicators – strengths (e.g., support for education, transparency, clean energy, etc.) and concerns (e.g., negative economic impact,

workforce reduction, substantial emissions, etc.). The final KLD score, which is a numeric calculation of the indicator ratings, represents a company’s overall corporate sustainability performance. A high KLD score indicates that an organization is highly sustainable while a low KLD score means an organization has a lot more sustainability concerns that its strengths.

THE RELATIONSHIP BETWEEN CSR DISCLOSURE AND SUSTAINABILITY PERFORMANCE To identify the relationship between organization’s CSR disclosure level and its sustainability performance, we matched 389 firm-year data points from 2006 to 2010 where firms were listed on both GRI and KLD STATS. We choose Year 2006 as our starting point because the latest GRI guideline, G3, was created in 2006. It only makes sense to compare CSR reports that follow the same guideline. We choose Year 2010 as the ending year because KLD STAT data is available through 2010. Figure 2 presents the distribution of GRI reports’ application levels and external assurance status for all reported organizations from 2006 to 2010. Organizations in the undeclared category refer to those that followed GRI guidelines loosely and disclosed only minimum amount of their sustainability information (i.e., they were not able to reach the C application level). As shown in Figure 2, in all five years (2006 – 2010), though organizations followed GRI guidelines in reporting, a large proportion of them did not reach the minimum amount of disclosure. For example, in 2010, 408 out of 1,849 organizations fell in the “not declared” category, which is 22.1% of the total reported organizations. However, we do observe a general trend of increase in CSR disclosure. From 2006 to 2010, there is a significant increase in the number of “A Level” CSR reports – from 30 in 2006 to 526 in 2010. The proportion of

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Figure 2. GRI application levels & external assurance from 2006 to 2010

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organizations whose CSR reports were in the A and B levels (indicating relatively high levels of disclosure) increased from 48.9% in 2006 to 55.2% in 2010. Another interesting finding revealed by Figure 2 is that most organizations chose not to have their CSR report externally assured. In 2010, even though there was a general increase in CSR reports’ disclosure levels in general, only 36.2% of the organizations sought external assurance.

To show the relationship between sustainability performance and CSR disclosure level, we ran a regression of KLD scores against GRI application level together with CSR reports’ external assurance status. The relationship was significant (p-value = 0.045), indicating that if an organization has a high sustainability performance (i.e., high KLD score), it is likely to have a high volume of CSR disclosure (i.e., high GRI application level). At the same time,



from Table 1, we can also see that the relationship between GRI application level and report’s external assurance level is also significant (pvalue < 0.001). This indicates that organizations with high levels of disclosure are more likely to send their CSR reports for external assurance. Even though the relationship between sustainability performance and GRI application level is significant, after visualizing all 389 organizations (Figure 3) on a matrix showing these two dimensions, we observe some organizations for which sustainability performance and reporting are not consistent (i.e., organizations with good sustainability performance and low CSR disclosure level, or vice-versa). For example, we can see that CSR reports with high level of disclosure (with GRI application level of B and above) can be generated by both bad sustainability performers (KLD score lower than 0) and good sustainability performers (KLD score higher than 0). We also mark a few wellknow companies, as examples, on Figure 3.

closure volume) and level of process maturity in corporate sustainability. In a similar fashion, we propose a two by two matrix highlighting the four different archetypes of organizations (as shown in Table 2). Next, we discuss each of the archetypes in detail.

Green Leader Organizations in this category have good sustainability performance and high level of CSR disclosure (i.e., organizations with high KLD scores and GRI application level of B and above). Intel Corporation is an example of this archetype. Intel is the world’s largest semiconductor chipmaker. From 2006 to 2009, Intel’s KLD scores remained above 14, the highest among all 287 firm-year data points. Intel conducted many projects in order to become more environmentally and socially responsible (e.g., building a series of energy-efficient facilities, increasing employees’ benefits, etc.). For example, starting from 2007, Intel recycled at least 80% of their solid waste generated in their daily operations. Several programs were initiated to reduce, reuse, and recycle the solid waste, such as recycling office paper and materials, and composting cafeteria waste. As indicated in their 2009 CSR report, these programs saved over $23 million dollars over the past five years. A new program launched in 2009 will sell solid waste to the solar industry. The solid waste will then become raw materials for generating solar cells and would add more than 3 megawatts of clean energy every year (Intel, 2009).

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FOUR ARCHETYPES OF ORGANIZATIONS

Our empirical test thus shows that there are organizations which are sustainable performers but have poor GRI reports, and conversely, that some organizations which didn’t make the list of top performers have excellent GRI reports. In KPMG’s 2011 CSR survey, the survey results divided countries into different archetypes based on their quality of communication (i.e., the dis-

Table 1. Ordinal regression results Model

Unstandardized Coefficients B

Standardized Coefficients

Std. Error

t

Sig.

Beta

(Constant)

1.009

.058

17.361

.000

KLD Score

.021

.010

.096

2.007

.045

External Assurance Status

1.036

.146

.339

7.107

.000

Note: Dependent Variable is GRI application level. The adjusted R2 = 0.12.



Figure 3. The relationship between CSR disclosure level and sustainability performance

IGI GLOBAL PROOF Table 2. 2x2 matrix on sustainability performance and reporting Sustainability Performance Low

High

Low

Late Starter: Organizations that need to improve their sustainability performance and increase their CSR disclosure.

Green Performer: Recognized “green” organizations that might not have enough incentives to report on their sustainability performance.

High

Green Reporter: Possible greenwashers or organizations that set a high sustainability goal for future improvement.

Green Leader: Ideal combination; organizations have both high sustainability performance and CSR disclosure level.

CSR Disclosure Level



Sustainable behaviours, such as investing in environmental technologies, help organizations to acquire a long-term competitive advantage (Dhaliwal et al., 2011; Lo & Sheu, 2007; Shrivastava, 1995). This is clearly stated in the CEO’s message in Intel’s CSR Report: Corporate responsibility is about doing the right things right... Our approach has created value not only for our stakeholders and society, but also for Intel… [we] enhanced our reputation as a leading corporate citizen by building trusted relationships around the world. Our focus on corporate responsibility helps us mitigate risks, reduce costs, protect brand value, and identify market opportunities… Intel not only received a high score in sustainability performance, but also achieved the A level of GRI reporting. The following statement reveals the reason for building CSR reports with high level of disclosure for Intel:

likely to have high levels of CSR disclosure. This is because they should be willing to let their stakeholders know of their impressive sustainability performance and thus increase stakeholders’ trust and organization’s reputation (Finch, 2005). However, as shown in Figure 3, we can see that some organizations have high KLD scores but did not have high level of CSR disclosure. This is the second archetype – high sustainability performance but low CSR disclosure level – which we term “green performer”.

Green Performer This is an interesting archetype that contradicts expectations. Organizations in this archetype have very good sustainability performance but did not choose to fully disclose such information to their stakeholders (i.e., low CSR disclosure level). Agilent Technologies is a global measurement company that offers chemical analysis, life sciences, and electronic measurement (www. agilent.com). In 2009, Agilent Technologies received a KLD score of 11, which is the third highest performance score among all organizations for that year. According to its 2009 CSR report, Agilent Technologies implemented many important sustainable practices, similar in significance to Intel (2009 KLD score = 14) However, Agilent Technologies’ 2009 CSR report achieved only a C level on the GRI reporting scale. While Agilent Technologies responded to a few GRI indictors under each of the sections in CSR reports, Intel’s disclosed a significant amount of information for all GRI required indicators. Apparently, Agilent Technologies’ 2009 CSR report did not describe its sustainable practices in sufficient detail therefore earned a significantly lower GRI level relative to its KLD score. Similar to Agilent Technologies, Applied Materials, an international provider of equipment, services, and software for advanced semiconductors (www.appliedmaterials.com), received a high KLD score for its sustainability performance (8 points); yet, its CSR report achieved only C level in GRI reporting in 2009. Interestingly, they reported:

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We are committed to transparency in our corporate responsibility performance, as it holds us accountable and encourages two-way dialogue with our employees and other stakeholders. As highlighted throughout this report, we focus on building relationships and partnerships with external organizations to help improve our performance and increase the impact of our programs and initiatives.

Organizations like Intel are the benchmark for other organizations. Organizations wishing to be known as “green organizations” should be heading toward this archetype, potentially bringing positive impacts on them and on the society as a whole. According to a green ranking by the magazine Newsweek, only organizations with high CSR disclosure and high sustainability performance received good green reputations4. Intel was among the top 10 companies with the best green reputations (Newsweek, 2011). We tend to assume organizations that have good sustainability performance are



Unless otherwise noted, this report does not discuss operational or financial performance of joint ventures, subsidiaries, leased facilities, or outsourced operations. However, according to GRI guidelines, the indictors a company needs to report under the Economics section are all sustainability related. For example, the second indictor in the economics section requires organizations to report “financial implications and other risks and opportunities for the organization’s activities due to climate change” (GRI, 2011). Therefore, the above statement by Applied Materials may indicate a reason for a C Level GRI rating in 2009. Applied Materials might have reported its environmental and societal improvement practices without disclosing the financial ramifications of these practices preventing the award of a higher GRI level. Applied Materials and others in the Green Performers archetype might have had a misunderstanding of the triple bottom line underlying the GRI framework and the associated requirements for more rigorous disclosure in all categories. An alternative explanation for the Green Performers’ archetype is that these types of organizations have insufficient incentives to report their sustainability performance. Solomon and Lewis (2002) summarize several incentives and disincentives for sustainability information disclosure. The top three incentives are to comply with regulations, to comply with a change in societal ethic, and to meet demand for sustainability information. All three incentives can be considered as passive and extrinsic, in that they are not self-motivated. If organizations perceive CSR reporting as something that they have to do but are not self-motivated to do, they will keep the reporting in the minimum level (Ditlev-Simonsen, 2010). Therefore, organizations will try to keep such costs to a minimum. In addition, research has found that different types of organizations treat CSR reporting differently. Institutional owners (e.g., large public companies) consider CSR report as a good

method to enhance their green reputation while family-owned organizations tend not to think so (Othman, Darus, & Arshad, 2011). Organizations also perceive disincentives to report sustainability information. The top three disincentives are: reluctance to report sensitive information, reluctance to share information with competitors, and an inability to gather the information (Solomon & Lewis, 2002). Disclosing sensitive information such as innovations or strategies that enhance a firm’s sustainable performance could inspire competitors to employ a similar technology or strategy, thus potentially hurting a firm’s competitive advantage. Hence, organizations that face a high level of competition may create low scoring sustainability reports which omit favorable but sensitive information about their sustainability performance and other required information. In the case of Applied Materials, as a major equipment provider, it acquires, processes and disposes as part of ongoing operations. However, in Applied Materials’ 2009 CSR report, it does not report on the second environment indicator, EN2, which is about “the percentage of materials used that are recycled input materials.” It is possible that Applied Materials did not want its competitors know how well it integrates recycled materials into its business operations. Such a choice would be in keeping with the first two disincentives mentioned above, a reluctance to report sensitive information and a reluctance to share information with competitors, Over time, some organizations in this archetype may increase their understanding of the importance of CSR reporting and choose to disclose more required information. Perhaps they recognize that communication with stakeholders is critical in building an organization’s sustainability reputation and can be closely related to an organization’s long term performance. In fact, we do see instances of Green Performers that increased their CSR reporting qualities and became Green Leaders. For example, Agilent Technologies increased its CSR

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disclosure level from C level in 2009 to B level in 2011. By doing so, Agilent Technologies’ green reputation increased significantly from 37th in 2009 to 11th in 2011 (Newsweek, 2011). As more organizations realize the benefits that can be gained through high level of CSR disclosure (e.g., higher reputation in the industry, higher stakeholder trust, and higher consumer satisfaction), we expect to see movement from the Green Performer archetype to the Green Leader archetype.

Green Reporter The “Green Reporter” archetype refers to organizations that demonstrate low sustainability performance but have high level of CSR disclosure. One phenomenon gathering much attention is “greenwashing,” that is, the “selective disclosure of positive information about a company’s environmental or sustainability performance, without full disclosure of negative information on these dimensions” (Lyon & Maxwell, 2006). A similar phenomenon has been found in areas unrelated to social and environmental responsibility. For example, in accounting, Darrough (1993) found that firms are more likely to disclose positive information and to hide negative information in their annual reports. Since CSR reporting is completely voluntary, and since within the GRI there are no assessments of the value of the reported indicators (i.e., good or bad), it is possible for an organization to meet all GRI indicators while not being a good corporate citizen either socially or environmentally. Accordingly, investors could potentially be misled by an organization’s CSR reporting score and might underestimate an organization’s level of environmental or social risk (Aras & Crowther, 2009). As reported in Huffpost Green (2009) and other major public websites, General Electric and American Electricity Power (AEP) are among the top 10 “Greenwashers.” The evidence from CSR reports and KLD scores support Huffpost Green’s report to a certain extent. General Electric’s sustainability performance was not very good in 2008 and 2009 (KLD scores were

zero in both years), but its CSR reports in these two years were both at the “A” GRI application level (self-declared). Similar for AEP, its sustainability performance received negative KLD scores from 2006 to 2009 (all below -3 points) while its CSR reports were at the “B” level in 2006 and 2007 and at the “A” level in 2008 and 2009. Although beyond the scope of this study, future researchers might wish to investigate whether or not both companies might have selectively disclosed only positive sustainability performance information in order to fulfil the letter of GRI’s A level requirements without meeting the spirit of those requirements. Arguably, organizations may gain tangible and intangible rewards by creating a “green” public image and by providing the impression of a low sustainability risk profile to investors and stockholders. According to legitimacy theory, an organization discloses sustainability information to fulfil its “social contract” (Deegan, 2002, 2000), which refers to the myriad of expectations society has about how an organization should conduct its operations (Deegan, 2000; Mathews, 1993). Empirical studies have shown that legitimacy theory very well explains organizations’ decisions in environmental disclosures (Campbell, 2003; Mobus, 2005; O’Donovan, 2002) and CSR disclosures across different industries (Branco & Rodrigues, 2006; Magness, 2006). Since it is much easier to access publicly available information (i.e. CSR report) than proprietary information (i.e., sustainability performance information), stakeholders evaluate how organizations perform largely based on what organizations disclose in their CSR reports. Therefore, it is not surprising when an organization focuses on increasing their CSR disclosure (probably biased toward positive information) disclosure level rather than enhancing their sustainability performance. Moreover, legitimacy theory argues that increasing sustainability disclosure is an important venue for organizations to re-establish their reputations when organizational activities yielded adverse impacts on sustainability (O’Donovan, 2002; Patten, 1992). In this sense, organizations with poorer sustainability performance, which is

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below social expectations, would be expected to provide more positive sustainability information in order to off-set the threats to their legitimacy (Gray, Kouhy, & Lavers, 1995; Patten, 1991, 1992; Walden & Schwartz, 1997). For example, after the Alaskan oil spill in 1989, Exxon’s environmental disclosure increased significantly (Patten, 1992) and a similar pattern occurred after BP’s oil spill in 2010. Let us take another oil industry company for an example. Hess Corporation, a leading energy company in U.S., received low KLD scores from 2006 to 2009 (all negative numbers around -5) but had a very high CSR disclosure level (A+ level in GRI reporting in 2008 and 2009). The evidence from Hess Corporation’s CSR report indicates support for legitimacy theory. In 2008, Hess Corporation had a significant amount of sea oil spills, which greatly impacted the environment. After revealing the oil spill figures, Hess Corporation explained in detail the causes of the oil spills. Future practices to reduce sea oil spills were also discussed. Such lengthy discussions on oil spills do not appear in Hess Corporation’s 2007 CSR report. Thus, we conjecture that the added contents regarding oil spills, their remediation, and changes to future practices served the purpose of recovering Hess Corporation’s reputation after the reported spills in 2008. The big difference between greenwashing and “legitimating” is that greenwashers are less likely to have a publicly known environmental problem. Such problems will stimulate an organization to disclose more sustainability information to recover from the reputational and financial degrade (i.e., legitimating). Nevertheless, it cannot be stated that all green reporters are greenwashing or legitimating. There may be cases where organizations are highly committed to sustainability, but are not yet performing very well. In order to reduce negative information, such organizations may try to improve their future performance. Thus, low performance but high reporting may be an interim stage towards higher performance.

Late Starter Organizations in the late starter archetype do not have good sustainability performance or high level of disclosure. Since their sustainability information is largely negative (e.g., high environmental pollution, increased employee turnover, etc.), they do not have incentives to report. However, there are reasons organizations may issue CSR reports despite the negative consequences that may result. Organizations may be required by a government or other external authority to have CSRs; or perhaps their peer organizations have published CSRs (i.e., peer pressure as a passive incentive), they have to report in order to meet the average expectation in the industry. However, they may choose to disclose only the minimum level of their CSR information in order to minimize the negative impact. For example, El Paso Corporation, a natural gas industry company (recently bought by Kinder-Morgan) scored -5 for sustainability performance and had a C level CSR report in 2009. Its CSR report only covers a minimum number of GRI indices. Organizations in this archetype should try to enhance their sustainability performance and CSR disclosure level, just as ProLogis did from 2006 to 2009. In 2006, ProLogis scored 1 for its sustainability performance in KLD STAT and had a “C” level CSR report; in 2009, ProLogis scored 2 for its sustainability performance and had a “B” level CSR report. The increases might not be a huge jump, but such improvements in both performance and reporting are encouraging and may lead to the intangible and tangible benefits discussed previously.

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CONCLUSION In this study, we explored the relationship between sustainability performance and CSR report’s disclosure level. The empirical findings suggest that an organization’s sustainability performance is significantly related to its CSR



disclosure level. We also proposed four archetypes to categorize an organization based on its sustainability performance and disclosure level. These four archetypes are green leader, green reporter, green performer, and late starter. Legitimacy theory provided some support for our typology, especially as an explanation for why an organization tends to increase its CSR disclosure level as a means to rebuild a positive social image following a significant environmental or societal crisis that causes negative perceptions of that organization. Therefore, we believe that the four archetypes can inform future conversations regarding the type and nature of the relationship between organizational sustainability and CSR reporting. Future studies can focus on a specific archetype and empirically investigate similar or new sustainability related phenomena. Practitioners can benefit from our initial attempts to classify their CSR efforts into four distinct archetypes. As the number of organizations that are green leaders increases, those that see themselves in one of the other three archetypes may want to benchmark green leaders’ efforts. Our study found that a green leader (i.e., good sustainability performance and high CSR disclosure level) is likely to reap positive outcomes for the organization, the organization’s stakeholders, and for society at large. A green leader is also likely to position sustainability at the core of its missions. As the CEO of Intel stated: “we do not view corporate responsibility as something separate from our business; it is part of an integrated management approach that helps us create long-term business value” (Intel, 2009). This is, in our assessment, the path to follow.

Anderson, C. L., & Bieniaszewska, R. L. (2005). The role of corporate social responsibility in an oil company’s expansion into new territories. Corporate Social Responsibility and Environmental Management, 12(1), 1–9. doi:10.1002/csr.71. Aras, G., & Crowther, D. (2009). Corporate sustainability reporting: A study in disingenuity? Journal of Business Ethics, 87, 279–288. doi:10.1007/ s10551-008-9806-0. Bebbington, J., Larrinaga, C., & Moneva, J. M. (2008). Corporate social reporting and reputation risk management. Accounting, Auditing & Accountability Journal, 21(3), 337–361. doi:10.1108/09513570810863932. Branco, M. C., & Rodrigues, L. L. (2006). Communication of corporate social responsibility by Portuguese banks: A legitimacy theory perspective. Corporate Communications: An International Journal, 11(3), 232–248. doi:10.1108/13563280610680821. Campbell, D. (2003). Intra- and intersectoral effects in environmental disclosures: Evidence for legitimacy theory? Business Strategy and the Environment, 12(6), 357–371. doi:10.1002/bse.375. Clarkson, P., Li, Y., Richardson, G. D., & Vasvari, F. P. (2010). Does it really pay to be green? Determinants and consequences of proactive environmental strategies. Journal of Accounting and Public Policy.

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Darrough, M. N. (1993). Disclosure policy and competition Cournot vs. Bertrand. Accounting Review, 68(3), 534–561. C. Deegan (Ed.). (2000). Financial accounting theory. Sydney, Australia: McGraw Hill Book Company. Deegan, C. (2002). The legitimising effect of social and environmental disclosures - a theoretical foundation. Accounting, Auditing & Accountability Journal, 15(3), 282–311. doi:10.1108/09513570210435852. Dhaliwal, D. S., Li, O. Z., Tsang, A. H., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. Accounting Review. doi:10.2308/accr.00000005. Ditlev-Simonsen, C. D. (2010). From corporate social responsibility awareness to action? Social Responsibility Journal, 6(3), 452–468. doi:10.1108/17471111011064807.



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PRIZMA. (2011). Expecting up to 2,750 GRI reports for 2011. Retrieved from http://prizmablog. com/2011/04/11/expecting-up-to-2750-gri-reportsfor-2011/

ENDNOTES 1

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Rowbottom, N., & Lymer, A. (2009). Exploring the use of online corporate sustainability information. Accounting Forum, 33(2), 176–186. doi:10.1016/j. accfor.2009.01.003. Sharfman, M. (1996). The construct validity of the Kinder, Lydenberg & Domini social performance ratings data. Journal of Business Ethics, 15(3), 287–296. doi:10.1007/BF00382954. Shrivastava, P. (1995). Environmental technologies and competitive advantage. Strategic Management Journal, 16, 183–200. doi:10.1002/smj.4250160923. Solomon, A., & Lewis, L. (2002). Incentives and disincentives for corporate environmental disclosure. Business Strategy and the Environment, 11(3), 154–169. doi:10.1002/bse.328. Walden, D., & Schwartz, B. N. (1997). Environmental disclosures and public policy pressure. Journal of Accounting and Public Policy, 16(2), 125–154. doi:10.1016/S0278-4254(96)00015-4.

The GRI is a standard for sustainability reporting. It seeks to make sustainability reporting by all organizations as routine as, and comparable to, financial reporting. The GRI was formed in 1997 by US based non-profits organizations and with the support of the United Nations Environment Program (UNEP). In 2000, it became a permanent institution. Currently there are 2,185 GRI reports in 2011. Since some organizations’ fiscal year ends at 2012, their reports for 2011 are not ready yet. For example, in 2006, Spanish Parliament approved the “White Paper on Corporate Social Responsibility”, thus endorsing the idea that “in order to guarantee the accuracy of the information, companies should have their sustainability reports subjected to external assurance or verification” (ESRA, 2006). The reputation score was based on surveys on variety of stakeholders, including environmental experts, academics, and CSR professionals.

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Siyuan Seth Li is a PhD candidate in the Terry College of Business at the University of Georgia. He receives his bachelor degree in Finance and Information Systems Management from Hong Kong University of Science and Technology. His research interests include social network, recommendation systems, and Green Information Systems. Marie-Claude Boudreau is an Associate Professor of MIS at the University of Georgia. She received a Ph.D. degree in Computer Information Systems from Georgia State University, a Diplôme d’Enseignement Supérieur Spécialisé from l’Ecole Supérieure des Affaires de Grenoble (France), and an MBA from l’Université Laval in Québec (Canada). Dr. Boudreau has conducted research on organizational issues surrounding the implementation and use of information systems, such as integrated software packages and open source software. She is currently doing research, and providing service, to highlight the role that information systems can take in improving environmental sustainability. She has authored articles published in many journals, such as Information Systems Research, MIS Quarterly, Organization Science, Journal of Management Information Systems, and Communication of the ACM, and has co-authored a book on Energy Informatics.



Mark W. Huber is the Interim Director of the Institute for Leadership Advancement and a Senior Lecturer in MIS the Terry College of Business and member of the UGA Teaching Academy Executive Committee. During the past 12 years at UGA, Dr. Huber won over 18 teaching awards and taught in study abroad programs at Oxford University, England and at the Neusoft Institute of Information, Dalian, China. Dr. Huber completed a 21-year Air Force career that included the creation and command of a Combat Communications Squadron and the management of strategic IS projects at the Pentagon. His interests include sustainability, leadership, IS education, and project management. His papers have been published in the Data Base for Advances in Information Systems, Communications of the Association for Information Systems, International Journal of e-Collaboration, and the Journal of Marital and Family Therapy. Also, he co-authored an Introduction to IS textbook and two Microsoft Office-based lab manuals. Richard Watson is the J. Rex Fuqua Distinguished Chair for Internet Strategy in the Terry College of Business at the University of Georgia. He has published over 150 journal articles, written books on electronic commerce, data management, and energy informatics. He has given invited presentations in more than 30 countries. He is a former President of the Association for Information Systems, a visiting professor at the Viktoria Institute in Sweden, the International Coordinator for the PhD in Information Systems at Addis Ababa University in Ethiopia, Chair of the Georgia Energy Informatics cluster, Co-founder and co-leader of the Global Text Project, and the Research Director for the Advanced Practices Council of the Society of Information Management, an exclusive forum for senior IS executives. In 2011, he received the Association for Information Systems’ LEO award, which is given for exceptional life time achievement in Information Systems.

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The Implementation of Sustainability Reporting in SGR Group:

Some Challenges of Transition from “Greenwashing” to Relational Change Maria-Gabriella Baldarelli, Department of Management, University of Bologna, Bologna, Italy Mara Del Baldo, Department of Economics, Society and Politcs, University of Urbino “Carlo Bo”, Urbino, Italy

ABSTRACT

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The implementation of sustainability reporting entails contradictory elements that can involve greenwashing or corporate governance procedures modifications, as well as the mission and accounting system of a company. Based on the premise in this paper, the authors show the end of a first step of research process and answer the question: How does the introduction of a Sustainability Report (SR) transform mission, governance and accountability of enterprises? Attention is focused on the implications of the process of social and sustainable accountability with respect to the values order, structure and tools of governance, and those used to account for and hold the stakeholders accountable for the results, modality, and objectives which characterize the accountability of corporate activity. The deductive research approach is based on an analysis of the literature regarding sustainability development and sustainability reporting. The inductive method is based on the analysis of a research case related to an Italian multi-utility company: SGR Group. The analysis carried out focused on features of the sustainability process started by the company and interpreted it as the challenge launched by the Group to contribute to create, through its own activities, a civil economy which is typical of the corporate culture of responsibility and sustainable market economy built on the civil corporation. Keywords:

Accountability, Governance, Mission, Sustainability, Sustainability Report

1. INTRODUCTION The process of transition from accounting to accountability, which has the almost exclusive objective of improving the corporate image, has an extremely and limited effect over time DOI: 10.4018/jsesd.2013040104

in relation to the stakeholders, as had been demonstrated in the vast literature on the matter (Adams, 2004; Adams & McNicholas, 2006; Gray et al., 1987; Gray, 1994; Gray et al., 1995; Gray & Bebbington, 2000). The extent, to which organizations shape managerial decision-making to initiate the sustainability reporting process, depends on a number of



organizational dynamics and on a variety of regulative, normative and cognitive drivers (DiMaggio & Powell, 1983; Scott, 1995). A variety of corporate characteristics (size, industry, profit or financial performance) and contextual factors (country of origin various social, political and legal factors, social and political change, economic cycles, cultural and specific events, media pressure, stakeholders power) influence - at one time or another, or in various national contexts - managers’ decisions to report (Adams, 2002). Therefore the real challenge is to develop accountability in the long term and the consequently repercussions on internal and external corporate relations and what contribution to their improvement it brings. This implies that accountability must also become a tool of governance for the company if indeed virtuous circuits are to be triggered, these being necessary to reach a level of strong sustainability (Gray, Owen, & Adams, 1996; Gray et al., 1997; Gray, 2000; Larrinaga-Gonzàlez et al., 2001; Parker, 2005). This is the objective that the Italian SGR Group – which forms the case-study here presented - has been seeking to fulfil. On the basis of these aspects, we wish to address the following research question in this paper: “How does the introduction of a Sustainability Report (SR) transform mission, governance and accountability of enterprises? The research design develops through a deductive and inductive approach. The deductive approach is based on an analysis of the literature regarding sustainability reporting and the repercussions on the aspects of the company which involve the mission, the governance and accountability. The inductive method is based on the analysis of one research case (Naumes & Naumes, 2006; Spence & Gray, 2008; Bebbington et al., 2009). Empirical analysis makes use of diverse tools, including an analysis of documents compiled from board meetings that pertained to the company´s sustainability efforts. Furthermore we took part in the meetings of the work group, which made the sustainability report-2011 for the first time in more than 50 years of enterprise

activity. The methodology also makes use of direct and semi-structured interviews with directors and the president of the company. The paper is organized into two main parts, of which the first develops a brief analysis of the theories on sustainability and sustainable reporting, providing the theoretical background in which both the process and the effect of sustainability reporting (SR) can be placed. The second part will analyze the case. The scope is to succeed in identifying the dynamics which link the report to the three aspects (mission, governance and accountability) of the company and to demonstrate how this process which apparently concludes with the report, becomes instead a launching pad for a “radical” modification of all the aspects of the company.

2. SUSTAINABILITY DEVELOPMENT AND SUSTAINABILITY REPORTING: LITERATURE REVIEW

Sustainability Development IGI GLOBAL2.1. andPROOF Corporate Sustainability

Corporate sustainability draws on a much wider phenomenon which abides by sustainable development (Elkington, 1994, 1997; Bebbington & Contrafatto, 2006). In the last decades the recognition of the multiple (economic, social, ethical and environmental) dimensions of business activity have been progressively enriched and a vast and complex frame of normative references and different approaches have been produced. Departing from the instrumental theories (Friedman, 1962) a second theoretical strand (political theories) - which can be divided into corporate constitutionalism, integrative social contract and corporate citizenship theories) - focuses on the role of business and of the rights/needs which connect them, and on the responsible use of power in political and social arenas (Donaldson & Dunfee, 1994). A third body of studies (integrative theories) includes the approaches of issues management, public



responsibility, stakeholder management and corporate social performance and maintains that social demands are generally considered to be the way in which society interacts with business and gives it a certain legitimacy and prestige (Garriga & Melé, 2004). However, given the scant concrete results following the application of such theories and agreements, a reflection must be made about how the protagonists of the economic system must become bearers of such results as well as the company. Therefore sustainable development can be analyzed according to two different but connected points of view. The first one is the economic-political viewpoint which defines the modalities through which society organizes itself. Therefore the economic system, which includes companies, begins from the economic, social and environmental behavior of the various components of the economic system of which companies have an extremely significant role (European Commission, 2001; 2002; WCED, 1987). In addition to the international level, with regards to sustainability, many stages have taken place which have implicated a strong orientation towards this tendency. Previously it was erroneously believed that the development, once obtained, could be spread automatically for the benefit of the less wealthy layers of the world population. Of the stages that marked this orientation, we would like to mention the Conference of Stockholm in 1972. During the conference a concept of eco-development was expanded and was added to the previous one tied to the sustainability of only demographic growth. This debate had partly refuted the idea that development could be guaranteed by simply letting time pass by, even in countries with more difficulties. With demographic growth, combined to other factors, it was however ascertained that such a statement was not feasible. Undoubtedly the most important phase concerned the year 1987, when the United Nations’ World Commission on the environ-

ment and development issued the Report “Our Common Future”- Brundtland Report, which for the first time used the term “Sustainable Development”, defined as the development that meets the needs of the present without compromising the ability of future generations to meet their own needs. From this important stage emerged the concept of sustainability relative to intra- and inter-generational equity, which would subsequently orientate all future stages. Always with regards to sustainability, the other point of view considers the global (holistic) development of the company, in which sustainability represents a part and takes on features tied to the social and environmental dimension (Zadek, 2006, pp. 332-348; Alford & Naugthon, 2002; Alford et al., 2006). Global development involves all the aspects of the company, that are: the dimension of economic development, the dimension of development relative to individual and collective professional growth; the dimension of the end user’s development and the dimension of socio-environmental development (Bebbington, 2007; Bebbington & Dillard, 2007). According to this perspective, development activates company growth but the process is not necessarily bi-directional. With this meaning: “growth”, does not automatically imply the typology of development which has been defined as fundamental. This is because it can increase turnover, the number of employees and so on, but not guarantee the quality of development thus implied which is based on a system of shared corporate values that adopt the anthropological values by which the company operates. As a matter of fact, sustainability “is intended as growth which takes place maintaining in equilibrium the conditions of social development, social equity and respect for the environment, creating the so-called equilibrium of the three Es: “ecology, equity and economy” (Elkington, 1987). Such performances are not limited just to the quantitative aspect but extend to include qualitative ones and are to be reflected in social accounting. Different media (annual

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reports, stand-alone social and environmental accounts, websites, etc) are used to communicate this information to a broader group of stakeholders (Contrafatto, 2011).

2.2. Social Accounting and Sustainable Reporting The second point of view is that of social accounting, which had generated a substantial presence in the so called developed world from the 1960s and 1970s, especially in Europe and the UK, with a strong emphasis on employee and employment matters. According to Wheeler and Elkington (2001) “Social reporting has moved from a fringe activity pioneered by socially conscious but non-mainstream companies into a credible and serious practice embraced by a number of major corporations” (Wheeler & Elkington, 2001, p. 5). Social accounting not only embraces “green accounting” but the full range of social, environmental, ethical, responsibility and sustainability accounting, accountability, reporting, auditing, investment, costing and management (Gray & Laughlin, 2012). Gray defines social accounting as:“the preparation and publication of an account about an organisation’s social, environmental, employee, community, customer and other stakeholder interactions and activities and, where, possible, the consequences of those interactions and activities” (Gray, 2000, p. 7). He continues by stating that: “The social account may contain financial information but is more likely to be a combination of quantified non-financial information and descriptive, nonquantified information. The social account may serve a number of purposes but discharge of the organisation’s accountability to its stakeholders must be the clearly dominant of those reasons and the basis upon which the social account is judged” (Gray, 2000, p. 7).

In the past, Gray et al. (1993, p. 21) reminded us of the importance of accounting for the construction of social reality and the need for a cultural change to produce a better world1. The author considered the subject of environmental issues and at present is also assessing how to manage these issues and to face the challenges that derive from them2. The theme of social accounting struggled to gain any mainstream recognition during the 1980s and to become more established as an area of legitimate enquiry (Gray et al., 1987) and a vibrant area of research (Parker, 2005) as a number of key themes emerged. They included the development of the rich political context within which matters of social accountability were to be considered (Benston, 1982; Tinker et al., 1991); the stronger political sense with regard to employees, employment and communities and the exploration of the relationships between social performance, financial performance and social disclosure (Ingram & Frazier, 1980; Ullmann, 1985). With the development of stakeholder theory (Freeman, 1984; Donaldson & Preston, 1995; Freeman et al., 2010) questions around transparency, equity, and disclosure of social and environmental data have dominated research on social accounting (Milne, 2007). Much of this research has been routine descriptions of disclosure practices and/or attempts to link disclosure to theoretical explanations (Murray et al., 2006). Nevertheless, the increased sophistication of the research and the explosion of fieldwork have energised the literature (Adams, 2002; Bebbington et al., 2007; Bebbington & Gray, 2001; De Villiers, 1999; Friedman & Miles, 2001; Larrinaga-Gonzalez et al., 2001; Larrinaga-Gonzàlez & Bebbington, 2001; O’Dwyer, 2002), thus increasing the understanding of the forces and impediments around the adoption of social and environmental issues within

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organisations. At the same time, it has offered insights into how the discourse around social and environmental issues is managed and has given essential input into the steadily growing range of “new accountings” which emerged through the direct intervention of the researcher in field situations (Gray & Laughlin, 2012, p. 238)3.

2.3. Social and Environmental Accounting Reporting SEAR (Social and Environmental Accounting Reporting) is an important current of research that involves relations in society and social, environment and economic systems. It aims at studying processes and instruments to account for and to disclose to stakeholders and others. In the system in which SEAR is involved, some evolutionary philosophical currents are progressively emerging. Beginning in 1996 Gray, Owen and Adams traced the urgent need to pass from accounting to accountability which is a larger process that is geared to economics and social systems relationships and to try to change them in a future challenge by involving a move towards sustainability (Gray, Owen, & Adams, 1996, p. 292). In the diagram shown in Figure 1, you can see the evolution of different concepts of social accounting and accountability. The social and environmental accounting report, geared towards sustainability, has wider implications than the social report (SER).

So we can analyse the dimensions that SR must involve. The dimensions we deal with are defined on the basis of the intensity with which they are inserted within the company and include the concepts of weak sustainability and strong sustainability. Weak sustainability is translated strategically and operationally into “un-sustainability”, through measures which aim at obtaining eco-efficiency and which especially consist in taking into account the impact on the ecological environment (Bebbington, 2007, p. 26). The concrete translation of this typology of sustainability consists for example in participating in projects such as EMAS (Eco Management Audit Scheme), or basic environmental accounting. Weak sustainability can also be orientated towards eco-justice, which consists of examining in particular the intra- and inter-generational distribution of resources including social and environmental ones. The origin of this typology of sustainability is represented by the satisfaction of basic human needs and it is realized when the company develops a decision making process and creates documents which sum up sustainability with regards to employees and the analysis of conduct towards all the other stakeholders. The company however, which orientates itself towards a strong sustainability, incorporates in its responsibility more aspects which regard eco-efficiency and eco-justice (Figge & Hahn, 2004).

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Figure 1. Evolution of concepts in social accounting and accountability



Furthermore, in “strong” sustainability, the decision-making process emerges which considers the sum of sustainable cost and the precise and detailed environmental, social and sustainability accountability. With regards to “strong” eco-justice, the company is called on to prepare tools for social accountability which are rather sophisticated and ask to be submitted to a high level of social and environmental auditing4. The concrete proof that the company is really attentive to the dimensions of sustainability is the qualitative and quantitative measurement of the findings on environmental impact, as well as from investments and costs incurred to safeguard the environment. Table 1 sums up the different dimensions of sustainability and the relative instruments to adopt (Tab. 1). The research strands which have examined various aspects of SEAR have mainly focused on organizational processes and internal factors rather than on the content, nature and extent of various social and environmental reports. Nevertheless, in more recent years, new and interesting areas of analysis have opened up. Among these the engagement research has been put forward as a strong approach in developing theories to understand SEAR and to enhance organizational practices and performances (Adams & Larrinaga-Gonzàlez, 2007; Contra-

fatto, 2010) as well as to explore diverse issues, including change within organizations (Adams, 2002; Parker, 2005). Secondly, some scholars have gone further in investigating the reasons why some organizations undertake social and environmental reporting and what drivers exist in the external (societal) and internal (organizational) environment for reporting (Adams, 2002; Solomon & Lewis, 2002). However, few contributions have been made to examining how and why SDR (Sustainability Development Reporting) practices have become institutionalised and have reached an institutional status (Miller, 1994) and/or produced effects in terms of institutional change (Larrinaga-Gonzàlez, 2007). To fill such a cognitive gap, which requires more consistent research approaches (Gray et al, 2001), several innovative contributions recently made (Larrinaga-Gonzàlez, 2007; Bebbington et al., 2009) have adopted the institutional (Di Maggio & Powell, 1983; Scott, 1995) theories as a theoretical framework to explain the standardisation or at least SR/SER procedures and to understand the drivers of institutional change. Larrinaga-Gonzàlez addresses the overlap between institutional theory and legitimacy theory (Deegan, 2002). While legitimacy theory could be more useful for determining in the short term “the why” one organization is making sustainability disclosures, institutional theory could

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Table 1. Dimensions and instruments of SR Dimensions of Sustainability/ Instruments for Assessing, Measuring and Communicating Sustainability

Weak Sustainability (Decrement of Unsustainability)

Strong Sustainability (Recognition and Interioriorization of Requests for Sustainability)

Eco-efficiency

EMAS, Eco-labels, Basic Environmental accounting…

Calculation and accountability of sustainable cost; full cost accounting(calculation of the full cost); Environmental accountability and of sustainability

Eco-justice

Reporting for employees, accounting based on added value, analysis of stakeholder

Systems of accounting and social accountability; external social auditing; problems tied to ensuring the transparency of calculating the transfer price,…

Source: Bebbington & Contrafatto, 2006, p. 230.



be more helpful in explaining why given SR practices become common in a particular context. Using the institutional theory framework, Bebbington et al., 2009 explore how institutional factors combine with organizational dynamics to contribute to the initiations of SDR and the institutionalization of the reporting activity. In the next paragraph we are going to analyze how the process of adopting the SR (Sustainable Reporting) influences mission, governance and accountability in the SGR Group.

3. THE CASE STUDY OF SGR GROUP 3.1. Methodology As stated in the introduction, we collected data directly elaborated by the enterprise and we used a qualitative approach based on a casestudy (Yin, 1994). The qualitative approach and the field case-study allowed us to answer the recently increasing calls (Adams, 2002; Gray, 2002; Parker, 2005) that have been made for more fieldwork on SEAR, through engagement with organizational participants, as a means to exploring lacunae and contradictions with current explanations (Contrafatto, 2011, p. 275). According to Adams and Larrinaga (2007, p. 335), engagement research reduces the “distance” of the researcher from the research field thus allowing the researcher to take the “standpoint of participants and engage in an ongoing process of negotiation leading hence to a more reflexive form of research with a deeper understanding of the research process”5. The research procedure involves the study of the history of the enterprise and taking part in sustainability committee meetings. Indeed we carried out ten semi-structured interviews to different levels of management such as the president, some managers and operational people. The interviews have been carried out during the company visits, and took place on a monthly basis (lasting about 2 hours each) in the period between 2009- 2012. This procedure

runs parallel to the reading of the abstract of minutes of the board concerning ecological, social and sustainability decision making from 2008 onwards. A second source of data collection derives from the consultation of corporate websites and different documents that pertained to the company´s sustainability efforts (internal communications pertinent to sustainability, drafts of sustainability reporting, financial statements, the ethical code, corporate publications relevant to the 50th anniversary of SGR’s constitution). All the data was collected directly from the company, which was very happy to participate in the research on the basis of a formal agreement with the University. Furthermore we took part in the meetings of the work group - which made the sustainability report-2011 for the first time- and we were able to directly observe the behaviour of the committee for sustainability during workshops, seminars, conventions, as well as participate in the planning and execution stages. In carrying out our analysis of the SGR Group, we considered it appropriate to adopt the paradigm “mission-governance-accountabilty” (Matacena, 2010) as the interpretative key. Such theoretical schema hypothesizes that the system of accountability came about as the congruent result of structural relations existing between mission and governance (M-G-A model) present in every business. The three aspects are connected and must be coherent in order that the role of any company can fully develop in the society of which it is an integral part. In other words, in every company, whether it is profit-making or non-profit, public or private, irrespectively of its size or sector to which it belongs, there must be explicit, stable and coherent coordination among mission, governance and accountability. The mission explains the corporate objectives which drive the spirit and outcome of the company, and links the pursued corporate goals to the strategies employed in attaining those goals. Corporate governance highlights the command/governance structure present within the company, the modality of relations between governance

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and control and the means by which these are executed. Accountability identifies the area of corporate information and communication aimed at stakeholders. By applying this schema of analysis we will identify the aspects of the mission and the system of governance of the SGR Group which reflect an approach towards social responsibility. Additionally we will identify stable and structured sustainability incorporated within the strategic line of action, the modality of governance and the system of external accountability. There follows a list of aspects examined and fronts of collaboration developed through the analysis of the case: • •

•

internal analysis of the impact of applying accountability for sustainability; analysis of initiatives of stakeholders dialogue and the development of relations with interlocutors for the creation of pathways and sustainability projects starting from the local context through the analysis of the stakeholders perception; activities of raising awareness within the company and outside the company through an analysis of stakeholder perceptions (managerial and non managerial) and the direct involvement of the teaching team proposing the project as well as the research assistants at both the university seats;

•

relational activities for the creation/extension of the network of interlocutors in order to spread awareness, publication and a comparison of experiences and discussion, at a national and international level regarding the theme of sustainability and its implementation.

3.2. Company’s Profile The SGR Group is an unlisted mixed holding company of Rimini (Italy), and it is made up of several companies all still family owned. In over 50 years of business activity, the Group has left a significant mark in the history of the distribution and sale of methane gas in two Italian regions, the Marches and Emilia Romagna, and has grown through: acquisitions, winning tenders and strategies of sector diversification. In 2005 the SGR group went to Bulgaria to construct a gas network for domestic and industrial use in the region of Trakia. The industrial plan for the next ten years forecasts the doubling of the current catchment area aimed at categories of clients and businesses specified in the following list (Table 2). In 2011 the group reached a turnover of over 251 million Euro and had a total of 328 employees. Table 3 shows its performances as well as technical and commercial data between 2009-2011 (Table 3).

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Table 2. SGR group: Business areas Distribution of natural gas Sale of natural gas and electric energy Planning, construction, management and maintenance of heating plants in condominiums for which they carry out heat management Energy service and district heating Assembly of solar power plants and sources of renewable energy Assembly and maintenance of heating and conditioning plants (for families, businesses and large plants) Assistance and domestic or company emergencies intervention available 24 hours a day Global service technicians specialized in the gas sector even for assistance abroad Utilities technology Congress Centre



Table 3. SGR group: Company’s performances, technical and commercial data Financial Highlights

2009

2010

Turnover

211,000,000

247,000,000

EBITDA

28,000,000

43,000,000

ROI (Return on Investments)

9.46%139,46%

13.75%

ROE (Return on Equity)

13.48%

15.14%

ROS (Return on Sales)

13.34%

18.27%

Net result

19,000,000

25,000,000

Number of employees

249

287

Technical and commercial data

2011

2010

Gas distribution clients

180,000

169,000

After Meter clients (heating plants, boilers, conditioners, global service domestic and large structure clients)

40,000

22,000

Towns served

44

42

District heating clients

1,400

1,314

There follows a summary of the most significant historic milestones in the company’s development (Table 4), the group’s organigram (Figure 2) and its stakeholders (Table 5). SGR Reti is the company belonging to the ownership group of gas distribution network plants and holder of natural gas supply licences. SGR Servizi is the company which manages sales relations with clients. Utilia is responsible for creating and developing software package management systems and application modules specialized for the Energy and Utilities sector. CityGas is the Bulgarian company controlled by SGR which was joined by Technoterm in 2010. In 2004 SGR signed an agreement (for the joint procurement of bulk gas and the direct sale of electric energy) with Hera, a national leader of the sector (listed in the stock exchange), to which they ceded 20% of SGR Servizi. After this brief presentation of the case, in the next paragaph we are going to analyse some steps of the process to make SR.

4. THE PROCESS OF IMPLEMENTING THE SUSTAINABILITY REPORT IN SGR GROUP

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The SGR Group has always considered corporate social responsibility and sustainability an integral part of its mission, its values, its strategies and foundation essential in the construction of solid relations with clients, suppliers and employees. Since 2008 it has implemented processes, tools and procedures which represent pieces of a single mosaic of responsible and sustainable business management. The choice of drawing up a sustainability report is part of a process, that started years ago but which was not always formalized. In the hive of sustainability and corporate social responsibility there are other already existing tools which have become an integral part of corporate processes and reference codes to support the commitment to rethinking and



Table 4. SGR group historic milestones 1956

Aldo Domeniconi founded Società Gas Rimini S.p.A., the first company in the area dedicated to the management and distribution of gas for heating and household use with the most innovative plants in Europe

1970

Connection to the national methane gas pipeline SNAM. Acquisition of new licences and extension of the network to the Marches region

1998

ISO 9001 system for quality certification (upgraded to Vision 2000 and ISO 9001 standard in the following years)

2002

Restructuring of ownership and creation of Holding GasRimini

2003

Privatization of the gas sales market: SGR aims at the quality of service and competitive prices

2005

International tender adjudication for the distribution and sale of gas in Trakia and the construction of a 1.700 km gas pipeline network. During its first three years the subsidiary company Citygas Bulgaria won three prestigious awards: for its contribution to the energy sector.

2006

The SGR Group won the Milano Finanza Award “Creatori di Valore” (Value Creator)

2008

Introduction of the Ethical Code and the Organization, Management and Control Model (Law 231/01).

2010

Acquisition of Technoterm Bulgaria and the project finance for the Trakia Project with EBRD/ BERS – European Bank for Reconstruction and Development and with the Bank Intesa San Paolo.

2011

Implementation of the Group’s first Sustainability Report. Attained the ISO 14001 (Environmental Management System) and BS OHSAS 18001 (Occupational Health and Safety Management System) certifications.

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Figure 2. SGR group: Organigram



Table 5. SGR group: Stakeholders description Municipalities

Clients

Competitors

Sports Associations

Suppliers

Trade Unions

Supervisory Committees

Citizens

Employees

Shareholders

Consumer Associations

Environmental associations

Italian and Supranational Banks

Partners

The environment

Province

Trade Associations

Media

Regions

Schools and universities

No profit organizations

Governments

Sector authority

European Union

reconstructing economic standards within and outside the company. This is done through respecting the balance between individuals and between company productivity and the environment (i.e., the Management and Control Model for the prevention of corporate crime; the Ethical Code; the Balanced Scorecard approach). The 2009 report officially stated the start up of the project entitled “CSR and Sustainability Report” which involved all the Group’s companies and was presented as an insert in the 2009 report. The first sustainability report is relative to the year 2011 and will be published and presented along with the annual report and consolidated in May/June 2012. In order to better understand the phases of the sustainability report, we will outline in Table 6 the process which preceded the writing of the report. This process has been called “the sustainability plan” and has been summed up in the table which follows (Table 6). There follows a summary of commitments to the diffusion of sustainability with reference to the categories of employee stakeholders, clients and suppliers, the environment, institutions and communities of reference (Table 7). The SGR sustainability report has been implemented in the following way:

• • • •

•

identification of the items of information to gather and of indicators to produce; writing of a commentary index; structuring of the “Work Plan” to gather data and other items of information; drawing up a draft of the document on the basis of the commentary index and internal diffusion of the draft document among interested persons; editing and validation of draft by the management; final drafting of the document.

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•

definition of the work group, through the involvement of departments and especially processes mainly affected by data gathering;

•

After the presentation of some steps of SR implementation, in the next paragraph we are going to analyse sustainability implications for the mission and governance.

5. SUSTAINABILITY INFLUENCE ON MISSION, GOVERNANCE AND ACCOUNTABILITY OF THE SGR GROUP 5.1. Mission To understand implications of sustainability for the SGR mission, we must underline the following aspects: the values profile of the founders and the business and management heads; the nature of the activity carried out and the supplied services; the centrality of dialogue with the stakeholders and willingness



Table 6. The sustainability plan of the SGR group Governance Sustainability Tools Commitment

Action

Promote the Management and Control Model ex D.lgs 231/01

2008. Adopted the new Management and Control Model published on the Internet website and the company Intranet

Promote the Group’s Ethical Code

2008. Adopted the Group’s new Ethical Code, published on the Internet website and the company Intranet

Publish a single Sustainability Report for the whole Group in coherence with the initiatives of GRI

2011. Writing of the Sustainability Report

Promote the Sustainability Report and the culture of Sustainability

2011. Numerous internal and external initiatives to promote the culture of Sustainability: • Periodic meetings with the Association Children of the World on the theme of CSR and sustainability; • Collaboration with the University of Bologna and of Urbino to deepen the theme of CSR and sustainability; • Support and external consultants to start up the process of the accountability of Sustainability; • Creation of a CSR Committee to monitor and stimulate sustainable practices within the company. 2012. Presentation of the Sustainability Report at the general assembly along with the presentation of the Financial Report. Inclusion of the Sustainability Report, Ethical Code and Management and Control Model in the Welcome Kit handed out to new employees. 2012. Promotion of the Sustainability Report on the website www.sgrservizi.it

IGI GLOBAL PROOF Table 7. The sustainability commitments of the SGR group People (Employees) Commitment

Action

Increase dialogue/interviews with people

2005. Introduction of a survey on the internal climate and a questionnaire to assess satisfaction. 2010. Area meetings to discuss the results of the survey and plan actions for improvement.

Increase the training and awareness of employees regarding the themes of Safety

2010. Courses on Safety for a total of 973 hours and different training activities: • Two questionnaires were attached to employees’ pay checks to assess the feasibility of extra courses beyond working hours and verify the degree of interest expressed in the project of life and work reconciliation promoted by legislation number 53/00.

Increase internal communication

2011. Restyling company intranet: • The Mia Voce Project; • Plenary meetings (twice a year).

Diffusion of the culture of Sustainability and a corporate atmosphere based on shared values

2011. Initiatives regarding information and awareness about Sustainability aimed at internal and external members of the Group.



to respond to (and anticipate) the delays, with particular reference to employees, clients and the community of reference. The mission is as follows: “We are known as an innovative and dynamic multi-utilities company, respectful of the environment which is greatly tied to the territory and the community”. The “milestones” of the mission are: transparency; integrity; efficiency; coherence; sustainability; personal responsibility; respect and valuing people; quality of supplies and procurement. This means an attention to CSR, taking care of the territory, the local community and the environment, the development of human resources, service, transparency and social relations. Coherence is especially seen as a commitment to transferring the values, which define the underlying corporate governance, into everyday actions. The company slogan draws on the some of the most important values the company embodies, such as: “My energy is local, loyal and social” which refer to the equally cornerstone principles expressed in the ethical code and attributable to the so called “system of perennial values” of an anthropological nature, to which every other corporate value is connected (Catturi, 2007). As gathered from the interviews and meetings with various corporate heads (marketing manager; organizational, quality, safety and environment managers), SGR puts ideas, project choices and strategies before two questions: “Are we dealing with an effective answer with regards to the evident or latent expectations of one or more category of stakeholder? “Are we dealing with a choice/action capable of consolidating/fostering the competitive advantage of the company?” Similarly, from interviews that we conducted with the company heads, it is evident how these values are experienced and transmitted by the owners and management and spread

throughout the entire organization. In other words, they reinforce the Group’s corporate culture, hence demonstrating the anthropological culture which is reflected in accountability (Gray et al., 1997). The values therefore constitute the first lever in the orientation towards sustainability, foster social cohesion and favour a pathway shared by various stakeholders which is summed up in the ethical code and sustainability report. Another feature of sustainability in the Group’s mission is the emphasis placed on reciprocal trust, transparency and corporate reputation. SGR “wants to be the company of trust for its clients and the best place in which to work”. There is further emphasis placed on the constitutive principles made clear in the ethical code, the willingness and ability to build strong and lasting relations, maintain promises and commitment.. In an interview with the President of the Group Dionigi Michaela, a charismatic leader and reference point for the company, values emerge which have been inherited from the founders and interpreted in coherence with the changed internal and external environmental context. Throughout difficulties and challenges, she has combined humility with tenacity, determination and the spirit of sacrifice and energy. She started in the company from the bottom and thanks only to her passion, motivation and a great capacity for listening and interacting, she established herself as President. Her relational approach can be translated into the principle of the “door being open” to each collaborator, which has allowed her to go from the demands to the expectations of her employees. It can be said that the SGR is a sustainable company thanks also to the female genius of its chairperson, who has strongly desired the sustainability project, already announced in the 2009 annual report in the management breakdown through an insert dedicated to sustainability.

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This relational availability is expressed moreover in an immediate understanding of each person’s work value: “I acted as a friend; now it is the company which acts as a friend. Before (but even now) we were and are still a family”. Even the words of the CFO testify to a corporate development in which the example of the ownership is a message which shapes action, just as interviews to other key figures in the company’s history have confirmed great entrepreneurial skills, the solidity of the partners and the charisma and dynamism of the founder A. Domeniconi. He laid down the necessary conditions for the construction of a “personal” service, which has created a strong sense of identification with the territory. The importance of relationships comes from the past; going back 20/30 years to the history of the group’s business activities, the supply of methane gas to an area, a country, represents a strong relationship with the territory. Such beginnings enabled the company to develop with time important relations, making the work easier today and providing fertile ground for the diffusion of the philosophy and orientation of sustainability. The Group is a company “of the territory” (Del Baldo, 2010) and it spreads throughout the context in which it operates the culture of sustainability through a wide variety of initiatives. It puts itself forward therefore as an actor in a model of sustainable local governance promoted by a network of public and private operators (universities, institutions, non profit organizations) which activate mechanisms of participation in the socio-economic fabric and pathways to sustainable development aimed at the common good. The centrality of relations is expressed in client orientation, as it is the client SGR wants to “make happy”. When SGR developed the infrastructural network of potential clients, it perceived the importance of its service and

marked an historic moment of change, like the one being currently experienced in Bulgaria, where the Group’s company is working to raise awareness of the service and to create a network. SGR has a “close” approach to the client and is able to listen and this allows the company to “explain its business activity and account for its profit”. From a survey on satisfaction based on interviews conducted by the authorities of the sector in order to monitor the service level of Italian companies, it emerges that the group is seen as qualitatively superior to the national average, that is to say, that it is the result of investments made to support the quality of service, safety, orientation towards social responsibility and eco-sustainability. The centrality of relations lies in the centrality of the person: “Over the years the organization has become less hierarchical and increasingly more orientated towards team work, aiming to create a dynamic balance between a singular and plural dimension” (M. Dionigi, President). From the interviews conducted with the sales manager of the group it is evident that values contained in the corporate mission are shared and embraced in the relationships between employees: professionalism, dedication to work, simplicity in colleague relations and reliability. The company appears as a horizontal organization, in which the decision making process starts from the bottom and in which an operational project orientated approach prevails (principle of “door open to people and projects”) as well as a friendly corporate atmosphere and personal relations based interaction. The degree of involvement and awareness (about the role of clients) is high, and is reflected in the level of sharing of the corporate objectives, since the awareness that a superior good overcomes each individual is widespread.

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5.2. Governance With regards to governance, from an analysis of the minutes of the Board of Directors of Rimini Holding Spa it is possible to identify various phases which demonstrate how governance has developed the pathway towards sustainability. The most important steps are listed in Table 8. The Board of Directors has exclusive jurisdiction on the defining of the company and Group’s strategic lines and objectives, including the policies of sustainability, and the review and approval of the Sustainability Report. The Audit Committee is a collegial organ, nominated by the Board of Directors, and is made up of a president and two employees of the Group’s Organization and Quality Department. It was conceived as a listening channel and presides over the functioning and observance of the Model. The sustainability awareness raising process launched by SGR, produced results even at the organizational level, thus influencing the micro-organizational processes and the corporate structure. For about a year the figure of the CSR Manager has existed, a “corporate presidium” of sustainability, who collaborates and interacts on a daily basis with other departments and the management, who avoid setting rigid boundaries of activities and allow the freedom of individual initiative.

The departments providing reference points are those of Marketing and Communication, Quality, Safety and Sustainability. A committee is being set up for sustainable development, divided into areas, and conceived as an organ of coordination and the diffusion of the culture of sustainable development and social responsibility. Both the introduction of the ethical code and the sustainability report took place on the basis of a modality of participation and are centred on forms of stakeholder dialogue which have permitted the sharing of the values, principles, objectives and corporate choices and a reinforcement of cohesion social capital. To respond to and contemporize the interests and objectives of the various stakeholders, SGR proceeded with the analysis of the stakeholders followed by the stakeholder engagement plan, which includes diverse tools of consultation and communication. On the internal front mention can be made of: Intranet, accessible at all corporate levels; Internet, accessible at several openings levels; an internal blog; a newsletter; employee satisfaction questionnaires; informative Brochures; company notice boards; plenary meetings (once or twice a year); company meetings for the departments with the participation of management (monthly).

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Table 8. Rimini Holding Spa: Board of directors’ deliberations Date of Summoning of the Board of Directors

Subject of Deliberation

14 July 2004

Participation in a tender for a licence of natural gas distribution and sale relative to the gas region of Thrace, in Bulgaria.

1 July 2008

Approval of the Ethical Code and Organization, Management and Control Model formulated by the Work Group and appointed members of the relative Supervisory Committee (ex DLgs 231/01).

17 November 2009

Confirmation of the Supervisory Committee for three years 2009-2011

30 March 2010

Analysis of the project of the Energy Efficiency Project relative to the conversion of the internal plants of national clients and of potential Bulgarian clients of Citygas Bulgaria.



5.3. Accountability With regards to accountability, SGR’s sustainability report is a tangible sign of how the principles of accountability and inclusion have been making headway. As the President stated: The sustainability report is the result of an analysis which renews a process of dialogue with all the protagonists of the system and the context in which the SGR Group operates and which contains challenging objectives on which we will concentrate our efforts. It is the story of a live experience with the territory, the community and our stakeholders. The sense and the economic value of sustainability indices are shared and recognized at all corporate levels which collaborate to identify the specific aspects connected to socio-environmental impacts of decisions and activities. The enterprise aims to account for them according to a unique work methodology which highlights the level of adherence to the principles of social responsibility. From an operational-management point of view, the sustainability report, which accompanies other tools of disclosure, outlines a work process which is functional to the growth

and innovation of the company with respect to its identity and to the public nature of service. The document consists of six sections6, that are drawn up in conformity to the guidelines of the GRI-G3 Global Reporting Initiative G3 (GRI, 2008) and to the Italian Study Group for Social Reporting (GBS, 2007). The reference model for identifying the indicators of analysis of the relations with stakeholders, is the accountability standard AA1000 APS. The application level of the guidelines has been verified by a consultancy firm. The sustainability report represents the first drawing up of the sustainability reporting process. In the definition of the contents, the results of stakeholder engagement activities have been considered. In particular, attention has been given to the determination and distribution of the value added (Figure 3 through Figure 4), as a standard of measuring the wealth produced and distributed by the company to all those who have contributed either directly or indirectly to its management. The balanced scorecard management model, that SGR adopted in 2011, in order to transpose corporate strategy into daily action, will support the process of integrating strategic objectives of social and environmental sustainability with medium to long-term economic and financial objectives.

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Figure 3. SGR group: Value added production and distribution to the territory



Figure 4. SGR group: Value-added distribution

6. DISCUSSION AND CONCLUSION In the SGR Group SR provides output about a process which incorporates: principles, models, tools, management practices and sustainable corporate governance. It is indeed with regards to mission and accountability, that the most significant results have been noted and evidence has emerged relating to the coordination of the fundamental elements (M-G-A) described above. In other words, it is there that the process of sustainability impacts the most, by pushing towards the multi-dimensionality of “the stakeholder network” (Freeman et al, 2010). The ethical value that the SGR Group shares is therefore the result of the coherence between management activities and the sustainability principles contained in the mission and which prevail in governance and and are reflected in accountability. In the SGR Group social responsibility and sustainability represent a quality of entrepreneurial action and management. They enter the sphere of governance and become the tools by which management effectuates the function of corporate coordination with its stakeholders. In the evolution of governance, a central ele-

ment is to identify stakeholder perception and dialogue as well as engagement projects which have had a significant impulse starting right from the implementation of the 2011 sustainability report. In the same way accountability is affected by a profound evolution which brings it closer to the multidimensional kind, intended as a single informative system producing information suited to creating systematic communications with which to verify the attainment of objectives and both stakeholders’ and governance protagonists’ expectations and develop intra-social dialogue. The analysis carried out has enabled us to focus on some features of the sustainability process started by the company, and to interpret it as the challenge launched by the Group to contribute to create, through its own activities, a civil economy. That is typical of the corporate culture of responsibility and sustainable market economy built on the civil corporation (Zamagni, 1995; Bruni & Zamagni, 2004; Gui & Sugden, 2005). By “reading” the story of SGR, which has been able to pursue a continuous development by moving its sphere of activity and influence from “Rimini to the world”, it can be claimed that it is the result of processes of development maintained in its 50 years of business activity.

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The core of values and the spirit of the civil company have been preserved. Their survival is due to two principal reasons. On the one hand, because of factors tied to the subjective sphere, identified in the ethical values of the founders and which are still embraced by the corporate heads: ownership and management. On the other hand, because of contingent objective factors which have joined with the nature of the activity. We are dealing with a company which provides a public service that - being a family owned private group - maintains the characteristic of families and intra and inter-organizational relational closeness (Kellermanns et al., 2008). This quality enriches the social capital of the family businesses (Arregle et al., 2007; Gatrell et al., 2001), facilitates stakeholders dialogue and engagement and allows for the development of a sustainability process, which has its roots in the community it belongs to. In that community, at the same time, it is able to orient itself to a competitive, global dimension (Cabrera-Suàrez et al., 2011). Secondly, the leaning of the SGR Group towards social responsibility and sustainability can be placed in the typology of social responsibility models in Italian companies (Unioncamere, 2003), which is the result of a research study which involved 3.663 companies. These were “mapped out” into five types or models of orientation: cohesive companies, multi-certificate companies; conscious, having mobility; being sceptical. The group presents features which place it halfway between the “cohesive company” type and the “multicertificate” type company”. In cohesive companies commitment and forms of CSR communication are systematic and creative, and range from involvement and the improvement of human resources, to processes transparency, modalities of governance, the adoption of tools and formal/informal procedures which increase the disclosure of internal and external information (accountability) and finally attention to the local community and the global environment. In multi-certificate companies, the orientation is more focused on forms of procedure

(offer to the client and requests to the suppliers, of qualities of ethical, social and environmental guarantees with regards to the products and processes created – green purchasing – ISO certification, Vision, product quality, etc). SGR is a multi-certified company, which is evolving by moving towards the cohesive type, as it is multiplying its commitment to sustainability, implementing forms of communication and structured tools of accountability and starting processes of listening to expectations and interacting with the stakeholders. So we can complete the analysis by framing SGR’s pathway in terms of weak and strong sustainability. In relation to internal governance, SGR demonstrates having started transition process from weak sustainability to strong sustainability. The results of this process are produced by internal core elements: the quality of service, the environment, etc., in the operational figure that SGR designated as being responsible for and dedicated to the process. The passage from weak sustainability to strong sustainability is not simple and will require some years. SGR is developing the transition but has not reached the end yet. Even though it has accomplished half of the work., according to data and information we have available. Democratic nature, trust and relational logic, are aspects which have been activated by the SGR governance. This is because the hierarchical structure of several organs of the corporate organigram is accompanied by a participatory atmosphere, which derives from the ownership at all corporate levels. This leads to the motivation to make bold choices, such as the working time, especially in the summer, which allows employees to manage other areas of their lives such as the family. The decision making process winds its way through the company combining participatory aspects with hierarchical decisions which are always shared, and this makes the leadership “charismatic” but at the same time close to everyone’s needs.

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In relation to external governance, we can place the various initiatives produced in an interpretative synthesis grid (Tab. 9), which illustrates the relationships among SGR actions and the areas of weak sustainability and strong sustainability. Table 9 combines the two dimensions with eco-efficiency and eco-justice elements. In Table 10 we can see the subject concerned that makes and uses SR. and depends on the compilers and the users for the effectiveness of SR inside SGR governance. Following this model (Gray, 2000, p. 9), the greater effectiveness of SR can be obtained in the area 4where internal people make the SR which is useful for external ones. Because only in this combination the enterprise can interiorize the process of making SR and only in this case the enterprise can engage the stakeholder and then give information about its disclosure transparent process. Furthermore, several suggestions may be developed regarding the “sustainable” information system by putting forward the following guidelines divided into various phases: survey, classification, description and data communication, information processing and interpretation. The stages of the survey, defined as the data gathering, selection and evaluation of phenom-

ena, must take into consideration phenomena which are not subject to economic exchange, but which nonetheless have an influence on corporate financial statement, such as the supply of free services in which the situation is more elusive. SGR already possesses an informational structure, which is able to gather considerable information and this could create in the future a surfeit of information and a difficulty in defining key stakeholders in relation to the neutrality of the sustainability report. The classification stage requires examining other dimensions, other than economic convenience, which also evidently indirectly influence the choice of economic convenience. SGR has been shown to identify valid classifications in the arrangement of the information system of sustainability, involving the various managers in the process, as the following statement shows: The Sustainability Report intends to represent for SGR Group the most important document of dialogue and relations with its Stakeholders and the Collectivity, by offering opportunities to formulate motivated judgement standards with respect to the SGR Group’s performance and its comparison with the objectives aimed for as well as a continuous improvement of relations.

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Table 9. SGR group: Tools for assessment, measurement, communication of sustainability Typology of Sustainability/Tools for Assessment, Measurement, Communication of Sustainability

Weak Sustainability (Reduction of Unsustainability)

Eco-efficiency

• Organization, management and control model in conformity to the Italian D.lgs 231/2001 • Energy Efficiency Project in Bulgaria • Quality System certification: ISO 9001 • Beginning of work for Environmental Certification ISO 14001 (System of Environmental Management) and BS OHSAS 18001 (Systems of Occupational Health and Safety). • Reporting for employees, accounting based on added value, analysis of the stakeholder

Eco-justice

• Ethics code • Stakeholder Engagement activity in Bulgaria

Strong Sustainability (Recognition and Interiorzation of the Requests of Sustainability)



Table 10. SGR group: The categories of social and environmental accounting and auditing Compilers of Report/People who use the Report

Internal to Company 2

Internal to company

1 • Organization, Management and Control Model in conformity to the Decree 231/2001 • Ethical Code • System of Integrated Management

External to company

3 • Stakeholder Engagement activities in Bulgaria • Energy Efficiency Project in Bulgaria • Certification of Systems of Quality Management ISO 9001 • Beginning of work for Environmental Certification ISO 14001 (System of Environmental Management) and BS OHSAS 18001 (Systems of Occupational Health and Safety). • Sustainability Report

4 • Stakeholder Engagement activity in Bulgaria • Energy Efficiency Project in Bulgaria

External to Company

Source: Drawn from Gray, 2000, p. 9.

The Sustainability Report is a tool for prompt and transparent accountability, an opportunity to better understand the company and share information, expectations and responsibility accounting separately for the three dimensions of Sustainability (economic, social and environmental performance).

The organization of the sustainability report is also an important process of verifying procedures and results and spreading this culture. This process must spread this culture throughout the whole company without failing to insert right from the start even aspects which concern immaterial resources, where certain relational elements which derive from eco-efficiency are “hidden”, that is to say on how the processes are managed. The risk from the point of view of ecojustice is that of giving excessive importance to the image in terms of marketing (green washing) and to devalue the significance of this dimension of sustainability which is orientated, above all, to contributing to equity in the intergenerational and spatial resource use. Thus, to reply to the research question: “How does the introduction of a Sustainability Report (SR) transform mission, governance and accountability of enterprises?” the SGR Group seems to be still halfway along the path, and is concentrating especially on initiatives of a local nature, which give it increased exposure, whilst the common good requires a long-term commitment without immediate benefits.

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The process must not however stop but activate virtuous cycles in which relations between the internal company and the stakeholders tend to improve continuously. The classification phase is followed by data elaboration, in which it is necessary to define the model, method and appropriate tools for obtaining information which will be useful to the decision makers both within and outside of the company. SGR’s data elaborating process has up to now supplied good results even with attention to ensuring that the subjects involved are continuously updated and motivated with regards to sustainability. It is necessary that such involvement should be both progressive and continuous, just as it should be necessary to transmit the message to all levels of the organization that sustainability is a starting point and not the end.



Finally, the reflections made are the result of a first step of analysis and lend themselves to different considerations from which the limitations of the research emerge both from a theoretical and empirical point of view. From an empirical point of view the limitations of the paper are to try to understand the SR implementation and evidence repercussion in mission, governance and accountability of this preliminary process. A further consolidation of analysis will be necessary in order to validate them. The first step of future research will be to supervise the process and to understand during the time if it is green washing process or real relational change. We will follow the process of sustainability culture penetration in the decision making process of SGR and how this process moves to institutionalisation. In the second step of research we will need to analyse institutional (and neo-institutional) and legitimacy theory in order to understand the implementation of the decision making process in sustainability reporting within the light of these theories.

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ACKNOWLEDGMENT

This paper is the work of a common research project. However, Baldarelli Maria-Gabriella wrote par. 2.3 (Social and Environmental Accounting Reporting), 3.2 (Company’s profile), 4 and 6 while Del Baldo Mara wrote par. 1, 2.1 (Sustainability development and corporate sustainability), 2.2 (Social accounting and sustainable reporting), 3.1 (Methodology) and 5 (5.1 Mission; 5.2 Governance; 5.3 Accountability).

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ENDNOTES

Parker, L. D. (2005). Social and environmental accountability research: A view from the commentary box. Accounting, Auditing & Accountability Journal, 18(6), 842–860. doi:10.1108/09513570510627739.

1

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2

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Regarding this: “the ‘tone from the top’ is as important in environmental matters as it is in ethical ones…this becomes even more apparent when it is realized that what is needed is a cultural change” (Gray et al., 1993, p. 45). If the business and accounting environmental agenda are the only games in town, one can choose to play or not to play”(Gray et al., 1993, p. 305). Again: “But such incremental change will mean little without fundamental systemic change. Only a complete change of paradigm is likely to allow humanity to become part of “environment” rather than its exploiter” (Gray et al., 1993, p. 307). Examples include: Adams, 2004; Bebbington, 2007; Bebbington & Gray, 2001; Figge & Hahn, 2004; Jones, 2003 & Taplin et al., 2006. Even Bebbington, who is one of the most attentive scholars to this theme states that from the point of view of measuring instruments there is still much progress to be made, even though much has already been made. See: Bebbington & Gray, 2000, pp. 1-44; Bebbington & Contrafatto, 2006, pp. 206-234 for a more detailed investigation. It could be argued that engagement research represents a potent approach to exploring organizational phenomena, from the ‘inside’, and to producing a more grounded and contextualized comprehension of the rationale through which actors behave and individual/ organizational action is being constructed (Adams & Larrinaga, 2007). The sections are: Identity of the SGR Group (history, developmental stages, corporate mission and guiding values); Our people; Clients, Suppliers and Partners; shareholders and other financial backers; the environment and future generations; the local community.

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Tinker, T., Lehman, C., & Neimark, M. (1991). Corporate social reporting: Falling down the hole in the middle of the road. Accounting, Auditing & Accountability Journal, 4(2), 28–54. doi:10.1108/09513579110000504. Ullmann, A. E. (1985). Data in search of a theory: A critical examination of the relationships among social performance, social disclosure and economic performance of US firms. Academy of Management Review, 10(3), 540–557.

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Unioncamere. (2003). Models of corporate social responsibility in Italy. Executive summary. Rome, Italy: Italian Union of Chambers of Commerce, Industry, Craft and Agriculture. WECD - World Commission on Environment Development. (1987). Our common future, Brundtland Report, General Assembly. Oxford, UK: Oxford University Press. Wheeler, D., & Elkington, J. (2001). The end of the corporate environmental report? Or the advent of cybernetic sustainability reporting and communication? Business Strategy and the Environment, 10(1), 1–14. doi:10.1002/1099-0836(200101/02)10:13.0.CO;2-0.



Maria-Gabriella Baldarelli, PhD, is Associate professor at the University of Bologna, Department of Management. Visiting Professor at the University of Pula-Hroatia on May 2006. Partner of Editorial Board international Review”Economic Research” (UDK 338; ISSN 1331-677X), that is included in Thomson list – “SSCI”, and it is in the 250 better scientific Reviews of the world. Visiting professor University of Vlore (Albania) from 12 to 15 May 2009. Member of SIDREA council from December 2009 to December 2012. Visiting professor- Teaching staff mobility at the New Bulgarian University of Sofia- on 2010. Visiting professor USPI- San Paolo- Brazil on 2011. Research interests includes: corporate social responsibility; ethical, social and environmental accounting and accountability, sustainability in tourist entities; economy of communion enterprises. Mara Del Baldo is Assistant Professor of Small Business Management and of Financial Accounting at the University of Urbino (Italy), Department of Economics, Society and Politics. Visiting professor at the University of Vigo (Spain) on May 2011. Member of European Council for Small Business, Centre for Social and Environmental Accounting Research, University of St Andrews and EBEN Italia. Editorial Board Member of journals (Piccola Impresa/Small Business; IJSSS; JBAR; IJBM) as well as reviewer for different international journals. Her main research interests include: Corporate Social Responsibility and small entrepreneurs/SMEs’ business ethics; entrepreneurial values as drivers for CSR and sustainability; territorial responsibility; SMEs strategies of qualitative development and networking strategies; ethical, social and environmental accounting and accountability (SEAR). She published in Italian and foreign journals (Sinergie, Il Capitale Culturale - Studies on the Value of Cultural Heritage, JMG, JMAA, IJSSoc) as well as in national and international conferences proceedings and books.

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Sustainability Reporting by Outdoor Equipment Vendors Imke Wasner, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany Tim A. Majchrzak, European Research Center for Information Systems, Department of Information Systems, University of Münster, Münster, Germany

ABSTRACT Supply chains for various goods span across multiple nations. Often, lower developed countries are involved in which no adequate background institutions have been established. Consequently, sustainable behavior of multinational corporations is important. To make companies’ performance regarding sustainability more transparent, various international institutions developed guidelines for sustainability reporting. Based on the predominant Global Reporting Initiative (GRI) framework, they have analyzed the reports of two outdoor equipment vendors, namely Timberland LLC and The North Face. Consumers of outdoor products are expected to be more aware of the impact their purchases have. The authors briefly introduce the GRI framework and the concerned sector. The two companies’ actions are compared in detail and their actions assessed based on theories of ethical business operation. Afterwards implications of the findings are discussed. The authors’ results suggest that companies in this sector are conscious about sustainability but individual performance greatly differs.

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Keywords:

Global Reporting Initiative, Reporting, Supply Chains, Sustainability, Sustainability Report

INTRODUCTION The supply chains of today’s companies do not stop in one country. They are reaching across the world and frequently also lower developed countries (LDC) are included. For a variety of reasons, sourcing in LDCs often is cheaper – or at least perceived cheaper – than in the so called industrial nations. Adequate background institutions are often not established in LCDs(De George, 1993, p. 43). As a consequence, sustainability of production often is not given due DOI: 10.4018/jsesd.2013040105

to neglected labor standards, acceptance of ecological hazards and similar phenomena. For small and medium-sized companies (SMEs) it is hard to keep track of the full supply chain and they have little to no bargaining power with suppliers. The situation for multinational corporations (MNC) is different. A subgroup of customers and – to an increasing extent – the general public is becoming aware of unsustainable supply chains (n. A, 2012; Prokesch, 2012). In fact, they begin to ask how products have been manufactured and whether it might be unethical to purchase products that have been produced in circumstances



of violations of human rights or excessive pollution. Moreover, companies begin to realize that controlling the supply chain in terms of sustainability can be advantageous both from marketing and production perspective. Therefore, sustainability and sustainable behavior is becoming increasingly important. To provide more transparency for what companies are doing from this point of view, different international institutions developed guidelines for sustainability reporting. The sustainability report is one instrument to support the publication of environmental, social and ethical issues concerning the company to the stakeholders. The most widespread framework has been developed by the Global Reporting Initiative (GRI) (Dumay, Guthrie, & Farnetti, 2010, p. 532). To understand better how sustainability reports are used, we analyzed and compared two companies that release reports. The GRI framework is used for our analysis and we draw from theories of ethical economic behavior for comparison. We have chosen a distinctive commercial field, namely outdoor equipment production. Due to the kind of product offered, we expect typical customers to be aware of ecological and social challenges of production. Simply speaking, the majority of people that buy products that support them in outdoor activities such as hiking will have at least some awareness of the possible endangering of the environment by production. Unsurprisingly, two notable companies in this field – Timberland LLC and The North Face – issue sustainability reports. This is currently not common in many other industrial sectors. We have selected the two companies as they are competitors but in a first scan differences in their sustainability approaches were notable. Our work does not only concern the companies individually but also compares their approaches. Our article makes a number of contributions. First, it summarizes the background of the Global Reporting Initiative and related ethical theories. Second, it describes comprehensively the status quo of two companies. Third, it compares the companies and highlights both specific findings and general conclusions that

can be drawn. Fourth, it gives a detailed outlook to the questions that have yet to be answered. Particularly the combination of ethical theories and sustainability is a unique feature of this article. This paper is structured as follows. The next section gives detailed background information on the Global Reporting Initiative and then explains our research’s theoretical underpinning as well as its method. The following section presents the case of the two outdoor equipment vendors. First, they are briefly explained. Second, reporting results according to the GRI are compiled for them. Next we compare and analyze the results; this leads to the discussion afterwards, which also highlights future research questions. Finally, in the last section we draw a conclusion.

BACKGROUND The Global Reporting Initiative

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Sustainability aims at fulfilling the needs of the current generation but also to give further generations the chance to fulfill their needs. New opportunities based on globalization are not possible for everyone while there are new risks for the stability of the environment (see e.g. Elliot, 2007). The pressure of the risks demands higher transparency particularly in the light of the lack of clarity how to act. According to the GRI, this need for transparency is a fundamental component in the relationship between a company and its stakeholders (GRI, 2011a, p. 2). Therefore, the GRI built a framework for sustainability reports. The idea for a sustainability framework was raised by Ceres1, which started a project division (1997-1998). The first guideline for sustainability reporting from GRI was released in 2000. In 2002 GRI no longer belonged to Ceres but was established as a foundation in the Netherlands. 2006 the G3 Guidelines were released for public comments. In 2010 the work on G3.1 Guidelines started; they were published in 2011 (GRI, 2010).



The number of GRI reports increased strongly in the last few years. In 2010 about 1 800 GRI reports were registered (GRI, 2011c, p. 2). 45% of these reports were published in Europe and 14% originate from Northern America (GRI, 2011c, p. 3). At the moment, reporting in almost all countries is voluntary2. “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.” (GRI, 2011a, p. 3) In sustainability reports positive and negative contributions to all kinds of sustainable behavior should be included. Therefore, reports ought to give a reasonable and balanced presentation of the sustainability performance of an organization. Reports based on the GRI Reporting Framework include developments that occurred in the reporting period with connection to the strategy, management approach, and organization’s commitments (GRI, 2011a,

p. 3). By providing a general framework, not only transparency regarding a district enterprise but also in comparing companies is sought. Figure 1 shows how the principles and guidelines influence the standard disclosures. Standards and disclosures are divided into three parts (GRI, 2011a, p. 5). Strategy and profile contains the conceptual framework to understand the organizational characteristics such as governance, strategy, and profile. Management approach includes the facts how an organization works on specific topics. Performance indicators include comparable information on the environmental, economic, and social performance of the reporting organization. Table 1 provides a brief overview of facts comprehended in a sustainability report. Since there are a lot of topics a company could include in the report, it is important to cover those that mirror major environmental, economic, and social impacts of the organization (GRI, 2011a, p. 8). The report should also cover topics that

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Figure 1. Influence of principles and guidelines on standard disclosures, adapted from (GRI, 2011a, p. 4)



Table 1. Facts comprehended in a sustainability report Principles and Guidance

Options for Reporting

Principles for defining report content

“Materiality, stakeholder inclusiveness, sustainability context, completeness” (GRI, 2011a, p. 7)

Principles for ensuring report quality

“Balance, clarity, accuracy, timeliness, comparability, reliability” (GRI, 2011a, p. 14)

heavily influence the situation of the stakeholders and their decisions (GRI, 2011a, p. 8). Additionally, there are several tests incorporated to check whether the report focuses on the important topics. The performance indicators to be included in reports are divided into six categories: environment, human rights, labor practices and decent work, society, product responsibility, and economy (GRI, 2011b, p. 2). After the compilation of data, organizations indicate to which stage they used the GRI reporting framework. This principle supports readers to understand how much of the GRI framework was used. GRI has developed an application level and divided the reports into three categories: C, B, and A. These levels reflect how much of the GRI framework was covered. If an organization has utilized external assurance they can add a “plus” suffix to each level. The valuation is done on each organization’s discretion (GRI, 2011a, p. 5). While the GRI framework is a unique attempt to standardize sustainability reporting and to greatly increase transparency of companies’ actions, it is not free from criticism and, thus, discussed heavily in the literature. For a better understanding the criticism is divided into the categories format, how organizations use the GRI, and content. First, it is scrutinized whether the format of the framework is ideal. On the one hand it is criticized that the GRI report does not have a minimum length and that an organization may choose how much of the GRI it will use (Othman & Ameer, 2009, p. 304); on the other hand it is criticized that reports are lengthy and that it is hard for the reader to manage the content (MacLean & Rebernak, 2007, p. 2). Finding a

compromise is cumbersome; which information is essential depends on a company’s situation and the interests of its stakeholders. At the same time, a longer report does not necessarily increase transparency. The GRI framework is voluntary; consequently, an organization is obliged to tell GRI about using it (Othman & Ameer, 2009, p. 304). This hinders the desired transparency to some degree. The fact that data from companies are revealed is almost meaningless if reports are not made public or are hard to acquire. In particular, it would be very helpful to have a kind of database which could be browsed for published reports. Second, it is criticized how organizations use the framework. The main concern is that companies leave out important data. Additionally, in some industrial sectors it has become common for a company to compile a sustainability report. Companies that have not prepared a report in the past now do so to avoid being considered as a laggard. Some authors think that this defensive approach is shortsighted and can probably do more harm than good (cf. MacLean & Rebernak, 2007, p. 3). Some of the sustainability reports are written by a company’s department of corporate communication or public relations because it is seen as an instrument to communicate with stakeholders. However, in this situation the reports will probably not be linked to the core business strategy (MacLean & Rebernak, 2007, p. 3). In general, differing interests of several internal departments of a company have to be taken into account. To assess a report, it might be important to determine which department was in charge of the compilation process.

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Most of the reports are efficiency reports and do not comprehensively tell the reader about the sustainability of the organization. Rather, they leave out information about the social and environmental background conditions (McElroy, Jorna, & van Engelen, 2007, p. 224). Such reports only show superficial data and it is not possible to make a judgment based on it (Gray & Bebbington, 2005, p. 7). Obviously, there is the risk of misusing (or even abusing) a framework such as the one provided by the GRI. The reporting style is prone to cherry picking. Since there is no rule requiring the presentation of the same aspects each year, it is hard for the reader to compare reports or to even get a picture of development over time. However, trend analysis is much more important for assessing sustainability than a snapshot. Third, the content of GRI reports is criticized. GRI provides no specific guideline on how to include all facts for sustainability in a report (McElroy, Jorna, & van Engelen, 2007, p. 224). One of the keywords in the discussion about sustainability is triple bottom line (TBL). In this approach the accounting of a company relies on three pillars: economic, social, and environmental (Sherman, 2010, p. 59). The intention of the GRI framework is developing a TBL approach. However, companies typically do not collect much data on social performance, hampering its assessment. Besides, it is hard to measure employee satisfaction. Furthermore, companies do no present enough data to judge environmental sustainability. Information might be available because it is required by law or collected for economic reasons, but it is not published. Consequently, literature suggests that the GRI framework is a step towards a TBL approach but there is a long way to go until it will constitute a full TBL report (Gray, 2007, p. 807). While we consider it fundamental to scrutinize frameworks that are used as the base for research, we understand the GRI framework as a first step. It is thereby a sufficient basis for analysis. Much of the criticism does not address the idea of the framework or its design as such. In fact, the application is a major concern. As

a consequence, we need to find ways to ensure consistency in how GRI is applied. Moreover, due to the novelty of the approach more experiences have to be gained that can be used to refine the framework and to design guidelines for its application. Our paper is not the first one to utilize the GRI framework. We do not intend to give a full overview of GRI related work but to highlight case studies that relate to our work. Particularly notable are articles written by Adams (2004), Hackston and Milne (1996), and Milne and Adler (1999); they also discuss further related work. Adams deals with the reporting-performance portrayal gap (Adams, 2004, p. 731). He points out that reports often have a lack of completeness and, therefore, it is hard to tell what a company really did in the field of sustainability (Adams, 2004, p. 749). Furthermore, he noticed that this lack of completeness would not be accepted in financial reports (Adams, 2004, p. 749). Hackston and Milne analyzed the social and environmental disclosure practices in some companies from New Zealand (Hackston & Milne, 1996, p. 98). They point out that the size of a company is not a sufficient indicator (Hackston & Milne, 1996, p. 102). Their article is also the foundation for the paper by Milne and Adler (1999, p. 252), who tested the reliability of the instructions and coding instruments used by Hackston and Milne.

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Theoretical Underpinning Judging a company’s performance regarding sustainability is rather superficial if basing it on the (self-provided) sustainability report alone. The report provides ample data; however, we wanted to find out whether companies act ethical. This is a much stronger criterion but closely linked to sustainable behavior. The latter might be driven economically, but holistic and permanent sustainability ultimately requires an ethically-sound business model and strategy. Moreover, we make the assumption that customers of outdoor products are particularly aware of sustainability and its ethical underpinnings. Therefore, an assessment of the foundation of



the reported performance in ethics is particularly appealing. To our knowledge, this approach towards assessing a sustainability report is novel. Though a link has already been drawn by Adams (2004, p. 732), who defines a “good ethical report”. This report is transparent and covers the positive as well as the negative aspects of all important topics (Adams, 2004, p. 732). The ethical, environmental and social responsibility can be shown in clear statements of value (Adams, 2004, p. 732). To promote flourishing life, good institutions are necessary. Institutions include norms, regulations, laws, and values (Falkenberg, 2007, p. 139). Three levels of institutions can be distinguished. Micro institutions are on the local culture level, messo institutions are on the national governance level, and macro institutions are on the international level (Falkenberg, 2007, p. 140). Institutions are just when they follow utilitarianism, accept and promote human rights, and accept and support the principles of justice (Falkenberg, 2007, p. 142). With utilitarianism, actions ought to maximize happiness for all and minimize pain for all (Falkenberg, 2007, p. 142). Good institutions should accept the human rights – for example by adhering to the UN Universal Declaration of Human Rights (Falkenberg, 2007, p. 142). To check if institutions are good, they should be analyzed taking a justice perspective (Falkenberg, 2004, p. 25). Based on Rawls’ A Theory of Justice (1971), Falkenberg (1996, p. 163ff) developed three principles for the GOOD and for just institutions. Falkenberg’s first principle is survival and hand-over. Everyone must have the opportunity to receive the “minimum requirement for survival” (Falkenberg, 1996, p. 166). This includes basic survival necessities like education, nutrition, and health. Particularly in the light of an increasing world population, every generation has to hand over the world to the following generation in a good condition. Falkenberg’s second principle is equal moral

standing. Everyone should be treated equally before the law and have the same equal right. Falkenberg’s third principle is maxi-min for index goods. The least-advantage group should get as much benefits as possible. De George (1993) developed seven principles of integrity for multinational corporations that operate in lower developed countries. The principles are linked with American values and therefore will fit particularly with American firms, which want to act with integrity (De George, 1993, p. 45). They are introduced in the following: G1: “Multinationals should do not intentional direct harm.” (De George, 1993, p. 46) This guideline requests MNCs to recognize the interest of other directly or indirectly involved partners. Oftentimes in countries with adequate institutions every partner can look after his own interests because the institutions protect third parties from being harmed. In LDCs this might not be the case. MNCs should in addition to the business factors also think about other aspects, especially in LDCs with a corrupt government. An example of doing harm in LDCs is dumping toxic products; G2: “Multinationals should produce more good than harm for the host country.” (De George, 1993, p. 47) The MNC should not only avoid harm but also facilitate the host country when it is a LDC. This principle is driven by utilitarianism: the company should not maximize its own benefit but maximize the benefit for all. The principle puts force on MNCs. It is only relevant as long as the LDC follows the interests of a corrupt leader rather than preventing MNCs to do more harm than good in their country; G3: “Multinationals should contribute by their activity to the host country’s development.” (De George, 1993, p. 49) As long as there are no adequate background institutions,

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there is no reciprocity in power and the danger of exploitation. MNCs should help the host country to progress, for example by sharing knowledge, by building up infrastructure, and by helping to educate workers; G4: “Multinationals should respect the human rights of their employees.” (De George, 1993, p. 50) This principle is important especially in countries where the law does not protect human rights. Companies should not act in the way “when in Rome do as the Romans do”. For example, if it is common to pay wages below the level of subsistence, the MNC should pay more than this. However, care is advisable since this might be interpreted as a race for the most skilled workers, aiming to outperform local competitors. The companies should also protect the human rights by e.g. providing safe and healthful work environments, and by granting the rights to form union and perform strikes; G5: “To the extent that local culture does not violate ethical norms, multinationals should respect the local culture and work with and not against it.” (De George, 1993, p. 52) As long as the local culture is ethical, the MNCs should respect it. Moreover, the MNC should not lobby against reforms that protect workers or consumers, or defy them. In addition it should be cautious, because it is possible that the vast resources of the company could influence the local political process in a way that destroys the balance; G6: “Multinationals should pay their share of taxes.” (De George, 1993, p. 53) Oftentimes LDCs offer MNCs tax breaks as incentives. Additionally, MNCs use to employ different method to avoid paying taxes, for example price manipulation. To fulfill this principle, the MNCs should keep track of the values they produce in

one country. Products being sold between subsidiaries should be priced for an arm’s length transaction; G7: “Multinationals should cooperate with the local government in developing and enforcing just background institutions.” (De George, 1993, p. 54) MNCs should promote the development of just institutions on all three levels. Unfortunately, there is a thin line what is beneficial and what is not. In LDCs the multinationals should respect local culture and values. Additionally, they should not interfere in internal affairs of a country. The MNCs should support good attempts to introduce just background institutions by the government. Finally, Kohlberg (1971) founded a theory that divides moral development into six stages. Two stages are put into one category: preconventional stages, conventional stages, and post-conventional stages. The first two stages have an egoistic perspective and a “sticks and carrots view” of ethics. A company will only pay taxes if the risk of getting caught and the applicable penalties are high. The conventional stages include the immediate group stage three and stage four: society as a whole. Following what most people think in a culture is the right thing to do. Complying with the ethical principles of one group can be ethical when the background institutions promote flourishing life. In the last two stages the company acts independently and the ethical behavior is not based on groups. Instead, the company will follow a set of universal ethical principles. It could be the situation that following the local law is not ethical. From Kohlberg’s (1971) viewpoint a company that falls into the post-conventional stage is then supposed to break the local law. To check if a company acts on the postconventional stage, Falkenberg states five approaches (Falkenberg, 2004, p. 24ff):

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1. The principle of equality: All people should be treated equally. Everyone should maximize the freedom for all. Equality does not mean that everyone should get the same outcome or the same wage (Falkenberg, 2004, p. 25); 2. Just institutions: as defined above; 3. Rights and duties: Based on the UN declaration on human rights, Donaldson (1989, p. 81ff) developed a rights-based perspective for multinational companies. For this purpose he divided the duties of the company into three categories: “avoid depriving, help protect from deprivation, to aid the deprived”. The organization should not deprive anyone of “freedom of physical movement, ownership of property, freedom from torture, a fair trial, and nondiscrimination”. For “physical security, freedom of speech and association, basic education, political participation, and subsistence” the company should avoid depriving and help protect everyone; 4. Principles of integrity: as defined by De George (see above); 5. Responsibility: Multinational companies cannot be responsible for everything, but they might be responsible because of their role in the supply-chain. There are two different kinds of obligation: the legal obligation is to follow the law and the moral obligation is to act morally responsible (Falkenberg, 2004, p. 27).

the theories for sustainable behavior are honored by the companies and to understand how sustainability reporting in general takes them into account. Fourth, we generalized results in order to provide a background for discussion. Identifying reports was straightforward: the two companies are market-leaders, internationally active, and cover the full spectrum of outdoor products3. Since GRI reports are publicly available, we could collect data from the companies’ websites. Reports were not available as single documents but as categoryspecific data sheets. Rather than making a selection, we included all data sources given by the companies. The analysis is based on the categories provided by GRI and aligned with the theoretical underpinnings of ethical behavior. While there is much theoretical work on sustainability, we deem it important to work empirically. Existing empirical papers on sustainability reporting (e.g. Adams & Kuasirikun, 2000; Isaksson & Steimle, 2009; Belal, 2002) do not focus on outdoor equipment vendors and ethical questions. Our qualitative research method is particularly suited since we do not seek to generate statistics by e.g. describing shares of companies that adhere to one principle or the other. We rather foster a deeper understanding of sustainability reporting. Therefore, we chose a semi-structured approach of iteratively refined analyses. A particularity is to look at what companies report voluntarily and to reason about the ethics reflected in selfissued reports. The sample of two companies is rather small but feasible for our approach. Analyzing the reports provided by them lead to a form of case study research. Even though it would be valuable to have a broad, probably even quantitative comparison, including a variety of companies would extend our paper’s focus beyond our aims. Our first concerns are specializing on one sector and aligning sustainability reporting with ethical theory. Having a close look at two companies rather than having a less-focused one of several is a choice we explicitly made.

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Research Method Our research process can be sketched as follows. First, we selected the industrial sector and the two companies based on general observations. Second, we studied the sustainability reports of Timberland LLC and The North Face in detail. The results are presented in the following section. They have been aligned for reasons of comparability. Third, we analyzed the reports with regard to the above introduced theories. By doing so, we wanted to find out whether



Our research goal is to foster a better understanding of the GRI, of the attempts towards sustainability reporting by early adopters, and to find out how different approaches or stages of adoption can look like. The research questions, therefore, are: 1. How and to which level of success is the GRI framework used for reporting by early adopters? 2. Is there a link between ethical behavior, sustainable practices of companies, and the reporting of it? 3. Are there differences when analyzing competing market participants? If so, how can differences be explained?

THE CASE OF TWO OUTDOOR EQUIPMENT VENDORS Timberland LLC and The North Face

2,200 employees work there (Timberland, 2011j). Timberland became a subsidiary of VF Corporation in 2011 (Timberland, 2011a). In contrast to Timberland, no long-term development of a distinct sustainability strategy can be described for North Face. It belongs to VF Corporation, the “world’s leading supplier of branded lifestyle apparel” (North Face, 2012i). Products of North Face are sold in about 70 countries and distributed over the 106 retail, outlet and partnership stores. In 2010 North Face had revenues about 1,5 billion USD. Their sustainability strategy is led by VF Corporation. (North Face, 2012i) At a first glance, it might be problematic for analysis that both companies are owned by the same corporation. However, this article is based on the reports of 2010 – at that time Timberland did not belong to VF Corporation yet (Timberland, 2011a). Neither the reports by Timberland (Timberland, 2011w) nor by North Face are audited (North Face, 2012a). For our analysis auditing of the reports was not taken into consideration since we do not deem it relevant for the kind of analysis we conducted.

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In the following, the two concerned companies are introduced. Timberland LCCs headquarters is located in Stratham, New Hampshire, USA, and The North Face, Inc. is situated in San Leandro, California, USA. The history of Timberland was adapted from (Timberland, 2011a). In 1992 Timberland initiated their “path of service program”. This program offers employees to use 16 paid hours per year for community service. In the following year Timberland signed the environmental ethics introduced by Ceres (Timberland, 2011a). In 1994 Timberland issued the code of conduct to their suppliers (Timberland, 2009). Eventually, in 2004 Timberland published their first corporate social responsibility report with the disclosures of names and locations of contract factories worldwide. In 2010 the company had a turnover of 1,4 billion US-Dollars and 5,600 employees (Timberland, 2011b). Timberland collaborates with approximately 430 factories worldwide (Timberland, 2011n); one factory in their supply chain is self-owned and operated. Around

Reports According to GRI First, a general assessment of the two companies is presented. Then their reports are compared.

General Assessment We only present, discuss and analyze the performance indicators stated in the reports since this represents information on sustainable behavior. The profile includes information about the organization. Usually, this information can be found in the financial report. Moreover, it does not reveal anything about the sustainable behavior of a company. Thus, they are not included in our analysis. The reports are compared in tables structured by the six performance indicators provided by the GRI framework. Results presented in the sustainability report have been summarized by us for better comparability. Timberland uses five categories for indicators with details not



reported, not applicable, no information, not material and not available (Timberland, 2011c). We used the same descriptions. North Face does not elaborate on the indicators for which details are not given. As a background for the report Timberland uses the G3 Guidelines and the Apparel and Footwear Sector supplement. Not all indicators are included in the report. Sometimes Timberland did not have data and sometimes the impact might be immaterial. The company announced they will try to close the gap in the future. Timberland judged itself “B” for the GRI application level (Timberland, 2011c). Timberland installed an assessment process for factories. The company claims to send 15 assessors to their suppliers every nine to twelve months. They control every factory regarding how well they perform according to Timberland’s code of conduct. The assessors first check the factory before Timberland starts to produce goods. The company uses the employees as the core of the assessment process. In 2008 Timberland extended the process to learn about employees’ needs for a better life. The assessors interview the employees and in a further step analyze the factory infrastructure with management. Additionally, trade unions and other community organizations are contacted

(Timberland, 2011m). Timberland developed eight criteria by which suppliers are checked. These criteria include factory condition, progress, capacity, and management systems. With the results of the scores in the eight criteria the supplier gets one of the following marks: high priority, acceptable, partner, or partner of excellence (Timberland, 2011k). Applicable criteria are shown in Table 2. When the factories do not meet Timberland’s standards, they are required to correct the situation. Assessors collaborate with the factory management in creating a remediation plan to ensure that improvements will be done in short time. Timberland does not perceive their assessors as a kind of police but as consultants who try to assist and guide (Timberland, 2011k). Timberland highlights the human rights in their code of conducts (Timberland, 2011p), promoting the Universal Declaration of Human Rights and the International Labour Organization4. Timberland urges business partners to comply with the same standard. Suppliers must grant full and open access to facilities and operations. Timberland also highlights that employees must have the opportunity to contact Timberland anonymously and directly without punishment.

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Table 2. Marks for suppliers issued by Timberland (2011k) Designation

Explanation

High priority

• High-risk violations in the factory; • Does not meet Timberland’s minimum standards; • Receive remediation; • Manager of the factory has to bind in a writing to improvements.

Acceptable

• Fulfill Timberland’s minimum standards; • Improvements are necessary nonetheless.

Partner

• No need for immediate action; • Has an effective management system; • Makes continuous improvements.

Partner of excellence

• In two following years ranked as a partner; • Still makes improvements.



It is claimed by Timberland that every employee in the factories is a voluntary employee (Timberland, 2011p). All employees should get the chance to represent their interests in the workplace. If the law restricts this freedom of association, the factory must offer an equivalent for the employees. All employees should be treated fair and equal without discrimination. Harassment, intolerance, abuse, and corporal punishment are not accepted. Timberland prohibits child labor in their code of conduct. As a minimum wage for regular work hours Timberland recognizes the law-governed minimum and demands a premium rate for overtime duty. For a six days period the regular work schedule should not exceed 48 hours, excluding paid, voluntary overtime. Including overtime the work schedule should not exceed 60 hours per week or 12 hours per day. All employees should get a minimum of one day off after six days of working. Timberland requires that the workplace is safe, healthy, and based on the standards of the International Labor Organization and national laws. Additionally, employees should get training on safety practices for the workplace. Besides the human rights, Timberland includes environmental aspects such as eliminating toxic substance from the products and minimizing pollution and waste in the code of conduct (Timberland, 2011p). The code of ethics is another instrument that Timberland uses to make sure that employees are treated well (Timberland, 2011q). Timberland expects suppliers and other partner companies to follow the same standard and act in a legal and ethical manner. As a basis Timberland developed two general principles which should guide actions (Timberland, 2011q):

2. “Do not hide or avoid addressing an ethical problem or concern.” In the code of ethics Timberland advises their employees to follow the laws, especially securities laws, antitrust laws, and anti-corruption laws (Timberland, 2011q). The company also commits employees to a respectful and responsible behavior. When an employee thinks that a foreign law violates the US law he should contact Timberland’s General Counsel. If the company policy is stricter than the local law, the employees should follow the policy. North Face published their first sustainability report in 2010 and used the G3 Guidelines. The company judged itself “C” for the GRI application level (North Face, 2012a). North Face follows the code of conduct and global compliance principles developed by their mother VF Corporation (North Face, 2012i). The employed assessment process is not described as accurately as Timberland’s process. North Face judges factories and potential factories (North Face, 2012g). Those rated an “acceptable” will be visited every 12 or 18 months; those getting an “acceptable to be upgraded” will be visited again after 3 to 9 months; factories that are “rejected” may apply again after 3 months. No information about rating percentages is shared. According to North Face (2012f) the so called bluesign standard “is a rigorous, independent system to ensure that factories address harmful chemicals at the fabric level and meet demanding requirements for consumer and worker safety, efficient resource use and environmental protection.” North Face’s code of conduct deals with business ethics, competitive conduct, associate relations, protecting corporate property and records, and public responsibility (VF Corporation, 2012b). Human rights are not mentioned in it. The global compliance principles include the

IGI GLOBAL PROOF

1. “Take no action which could violate the law or call into question the Company’s integrity;”



following 16 issues (VF Corporation, 2012a): legal and ethical business practices, child labor, forced labor, wages and benefits, hours of work (maximum 60 hours), freedom of associating and collective bargaining, health and safety, nondiscrimination, harassment, women’s right, subcontracting, monitoring and compliance, informed workplace, worker residence, facility security, and environment.

Report Details The comparison of reports is compiled in Tables 3 through Table 8. “(no information)” denotes that no information was available from the reports; any other comments imply that a category was addressed even if no data was provided. Categories for which information was available for neither company were left out; this applies to EN8-EN15 (water usage and biodiversity), EN19-EN21 (emission), EN23-EN24 (waste weight, habitats), EN30 (environmental protection expenditures), HR3 (training on policies concerning aspects of human rights), HR8-HR11 (human rights), LA4LA6 (agreements and programs), LA8 (support regarding diseases), LA12 (performance and career development reviews), LA14 (ratio of salary of women to men), SO2 (corruption), SO7-8 (anticompetitive behavior and fines), PR2 (safety impacts of products and services), PR4-PR9 (non-compliance with regulations), EC4-EC5 (financial assistance by government, minimum wage at locations), and EC7-EC8 (local actions). Sources are the GRI framework (GRI 2011a) and the GRI reports by Timberland (2011c) and North Face (2012a) (and sub-pages from these reports); additional sources are stated explicitly. GRI identifiers have been shortened for readability. It has to be noted that for many categories only one of the companies provided information. We included these categories in the comparison tables anyway. Such discrepancies might reveal deficits in collecting information or different focuses.

COMPARISON AND ANALYSIS This section is divided into an individual analysis of the two companies followed by a comparison. The criteria for analysis are based on the theoretical underpinnings explained earlier.

Timberland First, it is checked whether Timberland promotes flourishing life (Falkenberg, 2007). To analyze if Timberland acts in a utilitarian way, not only the category human rights but also environment and economy have to be taken into consideration – specifically the sub-categories emissions, effluents, and waste and economic performance. Since the sub-category local community is new in the G3.1 framework, it is not included in Timberland’s G3-based report. For the economic category Timberland points to their financial report. The company tries to reduce its carbon footprint annually (Timberland, 2011s). Between 2006 and 2010 emissions were reduced by about 36% (Timberland, 2011t). The data presented on the website include only the Timberland Company (along with the company-owned factory). Suppliers’ data is not given even though they are claimed to be influenced. Timberland tries to reduce the pollution of the environment but it will be interesting to see if the target for 2015 can be accomplished. According to our assumption about outdoor product customers, specifically the environmental perspective is important: a good performance might be beneficial for the brand. Timberland’s effort in this direction is also observed by non-profit organizations (e.g. Greenpeace). In 2009 Timberland signed a contract to not conduct deforestation of the Amazon rain-forest (Greenpeace, 2009). In its code of conduct Timberland points to the universal declaration of human rights. The company tries to influence its suppliers with the code of conduct and with the assessments. The number of factories with high priority is decreasing. Collaboration with suppliers to

IGI GLOBAL PROOF



Table 3. Comparison of the indicator “environment” GRI

Timberland

North Face

Published data sheets about the use of eco-conscious materials in footwear and the percentage of recycled, renewable and organic material in apparel.

(no information)

EN2: recycled input materials

The use of eco-conscious materials has increased during the last years. PVC-free materials: 86,18%. In 2010 23,28% of the material in apparel was organic, recycled or renewable; the target is 50,50% for 2015.

Published data about the percentage recycled of total fabric yardage (2010: 6%). Goal for 2015: 30%. Highlighted that they completely eliminated PVC in footwear in 2010. Strive to increase the percentage of organic cotton units; in 2010: 3,8% (North Face, 2012b; North Face, 2012c)

EN3: direct energy consumption

Published data sheets about the greenhouse gas emissions inventory (Timberland operated and owned facilities and air travel by employees). Timberland reduced its emission by about 38% since 2006.

(no information)

EN4: indirect energy consumption

Published data sheet about the greenhouse gas emissions inventory.

(no information)

EN5: energy saved due improvements

Published data sheet about the greenhouse gas emissions inventory included in the footprint of Timberland. They published how they try to influence the supply chain. 4% of the carbon footprint is directly dedicated to Timberland; 96% of the footprint belongs to the supply chain. The code of conduct team helps factories to reduce the footprint.

(no information)

EN6: energy-efficient or renewable energy based products and services

Published data sheet about the greenhouse gas emissions inventory included in the footprint of Timberland and a data sheet about the renewable energy breakdown. In 2010 12,95% of the energy the company used was renewable energy.

(no information)

EN7: indirect energy consumption and reductions achieved

Points to the climate section (Timberland, 2011s) for this criterion. The company replaced inefficient spotlights in their shops with LED spots. Waste was reduced by using recycled materials.

(no information)

EN16: greenhouse gas emissions


(no information)

EN17: indirect greenhouse gas emissions


(no information)

Timberland points to the climate section (Timberland, 2011s) for this criterion. Carbon emissions for the owned facilities have been reduced in the recent years.

Points to the climate section (North Face, 2012d) for this criterion. The aims are elaborated but at the same time the ability to measure the footprint of not-owned factories is hardly possible.

EN1: materials used

IGI GLOBAL PROOF

EN18: initiatives to reduce greenhouse gas emissions

continued on following page



Table 3. Continued GRI

Timberland

North Face

EN22: waste by type and disposal method

Not reported

Only reported for US; success in reducing landfill waste (North Face, 2012e).

EN23: significant spills

Not reported

None (North Face, 2012a).

EN26: initiatives to mitigate environmental impacts of products and services

Points to the product section (Timberland, 2011u). Success is reported for the usage of economically friendly materials.

Points to the product section (North Face, 2012f). Percentage of bluesign approved fabrics in 2010: 21%.

EN27: packaging materials that are reclaimed

Not available. Timberland claims to works on a reporting infrastructure to get this information.

(no information)

EN28: noncompliance with environmental laws and regulations

Not reported

Paid 207 500 USD in 2010 to settle a claim by the U.S. Environmental Protection Agent (EPA) because shoes were advertised for killing bacteria but they were never tested (North Face, 2012a).

EN29: environmental impacts of transporting products

Timberland refers to the transportation emission but there is no link given.

(no information)

IGI GLOBAL PROOF

protect human rights appears to work, but factory working conditions still are not acceptable in several cases. It cannot be drawn from the report how severe the remaining violations are. Nevertheless, Timberland seeks contact to its workforce to improve working conditions. Timberland’s efforts are also noticed by the public. In 2010 several websites that focus on human rights picked Timberland as a good example (Thakur, 2010; Mubangu, 2010). Timberland uses its power in the supply chain especially for factory workers. However, in 2005 non-profit organizations found out that children worked in factories in China that used to produce goods for Timberland, along with working hour violations, low wages, and poor working conditions (Fajardo, 2005). Supposedly this raised the awareness of Timberland towards the problems. An article about Timberland has been published on the website of the United Nations. It points out that in 2005

the stakeholders made them change “from the posture of compliance police, with audits and checklists, to a different posture” (n. A., 2009). After this the company worked more closely and more directly with workers and factory management (n. A., 2009). Eventually, Timberland changed its way of controlling factories. The code of conduct was installed in 1994, which is a notable first step. Changing the way to control is a second step. Timberland works on improving the protection of human rights. Based on our analysis we conclude that Timberland is on a good way to maximize the happiness for all and reduce the pain for all (utilitarianism). Additionally, adherence to the principles of the GOOD (Falkenberg, 1996) is assessed. Regarding the first principle, Timberland strives to reduce the carbon footprint and to minimize pollution. The company also tries to motivate its employees to support the community in paid hours. Hours of training per year are not



Table 4. Comparison of the indicator “human rights” GRI

Timberland

North Face

HR1: investment agreements and contracts including human rights concerns

Points to the factories section (Timberland, 2011i), to the code of conduct (Timberland, 2011p) and to the code of ethics (Timberland, 2011q). Precise information is not available. Adherence of human rights is supposedly checked regularly.

North Face installed the VFC code of conduct (VF Corporation, 2012a) and global compliance principles. Precise information is not available (North Face, 2012g).

HR2: suppliers and partners that have undergone human rights screening

Points to the factories section (Timberland, 2011i), to the code of conduct (Timberland, 2011p) and to the code of ethics (Timberland, 2011q).

(no information)

HR4: discrimination and corrective actions taken

Timberland refers to “immediate actions” in their supply chain. 31,7% of factories fall into the high priority category (Timberland, 2011f). The second quarterly report from 2011 shows that 34% of Timberland’s suppliers have a high priority (Timberland, 2011r). Most of these factories are in China, Southeast Asia, Mexico, Central American and the Caribbean, South America, and the Indian subcontinent (Timberland, 2011g). Violations of working times and minimum wages are reported. Mentionable are ethics violations with 5,5% (Timberland, 2011i).

(no information)

HR5: suppliers in which the right to exercise freedom of association and collective bargaining may be violated

Timberland refers to “immediate actions” in their supply chain.

(no information)

HR6: suppliers identified as having significant risk of incidents of child labor


(no information)

HR7: suppliers identified as having significant risk for incidents of forced or compulsory labor


(no information)

IGI GLOBAL PROOF

reported in the sustainability report. With the code of conduct Timberland tries to influence suppliers regarding environmental issues. Concerning the second principle, most of the employees in the US are white (72,5%) (Timberland, 2011h), which conforms to the total population share (U.S. Census Bureau, 2011). Treating people equally is claimed to be important for Timberland. In some factories workers are discriminated, though. Timberland has to keep up fighting against discrimination but the conditions for equal treatment are given. The third principle (maxi-min for index goods) is neither included in the GRI framework nor in the sustainability report of Timberland.

Summing up, Timberland attempts to act in a utilitarian way, especially regarding environmental factors. The company accepts and protects human rights in its supply chain. In some cases, this is not successful, but Timberland is still working on it. Timberland supports equal treating of employees and with its attempts to reduce pollution it is interested in handing-over an intact environment to the next generation. In conclusion we could show that Timberland promotes flourishing life. Second, compliance with De George (1993) seven principles of integrity is checked. Timberland does no “intentional direct harm.” (De George, 1993, p. 46) The company tries to



Table 5. Comparison of the indicator “labor practices and decent work” GRI

Timberland

North Face

LA1: workforce by employment type and contract, and region

Published a data sheet about the distribution of employees. In 2010 5 476 employees worked for Timberland.

Data sheet about the distribution of employees (US only) (North Face, 2012a).

LA2: employee statistics

Published a data sheet about the average tenure of fulltime employees separated into office, manufacturing, distribution and retail stores. The average tenure of fulltime employees in 2010 is 7 years for office and distribution, 6 years for manufacturing, and 4 years for retail stores.

(no information)

LA3: benefits for fulltime employees

Points to the main website. The company claims to offer a flexible work environment and the possibility for personal development aided by in-house trainings.

(no information)

LA7: rates of injury, occupational diseases, lost days, absenteeism, and work-related fatalities

Published a data sheet about days away from 2006 to 2010 in the US operations and in the manufacturing in the Caribbean. 2,4 days away in 2010 per 100 employees.

(no information)

LA9: health and safety topics covered in agreements with trade union

Published a data sheet about the percentage of factories that are unionized by region. There is volatility for the years 2009 and 2010. Overall the number of factories that are unionized increased between the two years (Timberland, 2011e). Timberland as a company does not have an independent trade union (Timberland, 2011c). More information about specific contracts is not available.

(no information)

LA10: hours of training

Not reported

Reported the volunteered hours and team development (North Face, 2012h).

LA11: skills management and lifelong learning

Timberland tries to engage and empower the workers in all factories where its goods are produced. The company highlighted that they only hire workers of their own free will (Timberland, 2011l). Timberland installed an assessment process. It uses worker interviews to get more information about working conditions. In formal trainings workers learn Timberland’s code of conduct and their rights and responsibilities. In some factories Timberland helped to create committees for the workers, enabling them to conduct some assessments on their own (Timberland, 2011l). Besides this commitment, Timberland tries to engage workers beyond the factories wall. Work-lifetime balance is important for the company (Timberland, 2011d). Community service is honored. What was started in the US is supposed to be installed in all subsidiaries within the next five years (Timberland, 2011l).

(no information)

Published data sheets about the diversity and the percentage of global leadership (man/woman). An overview exists for the US. Timberland also published data on which proportion of leaders in the company are male and female. In 2010 62,50% of the leaders in the company were males and 37,50% females (Timberland, 2011o).

An overview of the diversity in the company only exists for the US. North Face also published data on which proportion of directors’ (or above) sexes. In 2010 68% of them were male and 32% female; 61% are male and 39% female in the retail area (North Face, 2012i).

LA13: employee diversity

IGI GLOBAL PROOF

reduce the pollution of the environment and it tries to protect human rights in the whole supply chain and not only in lower developed countries. Most of its factories with a high priority are in countries where the background institutions are inadequate or might be inadequate (for example in China: Shah, 2010). Assessing whether Timberland produces “more good than harm for the host country” (De George, 1993, p. 47) is hardly possible. Sub-

categories emission, effluents, and waste can be checked but figures have not been disclosed for each country. Even though no reliable assessment can be made, published figures suggest that Timberland manages their own reduction of pollution and supervises suppliers. There is no direct information in Timberland’s sustainability report whether they “contribute by their activity to the host country’s development” (De George, 1993, p. 49). Since



Table 6. Comparison of the indicator “society” GRI

Timberland

North Face

SO1: local community engagement, and development programs

Points to the factory section (Timberland, 2011i). Much information is included in the code of conduct (Timberland, 2011p).

(no information)

SO3: employees trained in anticorruption

Not material. Timberland points to the VF code of business conduct (VF Corporation 2012b).

(no information)

SO4: response to incidents of corruption

Not material. Timberland points to the VF code of business conduct (VF Corporation 2012b).

(no information)

SO5: public policy participation

Timberland (2011v) published their public policy position. Three criteria are named important: • values of humility, excellence, humanity and integrity; • a common vision which leads to a united acting; • verifiable acting in all social responsible issues.

(no information)

SO6: contributions to political parties and politicians

Timberland (2011v) published their public policy position.

(no information)

Table 7. Comparison of the indicator “product responsibility” GRI

IGI GLOBAL PROOF Timberland

North Face

PR1: assessment of health and safety impacts of products and services

Presents again the data sheet about the use of eco-conscious materials and the green index for their products. The green index is based on climate impact (especially greenhouse gas emission), chemicals used and resource consumption.

(no information)

PR3: type of product and service information required by procedures

Presents again the data sheet about the use of eco-conscious materials and the green index for their products.

(no information)

the company is interested in engaging their employees beyond factory walls, it looks like they share the knowledge about how important an intact environment is with employees. Since this is not part of the code of conduct it looks like Timberland does not influence their suppliers in the above mentioned way. Timberland “respects the human rights of their employees” (De George, 1993, p. 50) and also of the employees of the suppliers. Its code of conduct states that minimum wages should meet

all applicable laws in the host country. However, in countries with inadequate institutions it is possible that the wage regulated per law is not enough for an adequate living. Timberland does not state a policy for this situation. There is no information in Timberland’s sustainability report whether they “respect the local culture and work with and not against it” (De George, 1993, p. 52). Since Timberland only owns one factory this principle might not be that relevant.



Table 8. Comparison of the indicator “economic” GRI

Timberland

EC1: direct economic value generated and distributed

North Face

Points to the 10-k form published on the website of the united states securities and exchange commission.

(no information)

EC2: risks and opportunities due to climate change

Points to climate (Timberland, 2011s) and product section (Timberland, 2011u) on their website. Costs have been reduced due to climate change –related activities.

North Face lists risks and opportunities (North Face, 2012a). Risks are climate change related costs and regulation, physical changes due to climate changes, and loss of customers due to a lack of sustainable behavior. Opportunities are more extreme weather caused by climate change; the produced apparel can be used in extreme weather.

EC3: defined benefit plan obligations

Points to the main website. The company claims to offer a flexible work environment and the possibility for personal development aided by in-house trainings.

(no information)

EC6: policy, practices, and proportion of spending on locallybased suppliers

Not reported. It is stated to be included in the next report.

(no information)

EC9: indirect economic impacts

Not available. The company claims to be working on a reporting infrastructure to get this information.

(no information)

IGI GLOBAL PROOF

Although companies “should pay their share of taxes” (De George, 1993, p. 53), this principle is not directly included in GRI reports. Timberland published that the issue “significant financial assistance received from the government” (Timberland, 2011c) is not material. There is no information in Timberland’s sustainability report if they “cooperate with the local government in developing and enforcing just background institutions” (De George, 1993, p. 54). Timberland might revise its code of conduct to involve suppliers in helping their country to develop. Third, Kohlberg’s (1971) stages of moral development can be assessed for Timberland using Falkenberg’s (2004) checks for reaching the post-conventional stage. Timberland honors “the principle of equality” (Falkenberg, 2004, p. 24). In general, the company also tries to support “just institutions” (Falkenberg, 2004, p. 25) and respects “rights and duties” (Falkenberg,

2004, p. 26) According to Donaldson (1989) the MNCs should avoid depriving anyone from rights such as freedom of physical movement. As shown in the analysis, these issues are included in the code of conduct, some of them directly (like non-discrimination) and some of them indirectly. They are derived from the universal declaration of human rights, which is the foundation for the code of conduct. However, suppliers are not motivated to help the country develop. Adherence to the seven “principles of integrity” (Falkenberg, 2004, p. 26) has been analyzed above. Most of the criteria are more important for the suppliers. In this case Timberland should use its power in the supply chain to motivate the suppliers to contribute stronger to their country more often. Finally, as shown in the analysis, Timberland can be said to accept its “responsibility” as a multinational company (Falkenberg, 2004, p. 27).



Summing up, Timberland acts on the postconventional stage yet faces challenges for the close future. Ethisphere awarded Timberland as one of the most ethical companies in 2011 (Ethisphere, 2011a). Companies could apply for this award; those with the highest score in a questionnaire received the prize (Ethisphere, 2011b). Timberland made mistakes in the past. At the same time, investments in sustainability are notable. It developed the code of conduct at an early stage both regarding the company’s history and in general. After realizing that their control system is not good enough, Timberland’s management changed it. Problems with violation of human rights in their supply chain remain but are addressed. In conclusion, an overall positive attitude towards sustainable behavior can be attested and the mistakes made have to be seen in the light of Timberland being an early adopter of sustainable practices. A next step could be to include sustainability more directly in the code of conduct as shown in the analysis.

North Face does not mention the Universal Declaration of Human Rights in the code of conduct and in the global compliance principles. Also no information is available if human rights were checked in factories. They probably are included in the assessment process. The code of conduct and the global compliance principles emphasize the right way to treat employees and their safety. Non-discrimination, harassment and the health and safety of employees are mentioned (VF Corporation, 2012 b, p. 5). It is apparent that North Face is on a good way and it is important for the company how employees are treated. Interestingly, it especially mentions how the dormitory of the workers have to look like (VF Corporation, 2012a, p. 3). It also mentions and addresses women’s rights (VF Corporation 2012a, p. 2). Judging whether respecting right is a mere principle or actually taken into action requires a more detailed description of the assessment process. Additionally, adherence to the principles of the GOOD (Falkenberg, 1996) is assessed. Regarding the first principle (Falkenberg, 1996, p. 166), North Face started a project to protect the environment. However, in 2010 only 21% of the suppliers fulfilled this bluesign standard. In the code of conduct one chapter addresses public responsibility. North Face commits their subsidiaries to protect the environment and to pay their share of taxes (VF Corporation, 2012b, p. 8). Concerning the second principle (Falkenberg, 1996, p. 167), non-discrimination and harassment is directly quoted (VF Corporation, 2012b, p. 5). Most of the employees in the US are white (North Face, 2012a) but this conforms to the share of population. While it looks as if treating employees right is important for North Face, detailed data is missing. The third principle (Falkenberg, 1996, p. 169) is not included in the report. Summing up, North Face seems to twiddle the right knobs with their code of conduct and compliance principles but the impact on companies in the supply chain and own subsidiaries remains unknown.

IGI GLOBAL PROOF

North Face

First, it is assessed how North Face promotes flourishing life (Falkenberg, 2007). Besides human rights (skipped here and addressed later) category, also the environmental and economic categories have to be analyzed. North Face does not present many details in the environmental and economic category. In fact, it only reports in 6 from 30 categories. Between 2008 and 2010 North Face reduced its greenhouse gas emission in the US by about 9,3%. Their goal for 2013 is 25%. (North Face, 2012j) North Face does not publish whether it runs own factories. Quantitative data published on the website does not concern suppliers. It is important to have figures on waste and emission produced by factories. The only criterion available is the percentage of bluesign approved fabrics. Consequently it is not possible to assess if North Face acts in a utilitarian way. Much more detail about the supply chain is required.



Second, compliance with De George’s (1993) seven principles of integrity is checked. Due to a lack of data, we can only analyze whether North Face fulfills the precondition to do no “intentional direct harm” (De George, 1993, p. 46): the code of conduct and the compliance principles address all partners around the world. They are very detailed in some aspects. It is impossible to say whether North Face produces “more good than harm for the host country” (De George, 1993, p. 47). However, the company brings up public responsibility in its code of conduct (VF Corporation, 2012b, p. 8). Especially local communities are mentioned. While a focus on public responsibility can be noted, no additional information can be drawn from North Face’s report. There is no direct information if North Face contributes “by their activity to the host country’s development” (De George, 1993, p. 49). The principle is mentioned in the code of conduct. It cannot be checked directly whether North Face respects “the human rights of their employees” (De George, 1993, p. 50) North Face stresses the importance of employees’ treatment. Minimum wage should meet all applicable laws in the country (VF Corporation, 2012a, p. 1). Whether such wages are sufficient for a good life is not checked. There is no information whether North Face “respects the local culture” (De George, 1993, p. 52). Regarding the payment of the “share of taxes” (De George, 1993, p. 53), North Face binds their subsidiaries to do so (VF Corporation, 2012b, p. 8). No details are given and it does not seem to be tracked whether subsidiaries behave accordingly. Finally, no information on the cooperation “with the local government” (De George, 1993, p. 54) is given. Third, Kohlberg’s (1971) stages of moral development can be checked for North Face using Falkenberg’s (2004) checks for reaching the post-conventional stage. The “principle of equality” (Falkenberg, 2004, p. 24) is honored since North Face urges their subsidiaries and the companies in the supply chain to treat workers equally. “Just institutions” (Falkenberg, 2004,

p. 25) are supported by means of the code of conduct and the compliance principles. Whether “rights and duties” (Falkenberg, 2004, p. 26) are respected remains somewhat unclear. As shown in the analysis, the issues raised by Donaldson (1989) are included in the code of conduct, some of them directly and some of them indirectly. However, suppliers are not motivated to help the country develop. Therefore, some of the issues like basic education are not addressed. The fulfillment of the seven “principles of integrity” (Falkenberg, 2004, p. 26) has been described above. It can be concluded that North Face needs to enforce suppliers more strictly to work in a manner that supports the host country. From our perception North Face started to accept its role regarding its “responsibility” (Falkenberg, 2004, p. 27). Summing up, North Face is on the way to act on the post-conventional stage but did not yet reach it. Their assessment process does not provide enough data or the company is not interested in sharing all results.

IGI GLOBAL PROOF Comparison

From the sustainability reports it is obvious that Timberland published much more information in general and especially about suppliers. It is straightforward to get a good overview of Timberland’s behavior and their supply chain. In North Face’s sustainability report most information has a general character. However, such qualitative data is harder to compare and in particular to assess in contrast to quantitative data available from Timberland. Moreover, it is prone to being subjective. While Timberland at least partially included figures from the whole supply chain, North Face mostly reports figures from the US only. It has to be kept in mind that our analysis is based on North Face’s first report whereas Timberland started reporting in 2004. Timberland is an early actor in this branch whereas North Face is a follower. The degree of difference in the amount of information published is notable. Keeping in mind that even for Timberland it



will take time and effort to provide a complete GRI report, the way towards successful sustainability reporting is by no means an easy one. North Face seems to benefit from the fact that policies and practices could be adapted from the mother company. Surprisingly, a small number of issues are addressed on a very detailed level in North Face’s report. Supposedly this is a sign of the low maturity but ongoing extension of the report. Both companies can be criticized to some degree for including information that does not really help to judge whether they act in a sustainable way or not. Due to the nature of it, this applies much stronger to North Face. As expected from the theory, companies will rather leave out information than to provide adverse figures. Since there are no general standards, the code of conduct kept by both companies is largely different and based on different ideas. Besides, both companies keep additional documents (code of ethics and compliance principles respectively). As a consequence, the theoretical foundation for sustainable working practices is different. It will be interesting to follow whether these documents will be unified due to the acquisition of Timberland by the mother of North Face. The report of North Face is too unspecific to focus on one category. Timberland’s report specifically addresses environmental and social issues. However, no explanation for this observation can be given.

would require means that are well beyond scope such as physically visiting factories. While it is a limitation of our work to accept the company’s reports as they are, it also points to questions of future research. While other documents that companies have to release are legally binding, sustainability reports are not. Therefore, means are required to verify reports and to assess quality, reliability, and truthfulness. Regarding the GRI reporting framework, ways have to be found to solve target conflicts for companies. For example, many are reluctant to publish data on product responsibility since this might be unadvisable from a consideration of competitive advantage. It has to be noted that the development of the GRI framework is ongoing (GRI, 2012). Even though the report from Timberland is rather detailed, it does by far contain less information about close contractors than about the own business. However, many MNC have goods produced in factories that do not belong to them but are very tightly bound to them by e.g. producing (almost) exclusively for them. Thus, from an ethical standpoint they are responsible to control sustainable behavior of these factories. However, having a look at Timberland shows that it is unclear how strong the influence on contractors really is. The strategy of assessing sub-contractors appears to be reasonable but it might be hard to include full figures into a MNC’s reports. Two consequences can be derived. First, ways have to be found to adjust reporting for companies that have own factories, tightly sub-contracted factories, and that source on the market as well. Even if responsibility is demanded for the whole supply chain, it cannot be expected to be reported equally in very different conditions. Second, best practices need to be developed how to control suppliers’ factories. These practices should be a compromise between responsible behavior and a fair sharing of risks. Obviously, the power of even the largest MNCs is limited and a strategy of sustainability along the supply chain must not be exploitable by contractors.

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DISCUSSION AND FUTURE WORK Based on the analysis, general conclusions are drawn and the need for discussion is identified. Moreover, limitations of our work are named. As a first finding, it is a good strategy to implement a code of conduct and to enforce it. Our work is based on the sustainability reports of the companies. Verifying results in a way that exceed a study of literature and specifically media coverage is hardly possible – it



As indicated by Timberland’s change in approach towards controlling suppliers, it can be concluded that an active role is required for effective success. If a lack of suitable institutions and working ethics is predominant in a country, simply ensuring sustainability via legal terms is useless. Both from an ethical and from a marketing perspective, it can be identified as an obligation for MNC to actively control suppliers. The strategies sought by Timberland – sending staff for assessment and educating factory personnel – appear to be suitable. A future study should analyze the success of such actions. From an economic perspective, it has to be checked how costs from such assessments can be reduced. Ideally, they should contribute to value generation by increasing the quality of products and by rising factories’ productivity; this has to be carefully weighed against the risk of draining knowledge. We specifically meant to scrutinize the ethical dimension of sustainable behavior. Both companies have – by means of promoting their brands – an indirect interest in sustainable behavior. For other companies, there might be even a direct economic interest in acting sustainable. It has to be questioned whether sustainable actions in adherence and in conflict with economic aims have to be judged differently. This, of course, is beyond our scope. It can be asked whether the companies also seek to fulfill other goals besides increasing transparency by issuing reports. Otherwise, their reports would contain more details, which are almost certainly available. It can be guessed that only such information is included that is positive or at least allows for a positive outlook. While this is not a bad practice and reasonable – why would a company risk bad advertising while issuing a voluntary report? – it limits the meaningfulness of the reports. There is a rich base on theories – e.g. legitimacy theory and cheap talk (Hybels, 1995; Suchman, 1995; Farrell & Rabin, 1996) – that future work can draw from. As a final limitation, the general scope of our work with comparing two companies from one sector can be named. While our work should

support assessment of other companies and a comparison in further sectors, doing so remains an important topic of future work. Due to the complexity of the problem domain, our future work is not yet set. We will closely follow the development of the GRI standard and have a look at the companies’ next reports. We hope to be able to provide a trend analysis in two or three years. Studying additional companies or sectors might be an option as well. Follow-up papers could also shift the viewpoint. Working with stakeholders from companies or even doing interviews with company representatives would yield insights from a different angle that could be very valuable.

CONCLUSION We presented work on sustainability reporting based on the framework of the Global Reporting Initiative. After introducing the background of sustainability reporting, we introduced several ethical theories that allow an assessment of companies with regard to their performance in terms of sustainable practices. We then presented our qualitative research method. For analysis, we selected two companies from the outdoor equipment sector, namely Timberland and The North Face. Based on the extraction of key facts from their sustainability reports, we analyzed the performance and compared it. Timberland can be seen as an early mover with a notable performance. North Face began their reporting only recently, which is reflected both qualitatively and quantitatively. Eventually, we discussed our findings. There is much need for further research; moreover, improvements to the reporting framework and to the way companies use it could be identified. Finally, it can be checked whether our research questions could be answered:

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1. The GRI framework is heavily used by both companies. In fact, their reporting efforts are closely linked to the framework. However, not all of its aspects are utilized. Typi-



cally, whole subsections are left out and the level of detail differs greatly between the facts reported for several categories; 2. Sustainability reports are a step towards ethical practices, even though they do not necessarily reflect an ethical business model. The higher the degree of completeness of a report is, the more likely it seems that a business acts ethically. Truly ethical behavior is not enforced by sustainability reporting (and vice-versa), but there is a close link between ethical business practices and sustainability; 3. Unsurprisingly, the level of adoption of reporting practices differs even when comparing rather similar companies. For our small sample, reasons are historical and strategical. Iteratively refining a sustainable business model leads to a more holistic approach (as in Timberland’s case). A strategic shift has a major impact as well, even though results appear less balanced.

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ENDNOTES 1

2

3

4

Formerly known as Coalition for Environmentally Responsible Economies (CERES). For example, Denmark and – for state-owned companies – Sweden have mandatory sustainability reporting (Ioannou & Serafeim, 2011). This contrasts competitors such as Jack Wolfskin or Vaude. The International Labour Organization (2011) makes and checks international labor standards.

Timberland (2011v). Public policy. Retrieved June 14, 2012, from http://responsibility.timberland.com/ strategy/public-policy/.

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Imke Wasner is finishing her studies of Business Administration with a focus on accounting at the University of Münster, Germany. She has handed in a Master’s thesis on sustainability business accounting. For the thesis, she conducted a quantitative study targeted at SMEs. Imke received a BSc degree in Business Administration from the University of Münster. Formerly, she has been working as a credit analyst in the banking sector. Imke means to continue her business carrier with a position in charge of sustainability practices. Tim A. Majchrzak is a research fellow and lecturer at the Department of Information Systems of the University of Münster, Germany, and the European Research Center for Information Systems (ERCIS). He received BSc and MSc degrees in Information Systems and a PhD in economics (Dr. rer. pol.) from the University of Münster. His research comprises both technical and organizational aspects of software engineering. He has also published work on several interdisciplinary IS topics. Tim’s involvement in work on sustainability is mainly driven by personal interest. He is a member of the IEEE, the IEEE Computer Society, and the Gesellschaft für Informatik e.V.



Investing in Sustainability: A Practice-Oriented Approach to Analyze IT-Investments in Sustainability Reporting Systems

Christoph Beckers, Department of Information Management, Georg-August-University of Göttingen, Göttingen, Germany Oliver Marz, Business Development Retail and Logistics, CSB-System AG, Geilenkirchen, Germany Lutz M. Kolbe, Department of Information Management, Georg-August-University of Göttingen, Göttingen, Germany

ABSTRACT

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Given the increased stakeholder focus on sustainability, companies are facing the challenge of systematically collecting and processing sustainability information. Identifying sustainability indicators will become imperative for small and medium-sized enterprises (SME), especially in the extremely segmented and highly specialized food industry – entailing opportunities, but also costs and risks. This article is a management approach and a basis for discussing the classification of sustainability reporting systems in existing Information Technology (IT) infrastructures from an economical point of view. Supported by a case study from the meat industry, the authors discuss to what extent sustainability information is reflected by an existing Enterprise Resource Planning (ERP) System, or which investments would be required for companies to facilitate the communication of sustainability data. Additionally and as a result, the article gives a schematic explanation how process changes can be evaluated economically by capturing and processing sustainability information, and thus how to decide in favor of or against a certain level of IT-based environmental information processing functionality. Keywords:

Environmental Information System (EMIS), Environmental Management Information System, Evaluation of IT Investments, Food Industry, Meat Industry, Small and Medium-Sized Enterprises (SMEs), Sustainability Reporting, Total Buyer Ownership, Total Cost Ownership

1. INTRODUCTION Society has long been demanding from businesses to focus on sustainability (Ball & Grubnic, 2007). Stricter regulations and standards as well as the prospect of a potential increase in

efficiency and sales caused by positive image effects lead more and more to the implementation of the required political and social objectives. It is obvious that the communication of sustainability action comprises the chance to create positive corporate image effects. For this purpose, the target-oriented communica-

DOI: 10.4018/jsesd.2013040106 Copyright © 2013, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.


tion of sustainability information is necessary. Especially in the food industry, the prevailing skeptical mood of stakeholders causes the need to provide information based on high quality data. To conduct this kind of social and environmental disclosures, IT systems for sustainability accounting and reporting offer support. Because of the increasing qualitative and quantitative complexity of sustainability reports and the entered information these systems once again are becoming more relevant. Although information for sustainability reporting is costly to capture and although ICT can simplify data collection, there is a lack of ICT supporting sustainability accounting and reporting in SMEs. In this process linking sustainable action and economic performance seems to be a challenge (Morsing & Perrini, 2009). Since especially in SMEs resources are comparatively scarce (Welsh & White, 1981; Simpson et al., 2004) the question of the profitability of sustainable action has to be answered before companies intend to invest. This concerns especially IT investments (Schröder & Wömpener, 2011). Moreover the investigation is motivated by the problem that there is a lack of precise, established theory-based concepts to support the strategic management of SMEs. Although they count for 99% (in total about 23 million in Europe) of the existing companies (OECD, 2005), SMEs seem to be only slowly integrated into the scientific discussion about sustainability. On these grounds we address the question which criteria shall be applied to evaluate future investments in IT Systems for sustainability reporting. In response to the research question, we have to continuously discuss how sustainability reporting systems can be integrated into the IT landscape of SMEs. Particularly ERP-Systems are of outstanding importance in SMEs. The introduction of such integrated information systems has the potential to bring about substantial benefits while its introduction entails certain risks (Caruso & Marchiori, 2003). Correspondingly it has to be discussed for SMEs if best practice IT-support for capturing, assessing

and communicating sustainability information should be available as add-on functionality in existing ERP systems.

2. RESEARCH METHOD The exploratory approach of this article is methodologically supported by a summary based on literature research presenting the economical importance of sustainability (Chapter 3). In particular, the impact of IT systems for generating sustainability information as well as the special requirements of SMEs will be elaborated in this context. Focusing on the food industry as object of experience, the object of understanding, i.e. the process integration of sustainability, will be examined by means of a case study in a selected food company of the meet industry (Chapters 4 & 5). This case study was conducted in the scope of a Master thesis in 2011. The case study has been used to thoroughly understand the various aspects of the phenomenon investigated, especially with reference to the study of small and medium sized businesses which are widely used in the SEAR research field, too. The preceding random survey of 2011 (Chapter 4) was designed to investigate the aims and objectives of this study. It is used for the monitoring characterization of the object of experience and does not claim providing representative results. This approach provides a triangulation effect (Yin, 2009), utilizing multiple sources of both primary and secondary data to investigate the situation. The results of field research are supplemented in the next step by literature research in the area of the general meaning of economical efficiency of IT (Chapter 6). Finally, the results will be summarized, projecting an approach for determining the economical efficiency of IT systems with regard to process integration of sustainable company management. Guided by the preceding case study, the article concludes with a proposal for determining this economical efficiency (Chapter 7).

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3. LITERATURE REVIEW The following chapters are structured by contents. They especially highlight the characteristics of SMEs. The relationship to the food industry is established by the empirical investigation and a case study in chapters 4 and 5.

3.1. Sustainability and Sustainability Reporting In general, sustainability is a desirable goal which can be defined as the satisfaction of today’s needs while simultaneously eliminating the threat of future generations (WCED, 1987; Meadows et al., 1972; Hauff, 1987). The public discussion of sustainability is closely linked to the “Brundtland report” of the United Nations (Brundtland, 1987). Sustainable development as a business goal has been elaborated later in 1992 at the UN Conference on Environment and Development (UNCED) in Rio de Janeiro (Meyer & Schulz, 2011). From then on scientists have started to establish various definitions of “sustainability” and “sustainable development” (Elkington, 1999). In order to link sustainability with business practice different terms have been created. The term sustainable entrepreneurship for example focuses on …“the process of discovering, evalu-

ating, and exploiting economic opportunities that are present in market failures which detract from sustainability” … (Dean & McMullan, 2007, p.59). Dyllick and Hockerts define the term corporate sustainability as to …”meet a firm’s direct and indirect stakeholder needs, without compromising its ability to meet the needs of future stakeholders as well”. (Dyllick & Hockerts, 2002, p.131). Corporate Social Responsibility (CSR) as a concept includes a company’s voluntary contribution based on social and environmental concerns integrated in the business model (Andreaus, 2007). The different described terms, in summary declare that sustainable economic action aims at a future-oriented and sound balance between economic, ecological, and social aspects of entrepreneurial activity, the so-called “triple interests” (Hopwood et al., 2005; Lane & Carrington, 2002). This implicates financial security, minimized environmental impacts and societal conform action. (Figure 1) The consideration of ecological, economical and social targets is more and more shaping business practice. Not only ethical responsibility but also strategic calculus is the driving force. Profitability improvements and laws can be pointed out as the most obvious reasons for SMEs to invest in environmental issues (Masurel, 2007).

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Figure 1. Triple interests of sustainability (according to IFOK, 1997)



Generally SME tend not to act as sustainable as major companies (Rutherfoord et al., 2005). According to Russo and Fouts, environmental performance and economic performance are positively linked (Russo & Fouts, 1997). Revell and Blackburn show in a study of the UK construction and restaurant sector that despite possible cost reductions due to eco-efficiency most owner managers of SME tend to be highly resistant to improve their environmental performance. The study suggests four main reasons: 1) a low level of expertise in environmental management, 2) a disbelieve in cost savings generated by environmental action, 3) a lack of customer and supply chain pressure and 4) a low level of environmental regulations (Revell & Blackburn, 2007). Masurel has figured out that beside satisfying legislation, serving moral duty, order and cleanliness, needs of employees and clients, image improvements and cost savings the most important reasons why sustainability oriented SMEs invest in environmental measures is the improvement of their employees’ motivation and performance (Masurel, 2007). Furthermore, Moore and Manring have elaborated three different economic reasons for SMEs to become sustainable and to disclose sustainability information: 1) to become an investment target for larger firms, 2) to create highly competitive networks and to realize niche business advantages, and 3) to become efficient suppliers in global supply chains (Moore & Manring, 2008). Sustainability communication is one marketing related aspect of sustainable economic action that is emerging with regard to quality and quantity (Gray et al., 1995; Tilt, 2009). Research in the field of sustainability communication has demonstrated that there is a relation between a company’s origin, size, profit and industry affiliation and corporate social and environmental disclosure (Gray et al., 2001; Gray et al., 1995; Schaper, 2002). Gray, Owen and Mounders have defined sustainability communication as “communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large.” (Gray et al., 1987, ix). Schaper

illustrates that there tends to be a discrepancy between the communicated corporate attitude and the actually realized sustainable action in SMEs. So called “free rider” force companies are companies who have already improved their business to become more sustainable, to save their investments and disclose sustainability information (Schaper, 2002). The effective and successful marketing of sustainability can be utilized in various ways (Tilt, 2009). It is based on the integration of specific data content as well as management and data capturing instruments (Schaltegger et al., 2007). In principle, focus must be on three interdependent goals in the communication process of sustainability information: create awareness through acquiring sustainability knowledge; create a company image focusing on the changed mindset on the market; support action plans, in particular the purchase intentions of market participants (Murray & Vogel, 1997). The success of a sustainability-oriented communication can vary depending on the chosen instrument of communication. Sustainability reports are a relatively common approach for the targeted communication of sustainability information (Isenmann, 2007; Michelsen & Godermann, 2005). Sustainability reporting can be considered as a further development of environmental reporting. So far, companies have been lacking generally accepted standards to conduct and present sustainability reports (Perrini & Tencati, 2006; Gerbens-Leenes et al., 2003). The contents of the reports include the economic, social and environmental performance of organizations and are determined on a strategic level. The task of reporting is mostly carried out by financial and management accountants (Tilt, 2009). Full cost accounting (FCA) approaches make it possible to connect financial accounting and social and ecological numbers to make potential costs and benefits of sustainable action visible and accountable (Bebbington et al., 2001; Antheaume, 2007; Baxter et al., 2002). The corresponding information is relevant for specific sectors, tailored to specific stakeholders and may include positive as well as negative

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aspects. Ideally, a sustainability report presents these aspects in accordance with established standards, norms and guidelines, such as the Accountability 1,000 framework (Stanwick & Stanwick, 2006), the Eco Management and Audit Scheme (EMAS), or the guidelines of the Global Reporting Initiative (GRI) (European Commission, 2007; GRI, 2006). Differences in the nature of the reports result from diverging national legislation and the company and industry-specific mix of ecological, social and economic aspects (Isenmann, 2007). Most companies use communication and accounting to defend or maintain their legitimacy (Tilt, 2007). This is why most stakeholders consider voluntarily produced reports to be not reliable and seem skeptical (Tilt, 1994). As a result, customized, high-quality, industryspecific information bundles will be demanded (Isenmann & Kim, 2006). Internet-based sustainability reporting is the most comprehensive tool for the communication of sustainability indicators. Nevertheless, relevant information may also be communicated through other channels than annual reports (Tilt, 2009). Guthrie, Carganesan and Ward pinpoint in their investigation about disclosure media for social and environmental matters within the Australian food and beverage industry that multiple reporting media sources have to be considered (Guthrie et al., 2008).

tion system (EMIS) are the basis of corporate environmental management and hence for sustainability accounting and reporting as well. Basically companies need special functionality to measure and control their own behavior in order to assess whether they are acting sustainably. Perrini and Tencati offer for example a framework of a satellite sustainability evaluation and reporting system (SERS). The SERS is based on different databases to integrate new sustainability accounting and reporting instruments into existing systems (Perrini & Tencati, 2006). EMIS have been scientifically discussed for the last two decades, but so far they are not sufficiently used in practice (Wollgemuth, 2012). They can be defined as organizational and technical systems for the systematic collection, processing and provision of environmental information in companies (Rautenstrauch, 1999). Reporting and information systems for stakeholders and shareholders can be understood as one out of three categories of EMIS (Teuteberg & Goméz Marx, 2010). They support the communication of environmental sustainability-oriented information. On the one hand, software tools can support the creation, management, distribution and presentation of sustainability-oriented reports and information. On the other hand, they can facilitate their contents, composition, appearance and communication (Isenmann & Goméz Marx, 2008). Modules for data acquisition, data processing, and the communication of information bundles are the three basic parts of reporting and information systems for sustainability communication. However, it is obvious that the system does not determine the sustainability of a company, but the assessment and collection of the necessary contents. Only in a second step, a decision is taken which medium is used, in which form and in what detail. This is why data acquisition can be seen as the backbone of sustainability reporting systems. The different information types (economic, ecological or social) will result in different sources of

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3.2. ICT for Sustainability Reporting In sustainability reports or sustainability information, qualitative and descriptive information is combined with quantitative measurements. In case information is combined or consolidated, and if in addition this information contains environmental, economic and socio-cultural issues, we can speak of sustainability indicators (Hockerts, 2003). In general, dealing with sustainability information implies the basic tasks of collecting, processing and communicating relevant information (Isenmann & Goméz Marx, 2008). Corporate information systems and corporate environmental informa-



information. To process the collected data, different sustainability assessment procedures can be applied. Normally a standard approach is followed (Bebbington et al., 2001). This standard approach comprises a definition stage, the determination of boundaries, the quantification of physical flows and if wanted the translation of information into monetary terms (Bebbington et al., 2007). Following a full cost accounting (FCA) approach, different resource capitals (economic, environmental or social impacts) and different elements of the resource capitals (for example water, energy and raw materials) have to be defined in order to set up a frame of reference for a sustainability information (Baxter et al., 2004) (Figure 2). Information related to quality and human resources is largely of qualitative nature and is most likely captured, used and processed in the form of free text. Social accounting requires a sophisticated awareness of theory (Gray et al., 2010). We assume that most of the required quantitative data can be found in financial accounting systems or is managed in quality systems. The relevant information can be generated as reports out of the existing ERP systems or has to be prepared by humans who have the needed theoretical background. Instead of social and economic aspects, the IT-based aggregation of ecological information is focused in the following chapters of this paper. There seems to be a big potential for IT to improve the availability of environmental information in companies and supply chains. Leyh, Krischke and Strahinger pinpoint that particularly in German SMEs, IT tools to support sustainability are either developed in house or

based on Excel. Implementation efforts seem to mainly influence the decision if stand-alone systems or add-on functionality is used (Leyh et al., 2011). The very early findings of Cragg and King show that the computer application developing process in SMEs can be encouraged by relative advantages, competitive pressure, consultant support and managerial enthusiasm. Factors that are discouraging the development of IT solutions are a lack of specific knowledge and/ or skills, a lack of time, inappropriate economic climate, excessive costs, too small firms, unstructured systems and poor software support (Cragg & King, 1993). The findings seem to be comparable to the development of EMIS and sustainability accounting and reporting systems. In this context, SMEs tend to have less chances to realize ERP projects successfully than big companies (Sedera et al., 2004). It is becoming obvious that beside conventional accounting tools and reporting mechanisms, new instruments have to be developed to capture social and environmental impacts of business (O’Dwyer, 2006; Ball & Grubnic, 2007). Existing instruments and methods seem to be specific for major enterprises and have to be adapted to SMEs. Montazemi has figured out in 1988 that the organizational size, its centralization and the availability of experts has a major impact on the efforts to realize the implementation of an information system in all business units. This implies that as long as the necessary resources are available, the simple organizational structure of SMEs tends to be beneficial for efficient projects (Montazemi, 1988). It is also

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Figure 2. Basic modules of reporting and information-systems (according to Isenmann & Marx Goméz, 2008)



important to point out that IT professionals can help especially SMEs to review their current systems, develop and plan IT and educate and train personnel in order to reduce implementation costs (Cragg & King, 1993). SMEs tend to apply problem-oriented instead of theorybased approaches (Caruso & Marchiori, 2003). Especially in complex projects, this causes difficulties (Burgess, 2002) that could be avoided if the needed resources were available.

3.3. Status Quo: EMIS for Sustainability Reporting in the IT-Landscape As indicated in the previous section, sustainability reporting systems are closely linked to environmental information systems and corporate information systems. Basically, it can be assumed that efficient and effective environmental information systems are ideally integrated components of industry-specific business information systems. This assumption is supported by the latest analyses on the developments of corporate environmental information systems (El-Gayar & Fritz, 2006; Teuteberg & Strasburg, 2009; Eun et al., 2009; Teuteberg & Marx-Gómez, 2010). Teuteberg and Strasburg’s paper represents the state of the art in EMIS research quite well. They have figured out in a literature review of about 100 articles that existing EMIS are unable to be integrated and lack functionality (Teuteberg & Strasburg, 2009). Teuteberg & Marx-Gómez furthermore stress the importance of sustainability accounting and reporting functionality in existing ERP systems and outline the unavailability of this kind of functionality in most companies (Teuteberg & Marx-Gómez, 2010). It is noted in a conceptual overview by El-Gayer and Fritz that companies are mostly using stand alone solutions instead of integrated EMIS (El-Gayar & Fritz, 2006).

There are approaches for the horizontal and vertical integration of environmental information systems in other systems (ERP, Supply Chain Management, public data), in particular operative ERP systems. Manufacturers of ERP systems like SAP and Microsoft are already offering modules for generating sustainability indicators. But – as it has been repeatedly pointed out – the available findings from environmental informatics have not yet, or only partially, been implemented (Lang, 2007; Teuteberg & Marx-Gómez, 2010) – which suggests that the economic interest (in the past) in integrating the relevant functionality was rather single-sided. This assumption is supported by the observations of Molla, Cooper and Pittayachawan (Molla et al., 2009). They revealed that costs and unclear benefits are crucial obstacles for the implementation of Green IT. Furthermore, especially the communication of environmental information seems to be closely linked to the extension of corporate reports from publicly traded companies. Most SMEs do not have the financial resources or qualified staff and/or appropriate organizational units required for sustainability reporting. Besides that, many SME are afraid of negative reactions from their customers, employees and suppliers. Assessing the communication costs from an economical perspective is another challenge. (Caprano & Ergenzinger, 2011). Definitely, using existing IT systems would facilitate and accelerate the process of collecting and processing environmental information (Wollgemuth, 2012). It is safe to assume that the components of sustainability accounting and reporting systems have been poorly integrated in the existing industry-specific IT systems, particularly among SMEs. Neither can sustainability reports be produced on the basis of IT

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only. Especially in the field of sustainability, the human factor is needed to interpret the data and to present them as texts.

4. SUSTAINABILITY REPORTING IN THE FOOD INDUSTRY: A RANDOM SAMPLE The European food and drink industry is the largest manufacturing sector in the European Union. The branch employs about 4.1 million people in about 274,000 companies and generates a turnover of about 956.2 billion € (CIAA, 2011). The meat sector is the largest subsector in this fragmented industry. It represents about 190 billion € turnover, 35,620 companies and 861,000 employees. Roughly estimated, SMEs account for half of the meat industry’s turnover, valued added and employees, but represent 99% of the companies (CIAA, 2011). Sustainable information on products seems to offer excellent opportunities for increasing sales, particularly in the food industry. Comparisons to the trend towards healthy, high-quality food in the organic segment are obvious (Spiller, 2005; Ionescu-Somers, 2003; Steinbach, 2008). Evidently, detecting niches at an early stage bears high potential for ensuring long-term business success. Already in 2003, GerbensLeenes, Moll and Uiterkamp have outlined the importance of a system-based measuring tool in order to inform about the sustainability of all companies that contribute to an end product. They suggest for example total land, energy and water requirement per kg of available food to become central sustainability indicators for products (Gerbens-Leenes et al., 2003). The noticeable restraint of the food industry regarding the systematic communication of sustainability information seems to be rooted in the existing risks (Heyder, 2011). Apart from the uncertainty caused by the requirements for sustainability communication, which have been fairly general so far, such risks include in particular the unknown willingness of consumers

to accept the higher prices of sustainable goods as well as the lack of trust in the consumer relationship which was strained by numerous scandals (Spiller, 2001; Spiller & Zühlsdorf, 2002; Banati, 2011). The complexity of chain management in food production, especially Life Cycle Assessments (LCA) to evaluate sustainability associated with a product has to be mentioned as further risk. Caused by the riskiness and complexity of sustainability disclosures, the food industry, especially the meat industry, appears to be incommunicative. Likewise, companies seem to lack theoretical knowledge how to establish sustainability accounting and reporting. These assumptions are supported by a so far unpublished random survey of 74 SMEs in the food industry, which was conducted on three seminars of the CSB-System AG. The company is an international consultant and vendor of integrated information systems that are tailored to the food processing industry. The events in Munich (23 March2011), Hanover (17 May2011) and Brussels (21 September 2011) have had the target to inform companies from the food industry about new IT developments. All in all 319 participants, mostly IT Directors, Managing Directors and Owner Managers mainly from Germany, Belgium, Italy and Eastern Europe attended the seminars. More than two thirds of the participants have been from the meat industry. Non of the companies has had a turnover of more than 500 million €. Representing a random sample of the participants, 74 of 80 answered questionnaires have been analyzed, resulting in the findings described below. About 60% of the respondents confirmed that there is a general awareness for environmental issues in their companies. Furthermore, 59.4% of the respondents said that they pay special attention to the energy efficiency of their production processes (Figure 3 – question 1). 93.8% of the respondents believe that energy is a key production factor, and 43.8% assume that the carbon footprint will considerably influ-

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ence the company’s image in the future (Figure 3 - question 2). This maybe demonstrates the significance of sustainability issues in the food industry in the future. A majority of respondents said to be uncertain with regard to the importance of collecting environmental data (approx. 44%) due to a lack of practical experience (approx.76%). 45% of the respondents agreed that their management is thinking about the collection of environmental data, but that the marketing departments do not seem to enforce relevant initiatives. Close to 45% of the respondents declined a corresponding statement while only 25% agreed. Truly the large number of scandals in recent years seems to push companies especially in the food industry to legitimacy towards the public (Heyder, 2011), resulting in rather contained activities and communication. 78.1% of the surveyed enterprises (SMEs) currently create no sustainability report (Figure 4 – question 1), and only 21.9% are concretely planning to do so (Figure 4 – question 2). The finding that about 12.5% of the companies publish a sustainability report is astonishing since generally in average about 6% of the SMEs have published sustainability reports (BMU et al., 2007, 23). This variance can be

explained by the biased random sample, by the specific attitude in the meat industry or by the phenomenon of desirable answers. Future research should clarify this. Presumably the complexity and uncertainty of the subject area as well as the risk of future assessment of sustainability information will cause uncertainty when dealing with investments in sustainability reporting system and EMIS. The collection of environmental information, for example, is of major importance to 59.4% of the respondents while it is negated only by 18.8%. However, for 68.7% the future importance of the processed data is “unclear”; only 12.5% of the respondents say that the effect of environmental information is difficult to measure. Particularly the German food industry, which is characterized by small and medium enterprises, seems to be widely uncertain and insecure when it comes to dealing with environmental information. 68.8% of the respondents said that their companies do not use any energy controlling systems (Figure 5 – question 1). 31.3% claim that this is a business objective; only 9.3% have concrete plans to do so (Figure 5 – question 2). Based on the results of the random survey we can assume that EMIS and sustainability reporting systems are rarely used

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Figure 3. Local value of energy efficiency and carbon footprint



Figure 4. Status quo of sustainability reporting

Figure 5. Status quo of usage of energy controlling systems

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in SMEs in the food industry (maybe in big corporations), although there is a high interest in sustainable business practices and sustainability communication.

5. QUINT GMBH: A CASE STUDY The case study was conducted within a Master thesis in 2011. Several open and semistructured interviews have been executed on side with the Owner Manager, the Production Manager, the IT-Manager, the relevant business consultant for the CSB-System and a CSB product manager. The subsequent data has been analyzed (in an unstructured way) in accordance to Yin (2009). The Quint GmbH & Co.Kg Fleischwarenfabrik (hereinafter referred to as Quint) is a familyowned medium-sized enterprise located in Kenn, Rhineland Palatinate, Germany. Quint has nearly 75 employees, a turnover of 10 million €, and produces a small range of delicacies consisting of approximately 100 items, with an annual production of close to 1900t. Quint has an excellent reputation and is interested in long-term relations with their shareholders and stakeholders. The Owner Manager is actively pursuing a sustainable development strategy and has been working on a resource-efficient production for years. He has established a strong sense of corporate responsibility based on his belief that only the most sustainable and especially eco-efficient companies can secure long-term success in the meat industry. For its outstanding voluntary commitment, the company has been awarded the environmental price of Rhineland-Palatinate in 2011 and is planning the profitable marketing of their eco-efficiency in the coming years. Quint has developed first ideas of a customized model of a sustainability reporting system to present environmental information on product labels and to generate sustainability reports. The integration of EMIS functionality into the existing IT solution aims at the reduction of complexity and costs. The system should get a

remedial character and should also be used for environmental reporting and process improvements (monitoring). The focused environmental media (resource capitals as to Baxter et al., 2004) are water, air and energy. The IT systems for collecting, processing and communicating relevant environmental information should be based on a central database, focusing on the company and all of its departments. Vital requirements for the system are minimized manual data collection, transparency and security in the handling of data and, of course, the price of the solution. At present, the company provides the following consumption data: • • •

Energy consumption data via the website of the provider Water consumption data Sporadic energetic data of the raw materials and supplies

So far, Quint did not explicitly request data about preliminary stages from their suppliers. Currently the interface capabilities of the existing systems as well as the qualitative and quantitative requirements on the appropriate data are being evaluated. In an interview to assess the information needs, the theoretically possible need for information has been reconciled with the practical needs considered as necessary (Skupin, 2012). Apart from the managing director and the production manager of Quint, the product manager of CSB-System AG was interviewed. Quint has identified the following measures for information procurement and processing (Skupin, 2012):

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• •

Set up auxiliary indicators for materials management (for example, average storage time and quantity); Identify the production time (according to the working time determination of the German Verband für Arbeitsgestaltung, Betriebsorganisation und Unternehmensentwicklung (REFA), German association for time and motion studies);



• • • • • •

Design a sensor network; Request information from preceding stages (shipping etc.); Design the transmission of consumption data within the company’s own fleet; Evaluate suppliers (claim information about raw materials and supplies); Research and integrate appropriate (standardized) external databases; Define and establish key performance indicators.

It was found that a major part of the relevant information (approx. 50%) is already available in the industry-specific ERP system, but that it has not yet been sufficiently complemented by environmental information, or that there still are some gaps. Furthermore, it was recognized that the missing information is usually due to insufficient granularity of the data (conversion of energy consumption on individual benchmarks), and unavailable data from the pre-stages (Skupin, 2012). Because of the many food scandals in the recent past (see for example Banati, 2011), most meat companies do not give more information than they are forced to or accurately check the quality of their external communication in order to avoid bad reputation caused by invalid information. As figured out in the chapters above, SMEs are most likely lacking resources and special knowledge in the field of sustainability accounting (Cragg & King, 1993), furthermore stakeholders tend to consider voluntarily produced reports to be not reliable (Tilt, 1994). As a result, the anyway skeptical audience of sustainability information appears to be extraordinarily skeptical in the meat industry. Also Quint is rather reticent when it comes to communicating environmental information. Management pays close attention to the quality of the information to be communicated. In particular, dealing with the outstanding definitions of the International Organization for Standardization (ISO) and handling the semantic gap is challenging. Generally, we need to ask which of the functionality in exist-

ing IT systems can be used to capture, process, and communicate environmental information, and how investments in this type of IT can be designed sustainably.

6. EVALUATION OF INVESTMENTS IN SUSTAINABILITY REPORTING SYSTEMS Investments in differentiation strategies are subject to a pure marketing perspective, such as Quint’s objective to attain a market position as sustainable company. Provided that the related efforts are recognized by the market, possible IT investments are of no consequence or rather subordinate to success, which is the primary goal of the differentiation strategy. Today’s corporate sustainability attempts are targeting the image of a company, but also the design of business processes enabling the efficient use of resources and with focus on the input (Lang, 2006). This will change when companies will increase their awareness for the output, a mandatory requirement to be fulfilled especially by large and medium-sized companies within the scope of reporting Carbon (CO2) emissions. For SMEs, the design of sustainable business processes is currently at a stage of insatiable expectations. However, these expectations are not related to considerations for maximizing profits, but – as mentioned above – to a differentiation strategy. Here, strategies for cost leadership and differentiation strategy could be combined if the differentiation strategy and its resulting process changes (supported by IT) are examined separately from the cost drivers, which may also need to be taken into account for sustainable management. As a conclusion, Sustainability Reporting Systems as investment objects can motivate companies to take action because of two primary market drivers:

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1. The possibility to differentiate, thus securing/improving the own market situation;



2. The statutory requirements (compliance) which are expected to be inevitable for the companies. Corporate compliance (argument 2) endorses a short-term breakdown of sustainability into qualitative investments for a sustainable company structure on the one hand, and a purely quantitative point of view on the other hand, where the decision for the operative structure is subject to investment plans for IT, amongst others. Thus EMIS components such as sustainability reporting systems are additional IT components, challenging the IT systems in operation because of their cross-area data utilization and presentation, and making the process more expensive because of the delta of additional information. Consequently, the short-term business profit from an economically successful differentiation strategy provides the liquidity for an integral examination of sustainability in those processes that, in the medium term, will have to be changed from a sustainability perspective in the information management. This will be the case when third parties demand sustainability as a precondition for participating in the market, hence eliminating the differentiation strategy, and - with regard to sustainable management - business processes designed to save resources come to the fore. In summary, sustainability needs to be divided into five cost areas, as for example:

In the end, EMIS has the least impact and consequently is not decisive for the success or failure of a company’s striving for sustainable business. It merely provides a way to keep the costs for processing, utilizing, analyzing and reporting information as low as possible. Therefore, especially small and medium-sized enterprises should focus on items 1 to 4, where the implied consequences for the business structure are by no means to be considered as complete, but merely as a framework for the showcase division of sustainability as described above. So the underlying consideration for investing in EMIS is which information pertaining to sustainability shall be processed with, and presented by, the information management system, and as a result, to which extent integration in existing processes is required to encounter the increased costs as economically as possible. From this perspective, the information for a first survey should be divided into three steps: 1. Identify the required information based on the applicable standards, laws and regulations for sustainability management; 2. Identify the information required for the individual processes; 3. Identify the triggers in business processes for collecting and processing the information.

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1. Investments for the differentiation strategy (marketing and communication); 2. Investments in machines, vehicles, buildings etc.; 3. Logistical changes (distribution channels and planning); 4. Selection of raw materials and suppliers; 5. Investments in information management, for example EMIS.

This is followed by the decision which way is the most economical one for processing the data. Here, the investments for an EMIS with the desired level of integration are compared to the conventional, and maybe also manual, ways for processing information. The goals of an integrated IT project are to avoid media disruption, shorten lead times and improve processes through increased automation. In the actual process, as a first step of an economic plan the costs will be identified by means of total cost calculation. This determi-



nation is characterized by distinguishing fixed asset costs and variable operating costs. Additionally, cost estimation methods are applied for determining the costs (Kalsbach & Marz, 2011). The second step includes the determination of the benefits, which can be classified as monetary, quantitative criteria and nonmonetary, qualitative criteria (Witte, 2007). For identifying the quantitative criteria, process cost accounting is applied. In the third step, costs and benefits are compared in order to prove cost-effectiveness. This is done by a break-even analysis as well as by calculating payback and return on investment. The last step comprises reviews and ex-post evaluations which can be effected by means of deviation analysis (Kalsbach & Marz, 2011). The gradual approach and associated models and methods are summarized in the overview seen in Figure 6.

6.1. Break-Even Analysis This particular assessment method is adopted to the Quint case study because the company has a simple organizational structure, an ERP system is already existing, special knowledge is available and it is easy to conduct. Although the approach is rarely used it seems to be suitable for examining especially SMEs IT investments. (Figure 6)

7. RESULTS AND DISCUSSION: EXEMPLARY EVALUATION METHOD FOR QUINT’S INVESTMENT Applying the evaluation scheme to Quint results in the following initial steps for assessing the investment in IT-based sustainability reporting components: •

Estimating the cost for the procurement and processing of information.

Taking into account economical requirements, Quint indicates in the process analysis which basic information is required to prove sustainable management in external and internal communication. First and foremost, the case study considers a system complementing existing IT processes/ IT infrastructure instead of an additional system. Available literature already presents aspects for EMIS assessment. These are mainly capabilities for extensions and communication, consistent user interfaces, costs for information technology, costs for data collection, as well as the organization support (Perl, 2006). Regarding EMIS as an integral part of existing IT systems, as Quint does, would logically imply that Sustainability Reporting

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Figure 6. Evaluation scheme for IT investments (Kalsbach & Marz, 2011)



Systems, too, belong there. The requirements for extensibility, communication capabilities, and consistent user interfaces were thus largely fulfilled by Quint’s ERP system and are no longer up for discussion. Following the evaluation scheme for IT investments in Figure 5, pending IT investments can be divided into costs for services for customizing the system (development and implementation), and hardware costs for capturing data. The corresponding costs can be directly allocated to processes and thus to workplaces, enabling a cost analysis by the Time-Saving Time Salary method (Sassone, 1989; Sickel, 2001): •

Quantifying the benefits through image building and product labeling.

To assess the benefits of the costs and efforts, an economical evaluation compares the integrated Sustainability Reporting System to the following alternatives:

1. Entirely manual entry, processing, and communication of the required data; 2. Manual entry, processing and communication of information missing in the existing systems; 3. Extension of the existing IT infrastructure by data fields for entering, processing and communicating available information; 4. Investment in an EMIS with all functionality required for entering, processing, and communication. In the practical application, the crucial factor for the evaluation is the total time required for implementing the relevant functionality. The template shown in Figure 6 allows us to quantify this time and effort (Figure 7). In the Quint case study, the intention to integrate into an existing IT system had positive impacts. Service costs can be set off against the time and effort for redundant or manual data maintenance. Also, industry-specific features (QM system, traceability, batch production,

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Figure 7. Analysis scheme for assessing IT investments in IT-based processes of sustainability communication (own diagram)



recipe optimization) represented by the ERP system enhance the data entry, processing, and communication. The results of the analysis provide a useful basis for further investigation in various directions. For example, with respect to companies belonging to other economic sectors or with respect to a comparison between large and small companies in the same sector. Findings can trigger a dialogue and pose questions and reflections aimed at discussing the classification of sustainability reporting systems in existing IT infrastructures. With the template above, managers of SMEs get theory-based assistance to decide about the usefulness of IT-investments, especially in sustainability accounting and reporting systems. Since the paper includes various aspects, only the combination of them can be addressed and analyzed exhaustively. Furthermore, the empirical part has certain shortcomings that can be argued, but should be understood as descriptive padding to prepare the management approach. Future research should apply the developed approach more deeply. As well, future research could apply different types of IT investment analysis, elaborate more profound empirical research in the meat industry and investigate the acceptance and diffusion of EMIS in SMEs.

However, with a view to the efficiency of IT investments, the first step should be to verify if existing systems are capable of integrating the information. Reports as the optimal format of presenting information for the sustainability analysis do not necessarily need to be realized through a separate EMIS, but put available reporting and business intelligence tools to test. Hence the efficiency of the additional information management is not the crucial decision criterion for or against an EMIS, but forces a change of mindset when designing sustainable business processes as sustainable, efficient information management. Consequently, the sustainability approach should be defined as an additional set of process steps that should not be assessed separately, but rather as additional work steps. The “time saving-time salary” method can be applied as one way for monetary valuation. Appropriate tools and process models have been presented by this article.

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8. SUMMARY AND OUTLOOK The practical and theoretical insights of the paper have shown that the evaluation of investments in sustainability reporting systems are challenging. SMEs’ business objectives as well as the redundant functions of EMIS and ERP tools need to be taken into account while deciding about a SMEs investment in ICT supposed to support sustainability accounting and reporting. As systems that are already implemented in a company can be used to support planning, execution and control processes, the main question is how to integrate the required information in existing processes and IT structures.

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Christoph Beckers has studied business at the University of Trier, Germany and the University of Maastricht, Netherlands. After several internships and his diploma theses he started working as executive assistant to the board and later in the staff section international partnermanagement at CSB-System AG, Geilenkirchen, Germany. Since 2010 Christoph Beckers is extra-occupationaly working as an external research associate at the Chair of Information Management, Prof. L.M. Kolbe, University of Göttingen, Germany. His main research interests are in the field of Green IS, focusing the food industry. Oliver Marz has studied business and economics at the Universities of Aachen, Krakau and Münster in Germany and Poland. His PHD-thesis was about a risk-based approach in the maintenance of machines in midsized companies. As Head of Business Development Retail and Logistics of CSB-System AG, Oliver Marz is responsible for the planning and implementation of IT-Projects. In the past he has gained extensive experience in the field of process reengineering and software-design, working mainly for midsized companies in the food and food retailing sector. Furthermore Oliver Marz is a external lecturer at the Universities of Applied Sciences in Aachen and Cologne.



Lutz M. Kolbe is holding the Chair of Information Management at the University of Göttingen, Germany. His main research interests are in the field of IT-Resource-Management, IT-Security and IT-Innovation-Management. After an apprenticeship in banking and his diploma in information systems at TU Braunschweig, Lutz M. Kolbe was awarded a doctorate in business administration at the TU Freiberg/Sachsen, Germany. In the following years he held leading positions in the area of IT Management at Deutschen Bank in Frankfurt and New York City. In 2002 he moved to the Institute of Information Management at the University of St. Gallen, Switzerland, for his post doc term as head of several competence centers. His international visiting appointments include the University of Rhode Island (URI), New York University (NYU), and the IBM Research Lab, Almaden. He is the author and co-author of more than 50 international publications.

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APPENDIX Questionnaire Table 1. Status Quo: EMIS/sustainability reporting No

Don’t Know

Disagree

Total Disagree

Yes Is your company using an energy-controlling system? Do you currently plan to use an energy-controlling system? Is the implementation of an energy-controlling system one of your company’s targets? Is your company collecting environmental data along the supply chain? Do you think it is necessary to collect environmental date along your supply chain? Is your company planning to collect environmental data along the supply chain? Is your company publishing a sustainability report? Is your company planning to publish a sustainability report? Is your company taking care of energy efficiency in the production process? Do you think water will become an important production factor? Do you think the carbon footprint will have a heavy influence on the company image?

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Table 2. Status Quo: Personal and companies attitude

Total Agree

Agree

Don’t Know

The corporate management is often speaking about the collection of environmental data. Environmental protection is an important topic in your company. Our company has lots of experience in the collection of environmental data. The initiative to collect environmental data is strongly related to our marketing department. The impacts of the collection of environmental data are hard to measure. There are well defined and accepted standards available on how to collect environmental data. For me the collection of environmental data is overrated. The collection of environmental data is not important for your company. The future importance of the collection of environmental data is unclear for our company.



• • • • •

Industry _____________________________ Sales Volume _______________________________Mio € Function ______________________________________ Number of product Icons _________________ Energy Costs as percentage of Sales Volume ______%

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