Sustainability reporting is the reporting and documenting of an organization's current and future position through the assessment of a company's current and future position. Managers in the contemporary business world use this new trend. Sustainability is a new trend that all organizations are conducting to promote transparency. This paper will cover the topic broadly outlining the ups and downs of this new trend, its functionality, its flaws, critiquing theories associated with it and not to mention outline the various companies that have incorporated it in their system. The assessment between two companies that have been famously known for CSR, a new trend incorporated in corporate sustainability will be assessed.
Corporate Sustainability
Summary of the purpose of Corporate Sustainability Reporting
Reporting corporate sustainability is one of the best ways to ensure that a company is not only doing well financially in the present but also in securing a better and more certain future. The reporting of corporate suitability ensures that the current needs of the organization are effectively met without comprising future needs of the organization. Reporting on corporate sustainability also ensure that organization are able to keep up with all changes in the industry, with ensuring that new innovations have been developed, maintained and employed in the daily operations of the organization. Corporate sustainability is developed on a grid developed to ensure that the future is secure, and that the organization will survive for a long time.
Corporate sustainability also encompasses the assessment of current and future risks that the organization is likely to endure. As such, a majority of organizations mainly embrace corporate sustainability in their daily operations as it assists in the assessment of risks that an organization is prone to be affected by. Corporate suitability reporting is also a way through which organizations are able to promote transparency in their organization to the stakeholders. It gives the stakeholders a chance to review the future of the organization as well as make them involved in the organization's management, thus making the organization an overly attractive investment to venture into for the involved stakeholders.
Suitability reporting thus promotes transparency to organization's internal and external stakeholders through a variety of ways. Its focus is on the organization's future, but it also touches on the influence of the organization on the economics of the country, the environment and the social status of the community. Sustainability reporting thus not only reviews the finances and security of an organization in the market but also encompasses the corporate social responsibility of the organization in the present and the future. It is a measure of the impacts the organization will have on the market as well as those that the market will have on them.
The stakeholders as well as the organization's management use the reports obtained from the corporate sustainability reporting in a variety of ways. Benchmarking is one of these ways. The reports obtained are used in relating the findings the law, competitors, ethics as well as performance standards. The reports are also used in demonstrating the organization's plans as well as comparison with the competitors and are used to create a better future for organizations. Additionally, the development of these reports is not a haphazard outcome but rather a procedural following that encompasses the use of various specifications and guidelines, known as the sustainability reporting guidelines.
Corporate sustainability is a new management paradigm used for productivity (Wilson, 2003, p.1). The development of a sustainability report is one of the surest ways to ensure that the organization will be making profit, not only in the current fiscal year but in the future. Regardless of the fact that the core recognition is on profitability and economic success currently and in the future, corporate sustainability recognizes the essence of the organization's involvement in assistance of achieving the societal goals, and promoting ethical concern for the world out there. Corporate sustainability recognizes responsibility to the society, environment and the stakeholders as a mandatory act for the organization to attain and achieve organizational success (Wilson, 2003, p.2).
The core concentration of sustainability reporting is on three main branches of the community; economics, ecology and social justice. As a result, there are three field as that have to be present in a sustainability report; moral philosophy, strategic management and business law (Callado & Fensterseifer, 2011, p.44). As a result, there are a number of theories have been developed to ensure that an organization creates a perfect sustainability report. These theories include, Social contract theory, Social justice theory, Deontological theory, Stakeholder theory, the Corporate Accountability, Rights theory among others (Wilson, 2003, p.4). Besides concentrating on sustainable development, corporate social responsibility has been hugely considered in the development of sustainability reports.
Measuring corporate sustainability has not been determined. There are endless instruments used to measure corporate sustainability. Majority of the instruments assess the progress of the sustainability measurement with each of the three fields being assessed separately (economic, social and ecological progress), as Callado and Fensterseifer have examined and established. Sustainability measurement encompasses different techniques and as such, there is no set procedure of measuring sustainability development.
However, there are a number of commonly used SPMS (Corporate Sustainability Performance Measurement Systems). According to Searcy (2012), thousands of SPMS have been published in journals and approved. A majority of these systems mainly use the incorporation of SDIs (Sustainability Development Indicators) as the core strategy in the measurement of development in suitability systems. Organizations can choose to develop their own sustainability measurement system or even incorporate an already published measurement system to measure the level of success and achievement that they can celebrate from the corporate social responsibility and economic leadership. The Process Analysis Method is one these models, developed by Chee Tahir and Darton (2010) as a measurement strategy that was one of the most effective to have ever been developed.
Corporate governance is the key to successful implementation of sustainable development projects, as well as reporting procedures. Corporate governance is not only the source of corporate prosperity but also a key in corporate social responsibility. According to Kocmanova, H-ebi-ek and Do-ekalova (2011) sustainability measurement, reporting and enactment are all overly dependent on corporate governance. The effectiveness of corporate governance in organizational development and sustainability depends largely on the style of leadership, cooperation of the organizational leaders as well as the employees. Corporate governance thus plays a key role in sustainability development.
1. Critique Stakeholder Theory and Legitimacy Theory
Stakeholder Theory
The stakeholder theory of the Firm, or as commonly known as the stakeholder theory is a strategic management theory that was formulated in 1984, by Edward Freeman (Fassin, 2012, p.83). This is a theory that mainly works ion effectiveness and prosperity of the business depending on stakeholders. Defined as any individual who influences or is influenced by the achievement or an organization's objectives, stakeholders are believed to have a huge influence on the prosperity of the business (Wilson, 2003, p.5). According to the theory, the effectiveness and the attainment of organization goals largely depends on the relationship an organization has with its stakeholders. This theory thus suggests that stronger stakeholder-business relationships enhance quicker and better objective attainment, and hence influencing the business prosperity (Kaufman & Englander, 2011, p.421).
The functionality of this theory is also proven to have come to have worked effectively. The theory thus suggests that organizations must first develop better and stronger relationships with the employees, investors, customers, wholesalers, travel agencies as well as any other stakeholder who could benefit or influence the success of an organization. The theory has been highly functional and was even largely used after the Cold War; Berlin companies used this theory to recapture their financial success (Kaufman & Englander, 2011, p.422). So being, it is an accepted theory that has been effective once implemented. Regardless, how perfect is this theory?
The stakeholder theory holds a number of grievances to a majority of critics. There are some unresolved questions about the effectiveness and the outcome of the results produced by this theory. One such concern is the ambiguity presented by this theory. The theory illustrates that organizations need to concentrate on creating relationships with the organizations that are not only solid but also personal for the effective achievement of organizational objectives. However, the theory fails to illustrate the extent to which organizations should go to ensure that there is a mutual and agreeable relationship with the stakeholders and fails to illustrate what to do if it is impossible to come to a mutual agreement.
The naivety of this theory fails to establish that it is almost impossible for all stakeholders to come into a healthy relationship with the management and leadership of the organization. For a solid relationship to be established, time is needed for the organizations to establish that. The set procedure of this theory as illustrated by Minoja (2012) ignores the resistance that could be established by a majority of stakeholders and thus it might be impossible to first prioritize relationships as the core strategy that will govern and lead organizations into success (p.68). Assumptions presented by this theory are some of the few weaknesses illustrated by Freeman while advocating for this theory as the impartial strategic theory.
However, this theory holds a lot of truth in it, but the truth it holds is only applicable in the hypothetical sense, as reality is a little bit complicated with the development of solid relationships considering both the stakeholders and the management need to be involved in the development of good relationship. At times, some of the stakeholders might be demanding more than they deserve, such as suppliers hiking the prices of needed raw material. If the management strives to establish a good relationship by attempting to please such stakeholders will only hold back the management from attaining the preset goals (Purnell & Freeman, 2012, p.111).
This theory mostly concentrates on the fact that organizations have stakeholders who might not be legitimate. Relationships built on illegitimate terms will not only damage the organization but could be a waste of time for the organization that had been attempting to establish a better relationship with the employees and the rest of the stakeholders. An illegitimate stakeholder can turn from a good to a dangerous stakeholder and not only demeans the efforts of the management but could also pose danger to the organization (Santana, 2012, p.257). Legitimacy is a necessity for the establishment of healthy working and personal relationships.
Legitimacy Theory
The legitimacy theory is one of the most popular theories that is largely cited by organizations for a number of reasons. One of these reasons is the increment in environmental degradation in due to organizational irresponsibility. The new awareness on global warming and greenhouse effect have led a majority of organizations to take incentives in ensuring that the business activities have minimal degradation effect on the entire environment. The legitimacy theory of environment is a theory that calls for all organizations to disclose their activities pertaining to saving the environment. The theory calls for organizations to disclose their information pertaining to the environment.
Legitimacy mainly revolves around the acceptance and authority that the society gives to people, communities and other forms of entities, seeing them as just and right. This theory once attuned to the organizations, in relation to the environment calls for the disclosure of all efforts and information pertaining to the environment as a strategy to avoid degradation. Resultantly, organizations are then pushed to reveal all information pertaining to the environmental safety issue, as this is the norm seen by the community as right, proper and the just way. Levels of legitimacy originate from the government, the religion, the society and overall the majority view (Deegan, 2009, p.357).
This theory has one main disadvantage. Evidently, this theory is not only developed as a strategy to ensure that organizations are doing their best to conserve the environment but has led majority of organization to disclose their corporate social responsibility efforts to the world. As such, one weakness of this theory is the fact that the organizations could lie and offer falsified data pertaining to the environment and ecological care, as it is almost impossible to assess the progress and the damage made by organizations that are not direct environment polluters.
2. Google and Berkshire Hathaway reporting on economic, environmental and social aspects in their annual reports
Economic outlook
One of the most profitable organization known to date is the internet leader Google.com, being an organization that began in 1997, the organization has managed to develop into one of the biggest organizations of all times. The organization's financial capacity can be judged from its revenues and assets. According Cnn.com, the organization is currently worth 72.574 Billion U.S. dollars in assets with a $58.145 billion shareholder's equity. The organization realized a 9.737 billion U.S. dollars profit margin, 14% higher than the previous fiscal year's amount. The organization's last annual revenues totaled to $37.905 billion a 29.3% Increase from 2010-2011 fiscal years' revenue.
Berkshire Hathaway, under the leadership of Warren Buffet, is one of the largest investment companies in the world. The company made is worth $392.647 billion dollars, with the investor's capital summing up to $164.85 Billion. The 2012's profits for the company summed up to 10.254 billion U.S. dollars, a reduction by 20% from 2011's profits. The organization also made a $143.688 billion revenue, a 5.5% increase from the previous fiscal year. From these details it is evident that Google is better placed financially speaking as compared to Berkshire, although Berkshire is much bigger in size.
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