Tables 6, 7, 8 and 9 in the Appendix provide a summary table of responses to the interview questions. The first question posed to the interviewees was to identify which stage they were in terms of their non-financial reporting. Based on the interviewees’ verbal responses, Table 4 below shows the results for how many corporations belong in each stage:
All 40 corporations wanted to ultimately reach a ‘fully integrated approach’ in the near future. The above data show the lack of integrated thinking in the TBL framework, as these corporations began their journey with a TBL reporting style. Stages 3 and 4 in the model are interchangeable and hence, 14 corporations are executing both the stages through their engagement process as well as developing their business strategy. The eight corporations that are ‘transparent and accountable’ are relatively new in their sustainability journey and are aiming for ways to get to stages 3 and 4 within the next couple of years. The question was posed as to whether the corporations saw themselves as reporting in between the stages; the unanimous response was that transitioning was occurring but at a very small scale. Largely, they were reporting at only one stage and not in between stages.
A more in depth discussion is now given on each stage and how the six dimensions were perceived by the 40 corporations for each stage, in addition to the mechanism of TBL and whether it played an integral role or not. The first stage has no interview data as none of the corporations could relate to a passive approach as they are all well into their journey in non-financial reporting.
Non-financial reporting at each stage
Table 4 provides the stages of development of non-financial reporting along the six dimensions. Each stage is explained below with empirical evidence from organisational interviews as examples of corporate practice.
Stage 2: being transparent and accountable
The birth of TBL reporting is apt to mention at this stage. Its principles and framework functions as a starting point for corporations to begin the dialogue with the stakeholders and embrace a certain level of engagement. TBL’s policy-based approach drives corporations to adopt it so as to avoid litigation and reputation damage. Through TBL, corporations are able to provide more visibility on their environmental and social actions and reactions, simultaneously becoming internally aware of their own impacts on these areas. The birth of TBL allowed for policies on environmental practices, employment health and safety etc. to play a more prominent role in organisational reporting and operations.
From an economic point of view, managing sustainability in the company is important. It’s easy for operational managers in the business to not believe in the ‘green’ initiative unless there is a financial outcome or benefit for the company. They perceive more as a cost for the company. From an economic point of view, any sustainability initiative we make must have an economic driver and TBL has initiated this process [Quoted from T5].
At the stage of being transparent and accountable, an organisation aims to be more engaged and compliant with the environmental and social areas, in addition to the generic financial and industry regulations. During this stage, corporations formulate their policies and aim to refrain from doing what they promised not to do. Compliance is interpreted as the cost of having a licence to operate; it generates value for corporations by safeguarding their reputation and minimizing risks and liabilities.
The reason for adopting TBL reporting started from external pressures. We had market pressures from activist groups, and their request for information. It was in 2000/01 that we saw it is difficult for us to report on this area but if we wanted to report it externally, we needed better measures [Quoted from C2].
During the stage of being transparent and accountable, leadership at an organisation is essential. Their ability to initiate awareness and transformation in the organisational outlook for the employees towards embracing social responsibility is of the utmost importance.
At the moment, TBL is seen as a way for leadership to engage with stakeholders externally as well as driving awareness within the business [Quoted from M3].
Level of disclosure
At this stage, the idea of a non-financial report is being conceived but the notion behind this development is still hinging on functioning as a public relations stunt. TBL certainly drives this thinking forward.
The limitation within TBL and this stage is that corporations still tend to be reactive to emerging non-financial matters, rather than being proactive, which limits an integrative manner of thinking and reporting.
We do not have what you would call an integrated accounting framework that brings the TBL together and comes out with some sort of holistic metric that captures all those things. We have financial accounts and we have separate environmental accounting systems. They are more objective and rigorous. The social area is not accounted for properly [Quoted from I5].
From a philosophical perspective, we view that being a good corporate citizen is a driver of our business. Hence, conceptually, we view it as integrated but in terms of measurement, we are some way off [Quoted from I7].
The idea of having an interactive communication process with stakeholders appears in this stage. An example of this case comes from C1:
When the company was challenged by environmentalists over improper environmental practices, there were conflicting responses from the various internal stakeholder groups within the organisation. It thereupon adopted TBL reporting to immediately address all the environmental and social issues. The important and strategic trait displayed in this stage is the desire of the organisation to maintain its licence to operate, preserve its reputation.
However, the hindrance to this is that corporations tend to believe that the expense of efforts and energy to be transparent and accountable as well as have a two-way communication with stakeholders is not worth the expense in financial terms.
Stage 3: alignment with stakeholder expectations and corporate strategy
The correlation between TBL and this stage highlights the problem that corporations have to make a business case for non-financial reporting. Within TBL, the metrics and criteria tend to be functionalized at the third stage. Corporations tend to view benefits of TBL only in particular areas:
Social—reputation, recruitment and retention.
Economic—risk exposure, access to resources and capital
At this stage, corporations start to realize that they face a long-term problem, which simply cannot be outmanoeuvred through attempts at conducting public relations events or being compliant. TBL reporting represents both these activities and corporations need to think beyond a TBL approach in order to start moving to the next stage. TBL allows corporations to be compliant with certain environmental and social standards; however, what TBL does not show is that such compliance is hard to achieve without proper alignment and of business operations to stakeholder concerns and expectations.
Our decision to get involved in TBL reporting was more about our stakeholders asking us to be more transparent about what we do and how we are performing from a much broader perspective [Quoted from I6].
Further explanation of TBL with the 3rd stage is given under Integration.
Socially responsible investment houses and indexes, such as the Dow Jones Sustainability Index, have recognized the importance of TBL and rate corporations based on the extent to which they adopt and apply TBL reporting.
It’s very important, as it is an external validation of what we are doing. Last year our report was externally assured so there was that credibility. Having that external recognition like DJSI and FTSE is important for us [Quoted from M1].
It is important for us to be ranked. When we fill the questionnaires we know we may be weak in a certain area even before we are told. We are not being compared with companies in other industries though. We are compared with other banks. We were on leadership index of CDP and we used that to our advantage to put it in every press release and get some mileage out of it [Quoted from F1].
As a manager, it is very important. If we come last, that will have a negative effect [Quoted from C3].
This has certainly been a stimulus for the continued rigor in reporting practice of TBL in many large corporations.
Leadership, at this stage, tends to stress the strong value and power of the corporate brand, using TBL as the vehicle to launch this praise. The corporations that are moving their non-financial reporting processes and practices to this stage emphasize the importance of having a top-down leadership approach. TBL reporting, as well as the move towards better alignment and integration are concepts that top management need to drive into the corporate culture.
Leadership is initially important to drive this issue. Once people start seeing the process with their own eyes, then it gets easier. It is a painful process. Once we integrate after getting data to show that this has benefit to company, then people start to realize that they cannot do balance sheet without looking at non financial information. Now we have people from different departments working together [Quoted from R4].
Level of disclosure
TBL is aggressively pursued and adopted as a reporting framework for corporations in this stage. Hence, they put out a proper non-financial report using TBL principles, and disclosing their economic, environmental and social performance. When indexes like the DJSI use these three criteria of TBL (economic, environmental and social performance) for including corporations, it certainly does not hurt the reporting company from disclosing information using a TBL approach.
In the third stage, corporations aim to take their non-financial reporting practices as well as their CSR practices further by adopting a more integrative approach to non-financial reporting, as well as deepening their commitment and involvement in the area.
We all have a duty to have our shareholders first and foremost. We are making a connection between environmental and social and we know that it’s good for business. Engaging our employees and letting them know how we are dealing with the environment is important for us. We’re not just spinning our wheels, but that our TBL programme does pay for more than the bottom line. In terms of impact, we know that it’s good for business and reputation and clear that we do support corporations that can be tied back to a financial outcome for our business. We do not have a good sense of impact or integrated efforts among the different areas. For example we do not factor in a lot of costs into our donations or volunteer hours, as we do not know what it would cost us in dollars and cents [Quoted from F1].
Corporations at this stage are still hindered though in terms of providing integrated reporting, especially in the social area. They still compile data that are put together by different operating units and presented with a corporate spin, which is essentially what TBL reporting is. A number of financial scandals and legislation led to TBL reporting becoming a ‘best practice’ in non-financial reporting for corporations. However, the level of integration and alignment with stakeholder needs, supply chain performance, and tying all the environmental, community and economic practices and impacts together are still missing in reporting.
An important prerequisite for corporations to improve their reporting capabilities in this stage is to increase their two-way communication with a wide range of stakeholders. While this may seem like an important prerequisite for each stage, the best method to try and align reporting that combines stakeholder focus and corporate strategy. For example, A2 conducted a major participation programme with its internal stakeholders to develop a set of revised corporate values and new CSR business principles. This led to an initiative of turning one of their manufacturing plants, that was old and near redundant, into a model of eco-efficiency. This is an example of creating integration between stakeholders and corporate values.
Stage 4: build reporting system based on stakeholder expectations
The fourth stage of building a reporting system based on stakeholder feedback and expectations is a continuation of the third stage, and they can go hand in hand. While the previous stage is where corporations adopt TBL to accept the logic of capitalism from multiple stakeholders as well as accepting the social environmental and economic sustainability to continue their licence to operate, the fourth stage requires developing a system from the ground up purely based on stakeholder interactions and feedback. This in turn provides a greater level of integration right from the beginning. This is the stage at which corporations need to start thinking beyond TBL for their reporting framework and guideline.
In addition to the strategic objectives mentioned in stages 2 and 3, corporations emphasize the importance of value add in this stage. Similar to stage 3, corporations want to see business costs and impacts from their CSR practices and non-financial reporting.
In order to begin building an appropriate reporting system, an organisation needs to first understand the concept of CSR and sustainability for their organisation, and an integrated system needs to be put in place from the top levels of management, especially commitment from the board level.
I would like to see it as a normal reporting requirement and also see that it sits within our annual report. It should be embedded into the finance, hr, and sales departments and with the senior management team. We should report on material issues only, and show a roadmap of stakeholder issues for us [Quoted from T2].
Level of disclosure
A key challenge that is sought to overcome in this stage (for disclosure) is assurance.
When we share our stories through reporting, stakeholders can check through third party assurers and know what we are all about. Are we doing what we say we are doing? They can see that third party assurance. It will then improve our corporate reputation [Quoted from A2].
Corporations that produce non-financial reports aim to get it externally verified in order to truly embed accountability into its business.
The biggest challenge here is to move the organisation from a phase of coordination (Stage 3) to a phase of collaboration (stage 4). In stage 3, the presence of TBL reporting in corporations allowed their recognition and reputation to get enhanced on ethical indexes like the DJSI. However, in this stage, corporations looking to move beyond a TBL approach are starting to look at broader integrative systems for their non-financial reporting mechanisms, such as: risk management systems, consultation with stakeholders on a major scale, training internal stakeholders on the importance of sustainability and non-financial reporting and ‘issues’ management frameworks.
Integration would be great but it’s not that easy to accomplish. Having a scorecard approach at the moment complies with a TBL way of thinking but integration certainly does not relate to TBL [Quoted from I2].
While a two-way communication focus is still an integral part of this stage, changing the mindset of corporations from simply communicating with their stakeholders, to developing more of a partnership with the stakeholders (especially the external ones) is a central theme for this stage. By renaming stakeholders as partners, an organisation is in turn accepting them into its corporate boundaries, and shows a proactive approach towards building the non-financial reporting system as well as the CSR practices in general.
Stage 5: a fully integrated approach
An organisation should aim to revolutionize its reporting but it should not change what it does just for the sake of reporting but take a more strategic approach. Companies are now starting to question how much they are doing and what ‘system’ to use? While TBL philosophy is germane to what many companies do, the systems that capture data are not making it easy for employees. Even though the intent and philosophy is right, companies pay a high price internally for the benefits they are getting. The intent of TBL is to draw from non-financial information and draw it all back to financial information. Corporations are supposed to look at non-financial information from a financial perspective based on a TBL way of thinking. Hence, how can an organisation measure something in terms of dollars when there are no dollars attached to say, employee engagement? They cannot do it unless they can show an increase employee engagement which coincides with increase in employee performance. Then again this is just a correlation but there will be so many other factors showing improved performance. How can an organisation put a financial number on reputation or brand image? The manner in which the financial community wants to enforce and interpret TBL is flawed since every business is interpreting TBL itself. Hence, the reporting structure itself needs to have a radical change.
Corporations need to drive integration into the strategy and achieve the emancipation of the environmental and social dimension against the financial dimension. It is hard to see such an approach today based on how large corporations are setup. They need to get the people to work together and then they see other people for information and see impacts. When the companies do financial risk analysis, non-financial data should be looked at. Once the attitude changes and the company can see a value add to the business, then things become easier. In the future, there would not be a need for a separate sustainability report. The business operates sustainably and they will not need to talk about TBL issues in a separate report. Hence, having one approach across all divisions and having it integrated with financial data, and having every single staff reporting against the same framework would be the recommendation. Corporate strategy is what drives the way corporations do business. If they have that core perspective embedded in their culture, then moving forward and taking a broad perspective becomes embedded into the strategy.
Leadership is initially important to drive this stage. A fully integrated approach would be getting full support from senior management as well as have a top-down and bottom-up approach. To be fully integrated, an organisation would have to have everyone on board.
The discussion for integrated reporting has been driven more from the bottom [Quoted from B2].
In old fashioned we followed a napoleon format and did what we were told to do. On safety, you can tell people about safety but they will never realize it until they see that it’s for them and they can take pride from it. That’s a huge leap. Hence, a top-down approach is not the best way to go about this. In the beginning, you need a top-down approach to tell you what to do. Then you need to step back and let people buy into it and drive it [Quoted from M4].
The data from the interviews back this principle and show that corporations need to step back and led integrated reporting arising through a holistic discussion and participatory environment rather than a bureaucratic style of management.
Level of disclosure
As mentioned before, a single, comprehensive report detailing the financial and non-financial information is the level of disclosure that should be achieved at this stage.
A fully integrated approach would be where a company has a number of tools and a system so that their reporting is complete with no holes and is a seamless process that does not involve as much time as it does now. There is also a firm understanding among employees that the reporting is a reflection of a company’s ability to thrive.
Bringing the financial and non-financial report into a single report is the ultimate goal of the Fully Integrated approach. Integrating impacts among the areas is the first challenge in trying to achieve a single report. Sustainability must be integrated into business strategy so that if an organisation looks at different impact areas, they can see that sustainability is a part of these different issues. When companies talk about things they want to do in the community, they talk about dollars and cents in donations but they do not have a good grasp on what it is that they do contribute in terms of volunteer hours etc. For example, an organisation has a donations committee and donating to a cause that they have been donating to the past is not a reason for them to keep doing it. There needs to be business impact and business logic to keep doing it. TBL has not helped in the integration process as there is no proper bottom line or aggregating method.
It’s not all black and white. The annual report to shareholders and financial stakeholders contains a lot of environmental and social data but does not contain the full data of the sustainability report as there are different needs and requirements of stakeholders from financial world and the rest of stakeholders [Quoted from A1].
In addition, the non-financial reports have to demonstrate that there is a link between the two and not an overlap. Most corporations are good at financial side. Financial matters will have implications on non-financial matters and not the other way around. Once people start seeing the process with their own eyes, then it gets easier. Once they integrate after getting data to show that this has benefit to the company, then people start to realize that they cannot do a balance sheet without looking at non-financial information.
We take a more holistic approach to business sustainability where we need a good financial performance but that needs to be complemented by a whole raft of CR activities. An integrated approach is one that provides enough information to the external environment of business so that the person reading can see how sustainable the business will be in the coming years, maybe 5 or 10 years from now. It’s not just based on dollars and cents [Quoted from T4].
An integrated approach is one that provides enough information to the external environment of business so that the person reading can see how sustainable the business will be in the long term rather than the short to medium term. In addition, the concept of strategic alliance should be the terminology for stakeholders in this stage. In stage 4, partners were the term used to refer to stakeholders. However, forming a strategic alliance with them not only symbolizes a level of integration right from the beginning, the value add that corporations want to see in this stage would dramatically increase as the strategic Alliance brings together mutual collaboration of strategic planning and management in order to achieve long-term objectives between the organisation and its strategic ally.