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International Doctoral School

Nicolás García Torea

DOCTORAL DISSERTATION

Essays on corporate social responsibility reporting: Enhancing transparency and communication

Supervised by: Dr. Marta de la Cuesta González (UNED)

Dr. Belén Fernández-Feijóo Souto (Universidade de Vigo)

2017

“International mention”

One never notices what has been done; one

can only see what remains to be done

(Marie Curie, 1894)

ACKNOWLEDGEMENTS

Undertaking a PhD dissertation is an individual task. However, it

would be impossible to complete without the crucial support of many

people. This is why I would like to start by thanking everybody that

helped me throughout the process.

My first and foremost gratitude goes to my supervisors, Dr.

Marta de la Cuesta González and Dr. Belén Fernández-Feijóo Souto.

I am highly indebted to them for accepting me as their PhD student

as well as for their encouragement, suggestions, and dedication.

Without their constant guidance and help, this dissertation would not

have been possible.

Within the Universidade de Vigo, I would also like to thank the

PhD Programme of Economics and Business; particularly my tutor,

Carlos Hervés Beloso, coordinator of the programme. I also

appreciate the resources provided to me by the Accounting and

Finance Department. Additionally, I would like to express my deepest

gratitude to the members of CoAFin, as well as José María, for always

treating me as an equal and sharing their priceless experience.

I would like to extent my gratitude to many people beyond the

Universidade de Vigo. One of whom is Dr. Giovanna Michelon, my

supervisor during my research stay, at that University of Exeter for

her helpful feedback and suggestions. I appreciate the support and

funding of the Fundación Barrié during my stay in Exeter. I also

thank the independent reviewers and members of the committee for

dedicating their valuable time to judging this dissertation. My

appreciation also goes out to the reviewers and editors of the journals

in which I published sceptres of my dissertation for their constructive

feedback.

Last but not least, I would like to deeply thank my mother,

brother, nephew and sister-in-law, for putting up with my most

stressful times. I also thank those friends that have been with me as

far back as I can remember, as well as those whom I met over the

course of these years. Particularly, I am really grateful to those who,

though far away, constantly and unconditionally supported me.

Without them, completing this dissertation would be senseless.

TABLE OF CONTENTS

............................................................................................... 15

1.1. Research topic, objectives and motivations ................................ 15

1.2. Structure of the dissertation .......................................................... 24

........................................................................................ 27

2.1. Introduction .................................................................................... 27

2.2. Literature review and hypothesis ................................................. 30

2.3. Methodology ................................................................................... 35

2.3.1. Sample and data collection .................................................... 35

2.3.2. Variables ................................................................................... 37

2.3.2.1. Dependent variable .......................................................... 37

2.3.2.2. Independent variable ....................................................... 38

2.3.2.3. Control variables .............................................................. 39

2.3.3. Statistical analysis..................................................................... 43

2.4. Results .............................................................................................. 43

2.4.1. Descriptive statistics ............................................................... 43

2.4.2. Measurement model ............................................................... 45

2.4.2.1. Formative construct (Board effectiveness) .................. 45

2.4.2.2. Reflective constructs (TCR, firm size, industry, and

country orientation) ....................................................................... 48

2.4.3. Structural model ...................................................................... 49

2.5. Discussion ....................................................................................... 50

2.6. Concluding remarks ....................................................................... 52

...................................................................................................... 55

3.1. Introduction .................................................................................... 55

3.2. Literature review and hypotheses ................................................. 58

3.3. Methodology ................................................................................... 63

3.3.1. Sample and data collection .................................................... 63

3.3.2. Variables ................................................................................... 64

3.3.2.1. Dependent variable .......................................................... 64

3.2.2.2. Independent variables ..................................................... 66

3.2.2.3. Control variables .............................................................. 66

3.3.3. Research model ....................................................................... 68

3.4. Results ............................................................................................. 69

3.4.1. Descriptive statistics and correlation matrix ...................... 69

3.4.2. Empirical results ..................................................................... 70

3.5. Discussion ....................................................................................... 75

3.6. Concluding remarks....................................................................... 78

..................................................................................... 83

4.1. Introduction .................................................................................... 83

4.2. Communication theory and CSR reporting ............................... 86

4.3. Methodology and materials .......................................................... 92

4.4. The GRI reporting model: The G4 Guidelines ........................ 95

4.4.1. Significance: Relevance .......................................................... 98

4.4.2. Significance: Faithful representation .................................. 100

4.4.3. Fidelity: Comparability ......................................................... 102

4.4.4. Fidelity: Understandability .................................................. 103

4.5. The application of the GRI reporting model: BHP Billiton

Sustainability Report 2016 ................................................................. 105

4.5.1. Significance: Relevance ........................................................ 106




4.6. The IIRC reporting model: The <IR> Framework ............... 116





4.7. The application of the IIRC reporting model: Asahi Integrated

Report 2015 .......................................................................................... 127





4.8. Discussion ..................................................................................... 142

.................................................................................................... 149

5.1. Introduction .................................................................................. 149

5.3. Literature review ........................................................................... 155

5.3.1. Criticisms on the TBL .......................................................... 155

5.3.2. Prior TBL proposals ............................................................. 156

5.4. Our TBL reporting proposal ...................................................... 161

5.4.1. The monetarisation of CSR impacts .................................. 164

5.4.2. The extended financial statements...................................... 169

5.4.3. The recording procedure and production of the TBL .... 176

5.5. Significance and fidelity of the TBL .......................................... 179

5.5.1. Significance: Relevance ......................................................... 180



5.5.4. Fidelity: Understandability ................................................... 186

5.6. Discussion ..................................................................................... 189

5.7. Concluding remarks ..................................................................... 194

..................................................................... 199

REFERENCES ........................................................................................ 213

ANNEX I. Brief and fictional example of the recording procedure to

produce the TBL ...................................................................................... 251

RESUMEN ............................................................................................ 2633

TABLES AND FIGURES

Tables

Table 2.1. Relationship between board characteristics and board

effectiveness outcomes under the shareholder perspective ................ 34

Table 2.2. Number of year information for firms ................................ 37

Table 2.3. Block of indicators for each construct and their

definition ..................................................................................................... 40

Table 2.4. Descriptive statistics ............................................................... 44

Table 2.5. Analysis of the nomological validity of the formative

construct ..................................................................................................... 46

Table 2.6. Analysis of formative and reflective measurement

models ......................................................................................................... 47

Table 2.7. Discriminant validity of the reflective constructs .............. 48

Table 2.8. Effects on transparency of CSR reporting .......................... 50

Table 3.1. Principal components analysis .............................................. 65

Table 3.2. Descriptive statistics ............................................................... 69

Table 3.3. Correlation matrix ................................................................... 71

Table 3.4. Results of the OLS regression and variance inflation

factor ........................................................................................................... 72

Table 3.5. Sensitivity analysis ................................................................... 74

Table 4.1. Characteristics of reporting that determine effective CSR

communication .......................................................................................... 91

Table 4.2. GRI Reporting Principles and characteristics of effective

CSR communication ................................................................................. 96

Table 4.3. Relevance of the GRI reporting model and its

application ................................................................................................ 107

Table 4.4. Faithful representation of the GRI reporting model and its

application ................................................................................................ 110

Table 4.5. Comparability of the GRI reporting model and its

application ................................................................................................ 115

Table 4.6. Understandability of the GRI reporting model and its

application ................................................................................................ 117

Table 4.7. IIRC Guiding Principles and characteristics of effective

CSR communication ............................................................................... 119

Table 4.8. Relevance of the IIRC reporting model and its

application ................................................................................................. 130

Table 4.9. Faithful representation of the IIRC reporting model and its

application ................................................................................................. 134

Table 4.10. Comparability of the IIRC reporting model and its

application ................................................................................................. 137

Table 4.11. Understandability of the IIRC reporting model and its

application ................................................................................................. 140

Table 5.1. TBL conceptualisations ........................................................ 153

Table 5.2. Prior attempts to report CSR impacts based on the format

of the profit and loss statement ............................................................. 159

Table 5.3. Prior proposals to report CSR impacts based on the format

of the balance sheet and profit and loss statement ............................. 162

Table 5.4. Puma’s conversion rates for environmental impacts ....... 166

Table 5.5. Relevance of the TBL reporting proposal ......................... 181

Table 5.6. Faithful representation of the TBL reporting proposal ... 184

Table 5.7. Comparability of the TBL reporting proposal .................. 186

Table 5.8. Understandability of the TBL reporting proposal ............ 188

Table 5.9. Comparison of the problematic topics in GRI and IRC

reporting models with our reporting proposal for the TBL .............. 190

Figures

Figure 1.1. Structure of the dissertation ................................................. 25

Figure 2.1. Measurement and structural models .................................... 42

Figure 2.2. Structural model results ......................................................... 49

Figure 4.1. Shannon’s communication system (adapted from Shannon

& Weaver, 1949) ......................................................................................... 87

Figure 4.2. CSR reporting as a communication system ........................ 88

Figure 5.1. Extended balance sheet ....................................................... 173

Figure 5.2. Extended profit and loss statement ................................... 174

15

INTRODUCTION: RESEARCH TOPIC,

OBJECTIVES, MOTIVATIONS, AND

STRUCTURE

1.1. Research topic, objectives and motivations

Corporate social responsibility (CSR) reporting is a process through

which firms communicate information about their economic social

and environmental impacts to their stakeholders. Although it is still

embryonic compared to financial reporting, CSR reporting has

become an essential part of corporate reporting practices (Tschopp &

Huefner, 2015). As a matter of fact, the number of firms that publish

CSR information has grown significantly in the last decade. The

KPMG (2015a)’s survey on the state of CSR reporting worldwide

shows that 92% and 73% of the firms listed in the G250 and N100

disclose CSR information, compared to 52% and 33% that

respectively did so in 2005 (KPMG, 2005).

Since its emergence, CSR reporting has evolved in terms of

content and format, and it is possible to differentiate three stages

(Etzion & Ferraro, 2010; Marlin & Marlin, 2003; Tschopp & Huefner,

2015). In the 1970s, firms started to publish information on social

and employee topics in their annual reports (Mathews, 1997). Due to

the environmental disasters occurred in the 1980s, companies moved

from disclosing social to environmental information, which led to the

publication of stand-alone reports on environmental issues (Gray,

Kouhy & Lavers, 1995; Mathews, 1997; Wheeler & Elkington, 2001).

In these two phases, CSR reporting was mainly used as a marketing

tool to create positive perceptions about firms (Marlin & Marlin,

2003; Tschopp & Huefner, 2015). Since the 1990s, the coverage of

Introduction

16

topics has broadened. Nowadays, CSR reporting is based on a multi-

stakeholder approach and provides information about social,

environmental and economic impacts (CSR impacts) of companies

(Fifka, 2013; Marlin & Marlin, 2003; Tschopp & Huefner, 2015).

Several reasons explain the upsurge of CSR reporting.

Traditionally, firms were considered as accountable to their

shareholders. In this context, financial reporting was the most

relevant type of report through which companies discharge their

accountability. However, the responsibilities of firms increased in the

last decades. Currently, there is a growing social awareness of the

impacts of corporate activities, as they actually affect a wide spectrum

of stakeholders, beyond shareholders. This concern has led to an

increasing demand for greater accountability and transparency on

firms’ CSR impacts (Abeysekera, 2013; Gray, 2006a). Companies try

to respond to this external request by disclosing information on CSR

issues.

Firms may also have self-interested motivations to engage in

CSR reporting. The rising importance of socially responsible

investments encourages them to report on their CSR policies if they

want to be considered as a potential investment (Tschopp & Huefner,

2015). Additionally, some companies use CSR reporting to manage

their stakeholders’ impressions by emphasising their concerns and

commitment towards sustainability (Cho, Laine, Roberts & Rodrigue,

2016). In this regard, CSR reporting represents a tool to “greenwash”

firms (Laufer, 2003) and control damages (Tschopp & Huefner,

2015).

To address CSR reporting from a research point of view,

academics have proposed theories that seek to explain the

motivations for its development (Gray, Owen & Adams, 2009). Four

theories highlight above the rest: legitimacy, stakeholder, signalling,

and institutional theories (Hahn & Kühnen, 2013). Legitimacy theory

postulates that firms should behave according to what society

considers as acceptable to gain a social licence to operate (Deegan,

2002). Thus, companies may engage in CSR reporting to legitimise

their existence and behaviour (Castelo Branco & Lima Rodrigues,

2006; Deegan, 2002; Patten, 1992). Stakeholder theory argues that

firms should consider the interests of all stakeholders, and not just

Essays on CSR reporting

17

those of shareholders (Freeman, 1984). Hence, CSR reporting

represents an instrument through which companies address their

stakeholders’ information interests. Within stakeholder theory, the

normative perspective regards the fulfilment of stakeholders’ interests

as the “aim”, while the instrumental stakeholder theory regards it as a

“means” to increase corporate value (Donaldson & Preston, 1995;

Letza, Sun & Kirkbride, 2004). Signalling theory considers CSR

reporting as a mechanism to signal their performance and mitigate

information asymmetries on CSR issues (Connelly, Certo, Ireland &

Reutzel, 2010). According to this theory, only truly-CSR-committed

firms will disclose CSR information to show their superior

performance (Mahoney, Thorne, Cecil & LaGore, 2013). Finally,

institutional theory advocates that organisations adapt to align with

the external political, social and economic systems in which they

operate (Aguilera & Jackson, 2003; DiMaggio & Powell, 1983). This

theory argues that supra-organisational factors could drive firms to

publish CSR information. Recently, there has been a call to move

from the traditional theories to enrich debate (Bebbington &

Thomson 2013). Some authors have followed this suggestion and

applied other theoretical frameworks to study CSR reporting, such as

organisational façade and organised hypocrisy (Cho, Laine, Roberts &

Rodrigue, 2015), self-presentation theory (Cho et al., 2016), or, to

some extent, communication theory (Gamerschlag, Möller, &

Verbeeten, 2011; Williams, 2015), among others.

Despite practical and theoretical explanations, the ideal aim of

CSR reporting should be the delivery of transparency. Transparency

of CSR reporting (TCR) is defined as “the complete disclosure of

information on the topics and Indicators required to reflect [CSR]

impacts and enable stakeholders to make decisions, and the processes,

procedures, and assumptions used to prepare those disclosures”

(GRI, 2011, p. 6). TCR allows companies to discharge their

accountability towards society as they “make visible” their CSR

impacts (Gray, 1992). According to Tschopp and Nastanski (2014),

CSR reporting should provide stakeholders with decision-useful

information. For that purpose, stakeholders need information that

allows them to appreciate the firm’s CSR impacts and asses its

performance (Bouten, Everaert, Van Liedekerke, De Moor &

Introduction

18

Christiaens, 2011; European Union, 2014; Michelon, Pilonato &

Ricceri, 2015; O’Dwyer, Unerman & Bradley, 2005). Therefore,

transparency is an essential requirement for CSR reporting to satisfy

stakeholders’ information needs (Kaptein & Van Tulder, 2003).

TCR is even more relevant as a consequence of the current

economic and social situation (GRI, 2010). Corporate scandals,

financial crisis, and mismanagement have compelled society to require

more transparent information (Fernández Sánchez, Luna Sotorrío &

Baraibar Díez, 2011; Kolk, 2008). Moreover, the Report on corporate

social responsibility: Accountable, transparent and responsible business behaviour

and sustainable growth (European Parliament, 2013) highlights that the

lack of transparency is one of the main causes of the financial crisis.

Additionally, TCR could benefit both, society and firms. It enhances

allocative and dynamic efficiency, it helps to identify socially

responsible firms, it gives consumers access to more information, it

promotes honest attitudes within companies, and it develops

responsible behaviour among consumers (Dubbink, Graafland &

Liedekerke, 2008). TCR also increases the stakeholders’ confidence

on how firms manage their CSR, which is earned by constant and

open communication (Rao, Tilt & Lester, 2012; Schmeltz, 2014).

Despite recent regulation, particularly in Europe, that mandates

some firms to publish CSR information, CSR reporting is mostly a

voluntary practice nowadays (Tschopp & Huefner, 2015). As a

consequence, firms are free to decide what information they disclose

and how they do it. This situation has led to a great disparity on the

types of reports that companies publish to communicate CSR

information (Sherman, 2012). Firms are using a broad range of

reporting formats, such as sustainability reports (SRs), social and

environmental reports, integrated reports (IRs), or sections in the

annual report, among others (Archel, Fernández & Larrinaga, 2008;

Fifka, 2013; Frias-Aceituno, Rodriguez-Ariza & Garcia-Sanchez,

2013; Roca & Searcy, 2012).

To solve the lack of standardisation and increase the quality of

CSR reporting, several reporting models appeared that aim to guide

firms in the production of reports on CSR issues. Due to the diverse

nature of stakeholders, there are numerous reporting models, such as

the Global Reporting Initiative’s (GRI) Guidelines, Accountability’s


19

AA1000 Series, the United Nations Global Compact’s

Communication on Progress, or specific national reporting standards,

to cite some of them (Tschopp & Huefner, 2015). These reporting

models differ in their degree of specificity and detail regarding their

suggestions and requirements (Eztion & Ferraro, 2010; Tschopp &

Huefner, 2015). The little coordination among them may have an

adverse effect on CSR reporting, because it increases the alternatives

that firms may use to communicate CSR information (Federation of

European Accountants [FEE], 2015). Additionally, most reporting

models are voluntary and firms can determine the extent to which

they apply them (Chen & Bouvain, 2008; Flower, 2015). In this

context, it seems unlikely that CSR reporting could be harmonised in

the short-term (Tschopp & Nastanski, 2014).

Two types of report and their respective reporting models stand

out from the diverse set of reporting formats and standards: the SR

and the GRI reporting model, and the IR and the International

Integrated Reporting Council (IIRC) reporting model. The SR is the

most common and widespread type of report that companies publish

to disclose CSR information (KPMG, 2015a). This report “conveys

disclosures on an organization’s impacts – be they positive or negative

– on the environment, society and the economy” (GRI, 2013a, p. 3).

Since their emergence in the early 1990s (Gray, 2006b), SRs have

evolved in terms of content and format, and they have become a

regular practice among firms (Boiral, 2013; Leszczynska, 2012). The

GRI has played a relevant role in the development of SRs. This

organisation publishes the most applied reporting model to produce

SRs worldwide, the GRI Guidelines (Brown, de Jong & Levy, 2009;

Roca & Searcy, 2012). GRI aims to promote TCR, which it considers

as the key underlying value that determines the characteristics of SRs

(GRI, 2011; Vigneau, Humphreys & Moon, 2015). Since its

foundation in 1997, GRI has published several versions of its

guidelines. The most up-to-date version is the G4 Sustainability

Reporting Guidelines, which was issued in 2013.

The IR is an emergent type of report that tries to provide a

holistic picture of firms by representing their value creation process

(Alexander & Blum, 2016). Academics, audit firms, governments,

interest groups, institutions and firms advocate this reporting

Introduction

20

initiative that tries to jointly disclose financial and CSR information

(Jensen & Berg, 2012). The IIRC is the main organisation that

promotes the disclosure of IRs. The Danish company Novozymes

issued the first IR in 2002 (Eccles & Serafeim, 2011). Yet, the

publication of IRs did not start to grow significantly until 2013, when

the IIRC released the International <IR> Framework (IIRF), the only

currently existing reporting model for IRs. The number of companies

that issued IRs doubled from that year to 2015 (KPMG, 2015a).

Although the providers of financial capitals are the primary audience

of the IR (IIRC, 2013), it is regarded as a reporting practice to provide

stakeholders with CSR information (Frias-Aceituno et al., 2013).

Despite these initiatives, there is a common agreement on the

fact that current CSR reporting practices fail to deliver transparency

because they do not effectively account for firms’ CSR impacts

(Bouten et al., 2011; Cho et al., 2016; FEE, 2015; Haji & Hossain,

2016; Milne & Gray, 2013). Indeed, some papers highlight that firms

disclose CSR information to contribute to their own interests, rather

than to transparently communicate their CSR impacts (Boiral, 2013;

Laufer, 2003; Gray, 2006a).

In this context, we establish the general objective of this PhD

dissertation as follows:

General objective: To critically study the transparency of CSR

reporting and make suggestions to improve it

Three main reasons motivate our interest on this issue. First

and foremost, there is a growing social demand for transparency

about firms’ CSR impacts (Abeysekera, 2013; FEE, 2015; Gray,

2006a), which CSR reporting practices are not capable of satisfying.

Second, as a consequence of this problem, CSR reporting is

unsuccessful not only in discharging accountability, but also in

providing stakeholders with decision-useful information, as should be

its aim (Tschopp & Nastanski, 2014). Third, the recent European

regulation about CSR reporting highlights the need of improving

TCR (European Union, 2014).

We reviewed prior literature on CSR reporting, identified the

key lines of research, and determined the most suitable ones to


21

achieve the general objective. Previous studies have analysed different

topics such as the determining factors of CSR reporting practices

(Fifka, 2013; Hahn & Kühnen, 2013); the reasons for their use (Gray

et al., 2009); the assurance of CSR information (Kolk & Perego, 2010;

Simnett, Vanstraelen & Chua, 2009); the adoption of IRs (Sierra-

Garcia, Zorio-Grima & Garcia-Benau, 2015; Frias-Aceituno et al.,

2013); the embedment of sustainability and CSR in reporting practices

(Alexander & Blum, 2016; Flower, 2015; Moneva, Archel & Correa,

2006); or the materiality and stakeholder engagement in CSR

reporting (Bellantuono, Pontrandolfo & Scozzi, 2016; Calabrese,

Costa, Levialdi & Menichini, 2016; Manetti, 2011).

Among the broad range of topics that prior research covers, we

focus on the relationship between corporate governance and CSR

reporting, and on the critical analysis of CSR reporting practices.

These two topics may be further analysed to draw conclusions that

could be helpful in promoting TCR and increasing knowledge on this

issue.

Based on these two lines of research, we disaggregate the

general objective of the PhD dissertation in two key objectives:

Key objective 1: To analyse the effect of internal corporate

governance mechanisms on the transparency of CSR reporting

Key objective 2: To develop a reporting proposal that increases

the transparency provided by current CSR reporting practices

The important role that corporate governance plays in

establishing CSR practices, including its reporting, led us to define the

key objective 1 (Frias-Aceituno et al., 2013). In the last decades, the

scope of corporate governance broadened from a traditional

shareholder approach to a perspective that considers all corporate

stakeholders (Fernández & Gómez, 1999; Letza et al., 2004). The

shareholder perspective suggests that corporate governance should

focus on satisfying the interests of shareholders. In contrast to this,

the stakeholder perspective advocates that a firm’s corporate

governance should be aimed at guaranteeing the interests of all

stakeholders. This approach directly links corporate governance and

Introduction

22

CSR (Jamali, Safieddine & Rabbath, 2008) and acknowledges that

corporate governance mechanisms are important in determining CSR-

related outcomes, including CSR reporting (Money & Schepers,

2007). The change of corporate governance towards a stakeholder

approach is demonstrated by the recent inclusion of suggestions

related to stakeholders and CSR in many corporate governance codes,

particularly in Europe (Szabó & Sørensen, 2013). Furthermore,

transparency is considered as an essential principle of corporate

governance, which is achieved through the disclosure of information

to stakeholders (Gaa, 2009). Therefore, the study of how corporate

governance mechanisms affect CSR reporting, and particularly its

transparency, suggests a proper way through which TCR could be

enhanced.

Two corporate governance mechanisms are key determinants of

CSR reporting practices: the boards of directors and the ownership

structure (Khan, Muttakin & Siddiqui, 2013). Prior literature has

analysed the effect of several characteristics of these mechanisms on

CSR disclosures (Arena, Bozzolan & Michelon, 2015; Frias-Aceituno

et al., 2013; Gamerschlag et al., 2011; Haji, 2013; Prado-Lorenzo,

Gallego-Alvarez & Garcia-Sanchez, 2009). We aim to further explore

these two research lines by focusing on how board of directors and

ownership structure affect TCR, a particular and essential

characteristic of CSR reporting (Kaptein & van Tulder, 2003). The

dissertation could draw recommendations and suggestions to improve

TCR by understanding its relationship to these corporate governance

mechanisms.

Therefore, we divide the key objective 1 into two specific

objectives:

Specific objective 1.1: To analyse the relationship between

boards of directors and the transparency of CSR reporting


ownership structure and the transparency of CSR reporting

Our main motivation to establish the key objective 2 is driven

by the need to develop new reporting proposals that communicate


23

information on CSR impacts in a more effective and transparent way

(FEE, 2015; GRI, 2010; Jones, 2010). Additionally, this objective may

have implications for European regulators. The European Directive

2014/95 of the European Union highlights the importance of

providing transparent information on CSR impacts. For this purpose,

large European firms will be mandated to report on CSR issues or, at

least, explain why they do not do it, starting from 2017. However, the

Directive does not propose a specific type of report and suggests that

firms could apply one of the (not transparent) alternatives that exist

to publish CSR information. By developing a reporting proposal that

tries to promote TCR, this dissertation could contribute to the efforts

of European regulators in increasing transparency.

To achieve the key objective 2, we should first identify the

problems that explain why current CSR reporting practices fail to

enable TCR. According to Flower (2015), two elements are required

to appropriately communicate CSR information: a reporting model

that clearly explains how to elaborate reports and a suitable

application of the reporting models by firms. Most papers blame the

freedom of firms in applying reporting models as the main reason for

the lack of transparency (Boiral 2013; Bouten et al., 2011; Haji &

Hossain, 2016; Knebel & Seele, 2015; Leszsczynska, 2012). Focusing

on only one of the elements could limit the identification of issues

that hinder TCR. We aim to study the lack of transparency from a

broader perspective. We consider both elements, reporting model and

application, to elaborate a comprehensive list of the problems that

inhibit TCR and analyse what type of report could be more suitable to

address them.

Therefore, we disaggregate the key objective 2 into two specific

objectives:

Specific objective 2.1: To understand the problems that explain

why current CSR reporting practices fail to be transparent

Specific objective 2.2: To develop a reporting proposal that

overcomes the problems of current CSR reporting practices to

enable transparency

Introduction

24

1.2. Structure of the dissertation

We structure the PhD dissertation based on the hierarchy of

objectives. The key objectives divide the dissertation into two main

parts. We disaggregate each part into two chapters that address the

specific objectives.

All chapters develop the general objective. However, each of

them tries to do it by focusing on this issue from a different

perspective. As a consequence, each chapter is an independent study

addressing a respective specific objective using the most appropriate

approach (theoretically and methodologically). For instance, while

quantitative research techniques are suitable for the specific objectives

in the first part, the achievement of the specific objectives in the

second part requires the use of qualitative methods.

Therefore, we organise the dissertation into six chapters. After

this introduction (Chapter 1), we develop the main body of the

dissertation in four chapters about each specific objective. Finally,

Chapter 6 presents the conclusions (Figure 1.1).

Chapter 2 addresses the specific objective 1.1 that aims to study

the relationship between boards of directors and TCR. Particularly,

this chapter analyses whether boards that are effective in addressing

shareholder interests provide transparent CSR information to satisfy

the information interests of the rest of stakeholders. In so doing, this

chapter assesses the link between both perspectives of corporate

governance (shareholder and stakeholder) at a time. We define a

structural equation model estimated trough a partial least squares

regression to study this relationship in an international sample.

We focus on the specific objective 1.2 in Chapter 3. This

chapter analyses the influence of ownership structure on TCR in a

sample of Spanish listed companies. Specifically, we study the effect

of two types of significant shareholders, depending on whether or not

they are members of the board of directors. In contrast to Chapter 2,

we move to a single-country sample because the composition of

ownership is highly country-specific; hence, studying its effect on a

multinational sample could affect the results. As we will argue in this

chapter, Spain is a suitable research setting to assess the relationship

between ownership and CSR reporting.


25

Figure 1.1. Structure of the dissertation

In Chapters 2 and 3, we measure TCR based on the

methodology developed by Fernandez-Feijoo, Romero and Ruiz

(2014a). This method assesses the transparency of SRs that are

produced following the third generation of the GRI Guidelines (G3

or G3.1) (GRI, 2006, 2011). In addition, they were the version of the

GRI Guidelines that the firms in the samples used during the period

analysed. By contrast, in the following chapters (4 and 5), we consider

Main

bo

dy

Gen

eral

ob

ject

ive:

To

cri

tica

lly s

tud

y th

e tr

ansp

aren

cy o

f C

SR

rep

ort

ing

and

mak

e su

gges

tio

ns

to im

pro

ve

it

Part 2

Key objective 2:

To develop a reporting

proposal that increases

the transparency

provided by current CSR

reporting practices

Chapter 4

Specific objective 2.1:

To understand the problems that

explain why current CSR

reporting practices enable

transparency

Chapter 5

Specific objective 2.2

To develop a reporting proposal

that overcomes the problems of

current CSR reporting practices

to enable transparency

Part 1

Key objective 1:

To analyse the effect of

internal corporate

governance mechanisms

on the transparency of

CSR reporting

Chapter 2


To analyse the relationship

between boards of directors and

the transparency of CSR

reporting

Chapter 3


To analyse the relationship

between ownership structure and

the transparency of CSR

reporting

Chapter 1. Introduction

Chapter 6. Conclusions

Introduction

26

the G4 version. This was the most up-to-date GRI Guidelines by the

time we started to work on these chapters.

Chapter 4 focuses on the specific objective 2.1. It studies the

failure to enable TCR of current reporting practices. Particularly, we

assess whether this problem is due to reporting models that guide

firms in elaborating reports on CSR issues or by the firms’ application

of these models. We also identify the issues that constrain TCR in

each of these elements. We analysed two specific reporting models,

the GRI Guidelines for SRs, and the IIRF for IRs. We draw on

communication theory and apply interpretive textual analysis, a

qualitative research method, to evaluate whether the theoretical

characteristics that determine effective and transparent CSR

communication (significance and fidelity) are provided by the

reporting models and by how a firm considered as a “best reporter”

apply them.

We address the specific objective 2.2 in Chapter 5. We suggest a

reporting proposal that provides higher levels of TCR. In this regard,

we develop the key points of the accounting methodology to produce

the triple bottom line report (TBL) as an alternative to current CSR

reporting practices. We conceive the TBL as a type of report that

discloses financial and CSR information using the format and

structure of financial statements. After developing our proposal, we

assessed whether it could address the limitations that are identified in

Chapter 4.

Finally, Chapter 6 presents the main conclusions related to the

objectives of this dissertation, drawn from several analyses of the

previous chapters.

27

BOARD OF DIRECTORS EFFECTIVENESS

AND THE TRANSPARENCY OF CSR

REPORTING

2.1. Introduction

This chapter analyses whether boards of directors that are effective in

protecting shareholder interests also prove to be effective in

guaranteeing the interest of the firm’s stakeholders in assessing its

corporate social responsibility (CSR) impacts. Transparency of CSR

reporting (TCR) is the mechanism through which companies may

address this issue. Sustainability reports (SRs) are the most common

type of disclosure that companies use to provide their stakeholders

with CSR information (Fernandez-Feijoo, Romero & Ruiz, 2014b).

Despite “greenwashing” or legitimating motivations for disclosing

CSR information, prior research highlights that high-quality SRs

reflect CSR practices and behaviour (De la Cuesta-González, Muñoz-

Torres & Fernández-Izquierdo, 2006; Fernandez-Feijoo et al., 2014b;

Godos Díez, Fernández Gago & Cabeza García, 2012). Therefore, by

means of providing transparent SRs, firms satisfy the information

interests of their stakeholders on CSR impacts.

According to Fernández and Gómez (1999), as well as to Letza

et al. (2004), there are two approaches from which corporate

governance can be analysed: the shareholder and the stakeholder

perspectives. The former considers that the key aim of corporate

governance is the protection of shareholder interests. By contrast, the

latter advocates that corporate governance should focus on

guaranteeing the interests of all of the firm’s stakeholders. This

approach extends the scope of corporate governance by considering

Board effectiveness and the transparency of CSR reporting

28

shareholders as a type of stakeholder with rights equal to those held

by the others (Money & Schepers, 2007).

The stakeholder perspective is strongly linked to CSR (Jamali et

al., 2008). The definition of the European Commission of CSR

emphasises that it aims to maximise “…the creation of shared value

for their owners/shareholders and for their other stakeholders and

society at large” (European Commission, 2011, p. 6). Therefore, CSR

represents a strategy that contributes to achieve the goal of corporate

governance from the stakeholder perspective. This relationship is

demonstrated by the establishment of governance structures related

to CSR, such as CSR committees and reporting, in the last decade

(Money & Schepers, 2007). Literature on the relationship between

corporate governance and CSR highlights the key role of corporate

governance mechanisms, especially boards of directors, in establishing

CSR practices (Amram, Lee & Devi, 2014; Fernández Sánchez et al.,

2011; García-Sánchez, Frías Aceituno & Rodríguez Domínguez, 2015;

Khan et al., 2013; Webb, 2004).

The board of directors is one of the most important

mechanisms of corporate governance. Boards are responsible for

monitoring managers and providing them with strategic advice

(Forbes & Milliken, 1999). Prior research on the effectiveness of

boards in performing their tasks has mainly relied on the shareholder

perspective (Finegold, Benson & Hecht, 2007; John & Senbet, 1998;

Kiel & Nicholson, 2003; Van den Berghe & Levrau, 2004). These

papers conclude that several demographic characteristics of boards

(e.g., independence, female directors, the separation of CEO and

chairperson) determine board effectiveness in promoting shareholder

value. In fact, most of them are suggested in corporate governance

codes around the world.

Conversely, papers that analyse how effective boards are in

addressing the interests of stakeholders are scarce. Some authors

studied the effect of several board characteristics on CSR practices

and reporting (Amran et al., 2014; Garcia-Sanchez, Cuadrado-

Ballesteros & Sepulveda, 2014; Latteman, Fetscherin, Alon, Li &

Schneider, 2009; Mallin & Michelon, 2011; Prado Lorenzo, García

Sánchez & Gallego-Álvarez, 2009; Rodríguez-Ariza, Frías Aceituno &

García Rubio, 2014). However, they did not consider whether the


29

analysed characteristics were drivers of board effectiveness in relation

to the protection of shareholder interests. This chapter contributes to

filling this gap. It considers both perspectives of corporate

governance and explores whether boards that are effective in

guaranteeing shareholder interests, by means of increasing

shareholder value, are also effective in providing TCR for their

stakeholders. In so doing, this chapter tries to reconcile the two

perspectives of corporate governance. As abovementioned, the scope

of corporate governance has broadened to consider all stakeholders

(Letza et al., 2004), so it seems necessary to look into whether the

effect of the traditional shareholder conceptualisation of board

effectiveness also extends to the stakeholder perspective.

Additionally, this chapter aims to respond to Van den Berghe and

Levrau (2004)’s call to improve the understanding of the determinants

of board effectiveness.

To address our objective, we developed a measure of board

effectiveness by gathering in a single variable those board

characteristics that contribute to the protection of shareholder

interests from the shareholder perspective of corporate governance.

Then, we tested the effect of this variable on TCR. We established a

structural equation model to analyse their relationship in an

international sample of 2366 firms throughout the period ranging

from 2009 to 2012. We found that board effectiveness positively

affects TCR. This result implies that boards which are effective in

addressing shareholder interests are also effective in protecting the

interests of all the firm’s stakeholders by providing them with

transparent information to appreciate CSR impacts.

This chapter is structured as follows. After this introduction,

section 2.2 reviews previous literature on board effectiveness and

corporate governance perspectives to develop our hypothesis. Section

2.3 describes the methodology, while section 2.4 presents our results,

which are discussed in section 2.5. Finally, section 2.6 presents our

concluding remarks and the limitations of our research, and it

suggests ideas for future research.


30

2.2. Literature review and hypothesis

Research on board effectiveness has mostly relied on classical theories

of corporate governance, such as agency, stewardship and resource

dependence theories (Finegold et al., 2007; John & Senbet, 1998; Kiel

& Nicholson, 2003; Van den Berghe & Levrau, 2004). These theories

fall under the shareholder perspective. They advocate that the aim of

corporate governance mechanisms, including boards of directors, is

to increase the firm’s value for its shareholders and protect their

interests (Letza et al., 2004). Therefore, under this approach, board

effectiveness depends on how well boards perform their monitoring

and strategic advisory roles (Adams, Hermalin & Weisbach, 2010;

Forbes & Milliken, 1999; Kroll, Walters & Wright, 2008; Minichilli,

Zattoni, Nielsen & Huse, 2012). Both roles contribute to increase

financial performance as a response to shareholder interests (Duchin,

Matsusaka & Ozbas, 2010; Forbes & Milliken, 1999; John & Senbet,

1998). According to de Andres, Azofra and Lopez (2005), the board

characteristics that determine board effectiveness from this

perspective can be grouped into three categories: size, composition

and internal functioning (Table 2.1).

Regarding board size, de Andres et al. (2005) highlighted that

corporate governance rating systems agree on limiting the maximum

number of directors because large boards are suboptimal, whereas

small boards enhance participation, involvement and cohesiveness.

However, they noted that a minimum number of members should

also be established to meet the proper composition in terms of power

and diversity. Newell and Wilson (2002) proposed that the ideal size is

5 to 9 members. Their suggestion is consistent with the results of

prior papers that found both positive and negative relationships

between board size and board effectiveness (Finegold et al., 2007).

The average board size is within the 5-9 range in the papers reporting

a positive relationship (Huse, Nielsen & Hagen, 2009; Kiel &

Nicholson, 2003). Conversely, the average sizes in the studies that

found a negative relationship were either above or below this range

(de Andres et al., 2005; Eisenberg, Sundgren & Wells, 1998; Yermack,

1996). Therefore, Newell and Wilson's proposal contributes to board


31

effectiveness. In fact, some corporate governance codes (e.g., Spain)

propose a minimum and maximum threshold for board size.

Literature on board composition distinguishes four main issues:

independence, CEO duality, presence of women and directors’

experience. Most studies support a positive relationship between the

independence of boards and their monitoring (Dahya, McConnell &

Travlos, 2002; John & Senbet, 1998; Klein, 2002; Renneboog, 2000;

Suchard, Singh & Barr, 2001; Tuggle, Sirmon, Christopher &

Bierman, 2010) and strategic advisory roles (Baysinger & Hoskisson,

1990; Johnson, Hoskisson & Hitt, 1993). Regarding the effect of

board independence on financial performance, Duchin et al. (2010)

concluded that the cost of acquiring information for outside directors

moderates this relationship. They found that financial performance

improves when the outside directors’ cost of acquiring information is

low, whereas financial performance worsens when this cost is high.

Therefore, board independence improves financial performance

under the right conditions.

CEO duality implies substantial power for the

CEO/chairperson, for instance, by allowing that person to set the

board meeting agendas to suit his or her interests and thereby avoid

intense monitoring (Jensen, 1993; Tuggle et al., 2010). Some papers

reported that CEO duality has a negative effect on financial

performance (Coles, McWilliams & Sen, 2001; Rechner & Dalton,

1991). Daily and Dalton (1994) concluded that firms with CEO

duality are more likely to go bankrupt, which implies that it

jeopardises corporate survival. Regarding the boards’ monitoring role,

Tuggle et al. (2010) reported that CEO duality weakens the

relationship between poorer prior performance and attention to

monitoring. Additionally, CEO duality is also negatively related to the

strategic involvement of the board (Ruigrok, Peck & Keller, 2006).

The presence of female directors is an important driver of

board effectiveness. Boards with women are related to higher

financial performance (Daily & Dalton, 2003; Joecks, Pull & Vetter,

2013; Smith, Smith & Verner, 2006). Adams and Ferreira (2009)

concluded that female directors are better monitors than men because

they attend board meetings more regularly, promote the attendance of

their male peers, and are more likely to work on monitoring


32

committees. These authors also found that women’s intense

monitoring influences their positive effect on financial performance.

A major presence of female directors only improves firm

performance in firms with weak shareholder rights, when tougher

monitoring is necessary. Women are more sensitive to the interest of

others and usually consider the perspectives of multiple parties

(Terjesen, Sealy & Singh, 2009). These features contribute to the

strategic advisory role of boards by considering different strategic

options (Daily & Dalton, 2003), improving the oversight of corporate

strategy (Nielsen & Huse, 2010), and enhancing board dynamics

(Kramer, Konrad & Erkut, 2006).

Directors’ profiles are also a key element of board composition

(Van den Berghe & Levrau, 2004). Forbes and Milliken (1999) argued

that directors should have functional and firm-specific experience and

skills to increase board effectiveness. Kroll et al. (2008) found that

firms obtain better outcomes when acquiring other companies if their

directors have industry-specific experience. Similarly, markets react

positively to the appointment of new directors when they are

accounting and finance experts (Defond, Hann & Hu, 2005), or when

they have business knowledge and experience (Fich, 2005). Directors’

experience also improves the monitoring and strategic roles of

boards. Conger, Finegold and Lawler III (1998) concluded that

directors require appropriate knowledge to effectively develop their

tasks. Kroll et al. (2008) posited that directors with no appropriate

expertise become less involved because of intellectual constraints.

Board meetings and board committees are the most analysed

issues regarding the internal functioning of boards. The frequency of

meetings is related to the internal administrative structure of boards

(de Andres et al., 2005). Van den Berghe and Levrau (2004)

considered board meetings as a procedural aspect that improves

board effectiveness and used it as a proxy for board activity. Vafeas

(1999) studied how the number of meetings affects firm performance.

He found that boards meet more regularly in years with lower

performance. Yet, years with more frequent meetings are followed by

an increase in performance in subsequent years. This result suggests

that meetings contribute to financial performance and that

monitoring increases when firms face problems. Other authors agreed


33

with this conclusion that the number of meetings promote board

monitoring (Conger et al., 1998; de Andres et al., 2005).

Corporate governance rating systems and corporate governance

codes suggest the establishment of different committees to improve

board effectiveness (Van den Berghe & Levrau, 2004). Firms with

audit committees and compensation committees are related to higher

performance (Chen & Nowland, 2010). Klein (1998) argued that

board committees should be structured in two categories to enhance

board effectiveness: monitoring committees (audit, compensation,

and nomination committees) and productivity committees (finance,

investment, and strategic committees).

The three types of board characteristics (size, composition, and

internal functioning) are key in conceptualising and determining

board effectiveness from the shareholder perspective of corporate

governance. Table 2.1 summarises the relationship between board

characteristics and effectiveness outcomes from that perspective.

Since the late 20th century, academics have also approached

corporate governance from a stakeholder perspective (Letza et al.,

2004). This change is demonstrated by the inclusion of stakeholder

issues in corporate governance codes in recent years (Szabó &

Sørensen, 2013). Based on the stakeholder theory (Freeman, 1984),

this perspective argues that corporate governance should guarantee

the protection of the interests of all of a firm’s stakeholders.

Initially, the shareholder and stakeholder perspectives may be

regarded as opposite, given that guaranteeing the interests of the rest

of the stakeholders could imply giving less attention to shareholder

interests. However, they should be considered complementary. The

stakeholder perspective does not promote satisfying stakeholder

interests at the expense of shareholder interests. It extends the scope

of corporate governance by considering shareholders as a specific

type of stakeholder, with rights equal to those held by others (Money

& Schepers, 2007).

Among other issues, stakeholders are interested in receiving

transparent information to assess firms’ CSR impacts. Society’s

concern about firms’ economic, environmental and social impacts has

increased over the last decades and led to a growing demand for

information on CSR impacts (Abeysekera, 2013; Gray, 2006a).


34

Tab

le 2

.1. R

elat

ion

ship

bet

wee

n b

oar

d c

har

acte

rist

ics

and

bo

ard

eff

ecti

ven

ess

outc

om

es u

nd

er t

he

shar

eho

lder

per

spec

tive

Bo

ard

ch

ara

cte

rist

ic

Co

rpo

rate

p

erf

orm

an

ce

Mo

nit

ori

ng

S

trate

gic

ad

vice

Su

pp

ort

ed

by

Bo

ard

siz

e (5

-9)

+

+

+

De

An

dre

s et

al

. (2

005),

K

iel

& N

ich

ols

on

(2

003),

N

ewel

l &

Wils

on

(2002),

Nie

lsen

& H

use

(2010)

Ind

epen

den

ce

+

+

+

Bay

sin

ger

& H

osk

isso

n (1

990),

D

ahya

et

al

. (2

002),

D

uch

in e

t al

. (2

010),

Jo

hn

& S

enb

et (

1998),

Jo

hn

son

et

al.

(1993),

Kle

in (

2002),

Ren

neb

oo

g (2

000),

Such

ard

et

al.

(2001)

CE

O d

ual

ity

-

- -

Co

les

et

al.

(2001),

D

aily

&

D

alto

n

(1994),

Je

nse

n

(1993),

Rec

hn

er

&

Dal

ton

(1

991),

R

uig

rok

et

al.

(2006),

Tugg

le e

t al

. (2

010)

Wo

men

+

+

+

Ad

ams

&

Fer

reir

a (2

009),

D

aily

&

D

alto

n

(2003),

Jo

ecks

et a

l. (2

013),

Kra

mer

et

al.

(2006),

Nie

lsen

&

Huse

(2010),

Sm

ith

et

al. (2

006)

Ex

per

ien

ce

+

+

+

Co

nge

r et

al.

(1998),

Def

on

d e

t al

. (2

005),

Fic

h (

2005),

K

roll

et a

l. (2

008)

Mee

tin

gs

- (c

urr

ent

year

) +

(su

bse

quen

t ye

ars)

+

N

.A.

Co

nge

r et

al.

(1998),

de

An

dre

s et

al.

(2005),

Vaf

eas

(1999),

Van

den

Ber

ghe

& L

evra

u (

2004)

Co

mm

itte

es

+

+

+

Ch

en

&

No

wla

nd

(2

010),

K

lein

(1

998),

V

an

den

B

ergh

e &

Lev

rau (

2004)

N.A

.: n

ot

app

licab

le


35

To gain support from their stakeholders, firms should operate

in a way that benefits or, at least, does not harm society. By means of

TCR, companies can legitimise their activities to guarantee their

survival (Deegan, 2002). Boards of directors play an important role in

establishing strategies to legitimise firm behaviour, especially through

CSR practices and reporting (Khan et al., 2013). Therefore, effective

boards based on the shareholder perspective should be effective in

promoting TCR, to guarantee that the firm has social legitimacy to

operate, which is essential to increase shareholder value.

Finally, the results of Webb (2004) also reinforce our

expectation that effective boards may also address stakeholder

interests. This author studied the structure of boards of directors in

394 socially responsible firms and compared it to the structure of

boards in a matched sample of non-socially responsible firms. She

found that socially responsible firms have boards with higher

proportion of women and outsiders and less CEO duality than non-

socially responsible companies. These characteristics are some of the

drivers of board effectiveness under the shareholder perspective.

Being socially responsible is a way of responding to stakeholder

interests; hence, we expect that firms with effective boards in

protecting shareholder interests may also be more effective in

promoting TCR, as a way to address stakeholder interests.

Based on the arguments presented above, we propose the

following hypothesis:

Hypothesis 1: Board effectiveness under the shareholder

perspective positively affects the transparency of CSR

reporting.

2.3. Methodology

2.3.1. Sample and data collection

Information on boards of directors, SRs and firm characteristics was

collected from the Asset4 database (Thomson Reuters Datastream),

the Global Reporting Initiative (GRI) database and corporate


36

webpages. Asset4 collects data from corporate reports and websites,

as well as from other publicly available sources, to offer transparent,

objective, auditable and systematic information about economic,

environmental governance and social matters (Schäfer, Beer, Zenker

& Fernandez, 2006). Asset4 covers over 4000 listed firms worldwide.

GRI is the organisation that issues the most widely used guidelines to

elaborate SRs (Brown et al., 2009; Roca & Searcy, 2012). GRI

database is built based on the information presented by firms that

publish SRs following the GRI Guidelines. GRI database covers more

than 6000 companies from all over the world that have published at

least one SR since 1999.

Using Asset4 as the primary source, we selected firms from the

countries that belong to the two main corporate governance models,

as identified by Weimer and Pape (1999): the market-oriented and the

network-oriented models. This selection yielded an initial sample of

3,351 companies. For those firms that disclose SRs based on the GRI

Guidelines according to Asset4, we collected additional data on their

reports from the GRI database. When we observed any

inconsistencies between Asset4 and GRI data, we resolved the issue

by checking the information provided by the company itself through

its website.

We analysed the period spanning from 2009 to 2012. The year

2009 was the first year in which all the firms in our sample published

a SR that followed the most recent versions of the GRI Guidelines at

that time, the G3 and G3.1 versions. Some firms still followed the G2

version until 2009. We only included the firms that had data on all the

variables for at least one year in our final sample. We established this

requirement, instead of having data for all four years, to avoid survival

bias and include the firms that might have disappeared during the

period. After this adjustment, our final sample consisted of 2,366

firms with all the data available for at least one year, amounting to

8,546 firm-year observations throughout the 2009-2012 period. Table

2.2 indicates the number of year-observations for each firm.


37

Table 2.2. Number of year information for firms

Nº year-obs. Firms Observations

4 1,855 7,420

3 225 675

2 165 330

1 121 121

TOTAL 2,366 8,546

2.3.2. Variables

The dependent and independent variables are two latent constructs

that are not directly observable by nature. Therefore, their

measurement requires the establishment of a set of observable

indicators that describe how the latent variables behave. The

relationship between the latent variables and their indicators, known

as epistemic relationship, can be formative or reflective

(Diamantopoulos & Siguaw, 2006). A formative relationship is causal,

whereby changes in the latent variable are determined by changes in

its indicators, the so-called formative indicators. A reflective

relationship is consequential, whereby changes in the latent variable

are reflected in changes in its indicators, the so-called reflective

indicators. Based on this distinction, we established the following

measurement models for each variable.

2.3.2.1. Dependent variable

TCR is the dependent variable. Previous studies regarded TCR as a

multidimensional construct, that gathers different characteristics and

principles, such as the quantity and quality of the information,

timeliness, comparability or verifiability (Bushman, Piotroski & Smith,

2004; Dubbink et al., 2008; Williams, 2005). We relied on the

methodology proposed by Fernandez-Feijoo et al. (2014a). These

authors measure TCR by gathering four characteristics of SRs in a

single variable through a dimension reduction with a principal

component analysis. These characteristics assess the content and

quality of SRs: frequency of reporting, level of application of the GRI


38

Guidelines, declaration of the level, and the existence of assurance

statement.

Frequency of reporting. It measures average the number of

years a company published a SR respect to the number of years in the

analysed period. It ranges from 0 to 1. This variable is a proxy for the

level of the disclosure intensity, which is related to TCR.

Level of application of the GRI Guidelines. It measures the

average number of times a company got an A, the maximum level

according to G3 and G3.1 (GRI, 2006, 2011), respect to the number

of SRs published during the analysed period. It ranges from 0 to 1.

This variable is a proxy for the level of completeness, relevance and

public disclosure, which are related to TCR.

Declaration of the level. It measures the average number of

times the level of a company was declared by GRI or a third party

respect to the number of SRs published during the analysed period. It

ranges from 0 to 1. This variable is a proxy for the reliability and

verifiability, which are related to TCR.

Existence of assurance statement. It measures the average

number of times a company presented an assurance statement respect

to the number of SRs published during the analysed period. It ranges

from 0 to 1. This variable is a proxy for the credibility of the

information, which is related to TCR.

Instead of performing the dimension reduction as suggested by

Fernandez-Feijoo et al. (2014a), we used these characteristics as

indicators to establish a reflective measurement model for TCR. The

features show whether the SRs of firms are transparent. The frequent

disclosure of SRs, the high level of application of the GRI Guidelines,

the declaration of that level by a third-party, and the assurance of the

SR reflect the firm’s TCR.

2.3.2.2. Independent variable

Board effectiveness, based on the shareholder perspective of

corporate governance, is the independent variable. Based on the

literature review, we established a formative measurement model and

used as indicators the board characteristics that determine the


39

effectiveness of boards in developing their roles to guarantee

shareholder interests (Table 2.1). Specifically, the formative indicators

are the size and independence of the board, CEO duality, the

presence of women on boards, directors’ experience, the number of

meetings, and the establishment of specific board committees (one

indicator per type of committee). Similarly to the indicators of the

dependent variable, we defined each board characteristic as the

average figure for its value during the period A reflective

measurement model could have also been established using the

outcomes of board effectiveness as indicators (e.g., financial

performance). Yet, these outcomes may be influenced by other

factors. So if we used them as reflective indicators, we could have

captured other elements unrelated to board effectiveness. Thus, a

formative measurement model for board effectiveness was seemingly

better.

2.3.2.3. Control variables

We included three control variables Prior research agreed on the

positive effect of firm size on CSR reporting (Fifka, 2013; Hahn &

Kühnen, 2013). Companies that operate in environmentally sensitive

industries disclose better CSR information (Brammer & Pavelin,

2008; Young & Marais, 2012). Finally, firms from countries with a

stakeholder-oriented system of corporate governance (code law

countries) provide more transparent information by means of

assuring their SR more than do firms from countries with a

shareholder-oriented system (common law countries) (Simnett et al.,

2009).

We used the average logarithm of assets and sales as indicators

for firm size. Regarding environmentally sensitive industries, we used

a dichotomous variable as indicator. It takes the value of 1 if the firm

operates in an industry that has an important impact on the

environment. Following Castelo Branco and Lima Rodrigues (2008),

Fernandez-Fejoo et al. (2014b), and Gamerschlag et al. (2011), we

coded the following industries as environmentally sensitive: Applied

resources, Automobile & auto parts, Chemicals, Energy – fossil fuels,


40

Industrial & conglomerates services, Industrial conglomerates,

Industrial goods, Mineral resources, Renewable energy,

Transportation, Uranium, and Utilities. Finally, we used a

dichotomous variable as the indicator for the country’s corporate

governance system. It distinguishes whether the firm comes from a

country with a shareholder or a stakeholder-oriented system of

corporate governance. According to Weimer and Pape (1999), the

market-oriented system comprises Australia, Canada, United

Kingdom and USA; while the network-oriented systems includes

Austria, Belgium, Denmark, Finland, France, Germany, Italy, Japan,

Netherlands, Norway, Spain, Sweden and Switzerland. The first group

consists of common law countries, with a shareholder-oriented

corporate governance model; whereas the latter group consists of

code law countries, with a stakeholder-oriented corporate governance

model (Ball, Kothari & Robin, 2000). These variables reflect the

behaviour of the control variables. Thus, we used them as indicators

for the reflective measurement model of control variables.

Table 2.3 summarises the measurement models for each

variable and the definitions of their indicators. In addition, Figure 2.1

depicts the established measurement and structural models.

Table 2.3. Block of indicators for each construct and their definition

Construct indicator

Definition

TCR (reflective construct) Frequency Average number of years a company published a SR,

respect to the number of years in the period

Level of application Average number of times a company got an A, respect to the number of SRs published during the period

Declaration of level Average number of times the level of a company was declared by GRI or a third party, respect to the number of SRs published during the period

Existence of assurance statement

Average number of times a company presented an assurance statement, respect to the number of SRs published during the period

Board effectiveness (formative construct) Board size (5-9) Average number of years when the size of the board was

within the range of 5 to 9 member, respect to the number of years in the period

Independence Average percentage of outsiders during the period


41

CEO-duality Average number of years when the CEO was not the chairperson at the same time, respect to the number of years in the period

Women Average percentage of women directors during the period

Experience Average percentage of board members during the period who had either an industry specific or financial backgrounds

Meetings Average number of years when the number of board meetings was higher than the mean for the entire sample, respect to the number of years in the period

Audit committee Average number of years that the board had an audit committee, respect to the number of years in the period

Compensation committee

Average number of years that the board had a compensation committee, respect to the number of years in the period

Nomination committee

Average number of years that the board had a nomination committee, respect to the number of years in the period

Corp. governance committee

Average number of years that the board had a corporate governance committee, respect to the number of years in the period

CSR committee Average number of years that the board had a CSR committee, respect to the number of years in the period

Firm size (reflective construct) Assets Average logarithm of the firm’s total assets during the

period

Sales Average logarithm of the firm’s total sales during the period

Industry (reflective construct) Environmentally sensitive industry

Dichotomous variable that takes the value of 1 if the firm belongs to an environmentally sensitive industry and 0 otherwise

Country orientation (reflective construct) Stakeholder-oriented Dichotomous variable that takes the value of 1 if the firm

is from a stakeholder-oriented country (code law) and 0 if the firm is from a shareholder-oriented country (common law)


42

En

vir

on

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tally

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try

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and

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43

2.3.3. Statistical analysis

Our dependent and independent variables are two latent constructs.

Therefore, we used a structural equation model analysis to test the

influence of board effectiveness on TCR. This technique allows us to

determine the relationship between latent variables, using data from

observable indicators (Williams, Vandenberg & Edwards, 2009).

Two different sets of methods can be used to analyse structural

equation models: covariance-based methods and variance-based

methods. In this study, we used a partial least squares regression

(PLS), a variance-based method, for the following reasons (Chin,

2010; Roldán & Sánchez-Franco, 2012). First, we included a

formative latent variable (BE) that can only be modelled using PLS.

Second, PLS focuses on the prediction of the dependent variable;

hence it may be preferably for a causal-predictive analysis. Finally,

PLS requires soft distributional assumptions for the data which makes

it applicable to a wide range of samples. The PLS analysis was

performed using the SMART PLS 2.0 M3 software (Ringle, Wende &

Will, 2005).

2.4. Results

2.4.1. Descriptive statistics

Table 2.4 presents the descriptive summary of the variables used as

indicators for each construct. Panel A shows the descriptive statistics

of the indicators that are continuous variables, while Panel B presents

the frequencies of the dichotomous indicators.

In relation to the indicators of TCR, firms published a SR in

30.3% of the analysed years on average. With respect to the number

of SRs that were published, 7.41% of them achieved the A level of

the GRI Guidelines, 11.3% were assured and the level of 10.8% of

the reports was declared by a third-party.

Concerning board effectiveness, 48.7% of boards had a size

within the range of 5 to 9 members suggested by Newell and Wilson

(2002). On average, outsiders and women represent 78.63% and the


44

11.52% of the directors, respectively. The chairperson was not the

CEO at the same time in 30.7% of the firms throughout the period.

The proportion of directors with financial or industry-specific

experience was 60%. Most boards had audit, compensation and

nomination committees (99.0%, 92.9% and 87.2% of the boards had

one of them on average, respectively). However, only 55.1% and

57.6% of the boards had corporate governance and CSR committees

during the period.

Table 2.4. Descriptive statistics

Panel A: Continuous variables

Mean Std. Dev. Min. Max.

Frequency 0.303 0.415 0.000 1.000

Level of application 0.074 0.247 0.000 1.000

Declaration of level 0.108 0.268 0.000 1.000

Assurance 0.113 0.293 0.000 1.000

Board size (5-9) 0.487 0.450 0.000 1.000

Outsiders 0.786 0.206 0.000 1.000

CEO duality 0.307 0.419 0.000 1.000

Women 0.115 0.101 0.000 0.578

Experience 0.605 0.201 0.000 1.000

Meetings 0.432 0.417 0.000 1.000

Audit committee 0.990 0.091 0.000 1.000

Compensation committee 0.929 0.247 0.000 1.000

Nomination committee 0.872 0.319 0.000 1.000

Corporate governance committee 0.551 0.493 0.000 1.000

CSR committee 0.576 0.459 0.000 1.000

Assets 15.933 2.349 9.881 26.051

Sales 15.121 2.767 0.000 23.681

Panel B: Dichotomous variables

1 0

Abs. Rel. Abs. Rel. Environmentally sensitive industry 1,085 45.86% 1,281 54.14%

Country orientation 701 29.63% 1,665 70.37%

Regarding control variables, the average logarithms of assets

and sales were 15.93 and 15.12. Firms operating in environmentally

sensitive industries represent the 45.90% of the sample. Finally,

29.6% of the companies were from countries with a stakeholder-

oriented model of corporate governance.


45

2.4.2. Measurement model

Following Chin (2010), we analysed the results of the PLS analysis in

two steps. First, we evaluated the validity and reliability of

measurement models. Each type of measurement model (formative or

reflective) should be analysed based on different criteria (Mathieson,

Peacock & Chin, 2001). Thus, we evaluated the measurement model

of the formative construct before analysing the measurement models

of the reflective constructs. Afterwards, we moved to the second step

of the PLS results and analysed the structural model, which

determines the relationship between the constructs.

2.4.2.1. Formative construct (Board effectiveness)

Formative measurement models are assessed at two levels: at the

construct level (whether the formative construct carries the intended

meaning) and at the indicator level (whether the indicators contribute

to the construct by carrying the intended meaning) (Henseler, Ringle

& Sinkovics, 2009). At the construct level, external validity requires

determining whether the formative measurement model explains a

high percentage of the variance of the same construct measured by

reflective indicators. To our knowledge, there are no alternative

measures of board effectiveness through reflective indicators. Thus,

we could not assess the external validity and moved on to the next

step (Chin, 2010). Nomological validity involves assessing the

relationship between the formative construct and other variables, as

identified by prior research (Henseler et al., 2009). Several studies

argued that board effectiveness from the shareholder perspective

leads to higher firm performance (Duchin et al., 2010; John & Senbet,

1998). Therefore, we checked the relationship between our formative

construct and three proxies for firm performance (ROA, ROE and

market-to-book ratio) (Table 2.5). The results show the expected

positive and significant effect of board effectiveness in the three

cases.


46

Table 2.5. Analysis of the nomological validity of the formative construct

Model Path coefficient t-value (bootstrap)

Board effectivenessROA 0.190*** 5.290

Board effectivenessROE 0.079* 2.183

Board effectivenessMtB 0.070* 1.832

Dependent variables: return on assets (ROA), return on equity (ROE), and market-to-book ratio (MtB) * p<0.05, ** p<0.01, *** p<0.001 (based on t (4999, one-tailed test))

At the indicator level, we should analyse the multicollinearity

among indicators, because it might yield unstable estimates

(Mathieson et al., 2001). To test whether there are multicollinearity

problems, we calculated the variance inflation factor (VIF) using the

statistical software SPSS v.20. Table 2.6 presents the main statistics

used to assess the measurement models of both, formative and

reflective constructs. This table indicates that there are no

multicollinearity concerns because our highest VIF (1.944) is below

the threshold of 3.3 suggested by Roberts and Thatcher (2009).

Afterwards, we evaluated the weights of the formative indicators,

which rank their contribution in building the construct. Table 2.6

shows that six indicators significantly contribute to the construct.

Weights are calculated by means of a regression of the scores of the

latent variable that uses formative indicators as independent variables

(Hair Jr, Hult, Ringle & Sarstedt, 2014). This method reveals that

three indicators, despite having the lowest negative weights, are

significant because they also have negative loadings. Nonetheless,

indicators with no significant weights should not be removed as a

consequence of statistical results if their inclusion is justified

(Henseler et al., 2009). Therefore, we left the five indicators that have

no significant weights because previous research supported that they

should be included because they are related to board effectiveness, as

previously discussed.

Based on this assessment, we concluded that the formative

measurement model for board effectiveness, based on the

shareholder perspective, is valid.


47

Tab

le 2

.6. A

nal

ysis

of

form

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e an

d r

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* p

<0.0

01 (

bas

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n t

(4999, tw

o-t

aile

d t

est)


48

2.4.2.2. Reflective constructs (TCR, firm size, industry, and country

orientation)

Reflective measurement models are assessed based on their reliability

and validity (Chin 2010). Individual item reliability evaluates the

component of the variance of the indicator explained by the

construct. To meet this criterion, the construct should explain at least

50% of the variance of the indicator, which implies that indicators

have loadings above 0.707. Therefore, all of the reflective indicators

fulfilled individual item reliability (Table 2.6). The next step focuses

on construct reliability, which determines whether all of the reflective

indicators of a construct measure the same latent variable. The four

reflective constructs meet this requirement as the Cronbach’s alpha

and the composite reliability are above the suggested 0.7 threshold.

In terms of validity, convergent validity implies that each block

of reflective indicators stands for the one and only construct they are

supposed to measure (Henseler et al., 2009). To satisfy convergent

validity, the average variance extracted (AVE) should be above 0.5

(Fornell & Larcker, 1981). Thus, the four reflective constructs achieve

convergent validity (Table 2.6). Finally, discriminant validity requires

that the different conceptual constructs are sufficiently different from

each other (Henseler et al., 2009). To meet discriminant validity, the

square root of the AVE of a construct should be higher than the

correlations between this construct and the others. Table 2.7

compares the square roots of the AVEs and the correlations between

the constructs. Discriminant validity is fulfilled, which indicates that

reflective constructs are more strongly related to their indicators than

to the other constructs.

Table 2.7. Discriminant validity of the reflective constructs

(1) (2) (3) (4) (5)

(1) TCR 0.827

(2) Board effectiveness 0.528 N.A.

(3) Firm size 0.311 0.359 0.959

(4) Industry 0.070 0.060 -0.106 1.000

(5) Country orientation 0.352 0.342 0.476 0.003 1.000

Elements in the diagonal (bold) are the square roots of the AVE. Off-diagonal elements are the correlations among the constructs. N.A: not applicable


49

2.4.3. Structural model

Figure 2.2 presents the R2 of the dependent variable and the path

coefficients of the exogenous variables. The R2 evaluates the

predictive power of the structural model (Chin, 2010). Our model has

a R2 of 31.9%, which is close to the moderate prediction level of 33%

suggested by Chin (1998).

We used a bootstrapping procedure of 5,000 resamples to test

the significance of the path coefficients and calculate the confidence

intervals. Table 2.8 presents the results of the regression, the

bootstrapping, and the variance of the dependent variable explained

by each exogenous variable. The t-values and the confidence intervals

show that the four exogenous variables have a positive and significant

influence on TCR. Therefore, we accept our hypothesis. In particular,

board effectiveness has the most important effect, as it explains

23.257% of the variance of the dependent variable.

Figure 2.2. Structural model results

* p<0.05, ** p<0.01, *** p<0.001 (based on t(4999, one-tailed test))

0.163***

R2=0.319

0.081**

0.052*

0.440***

Country orientation

Firm size

Board

effectiveness TCR

Industry


50

We applied the Stone-Geisser test (Chin, 1998) to corroborate

the predictive relevance of the model. The Q2 statistic of this test is

above the minimum threshold of 0. Therefore, it confirms the

predictive relevance of the dependent variable.

Table 2.8. Effects on transparency of CSR reporting

Exogenous variable Path

coefficient

t-value

(bootstrap) C.I. (95%)

Explained variance

Board effectiveness 0.440*** 21.003 (0.406; 0.487) 23.257%

Firm size 0.081** 3.045 (0.027; 0.131) 2.529%

Industry 0.052* 2.028 (0.001; 0.102) 0.367%

Country orientation 0.163*** 5.197 (0.100; 0.223) 5.727%

R2=31.9% Q2=0.193

Dependent variable: transparency of CSR reporting (TCR) C.I.: confidence interval * p<0.05, ** p<0.01, *** p<0.001 (based on t (4999, one-tailed test))

2.5. Discussion

Our main finding indicates that board effectiveness positively

influences TCR. Considering the provision of transparent SRs as a

means to address the information interests of stakeholders, this

relationship shows that board effectiveness from the shareholder

perspective of corporate governance is also a valid construct from the

stakeholder perspective, as we expected.

This result is consistent with that of Webb (2004), who found

that boards of socially responsible firms have more outsiders and

female directors, and their CEO is less-likely to be the chairperson

than boards in non-socially responsible companies. Based on her

findings, she suggested that the causal relationship between these

characteristics of board structure and being a socially responsible

firms should be analysed. Our result partially contributes to this call,

as we found that board effectiveness in protecting shareholder

interests, which includes the characteristics reported by Webb, has a

positive effect on the firm’s response to stakeholders’ CSR

information interests. Our finding is also consistent with the result of


51

Ntim and Soobaroyen (2013), who found that better-governed firms

are more likely to engage in CSR activities and that a combination of

good corporate governance mechanism, such as board of directors,

and good CSR practices leads to higher financial performance.

The relationship that we found suggests that, although the

shareholder and the stakeholder perspectives might initially be

considered as opposing approaches (Letza et al., 2004), this is not the

case. Consistently with Money and Schepers (2007), our results

indicate that these approaches have a similar orientation but they

differ in scope. The shareholder perspective shows a narrow scope. It

considers that corporate governance mechanisms should only

contribute to protect shareholder interests and to increase firm value.

In contrast to this, the stakeholder perspective shows a wider scope

and considers that the firm’s corporate governance mechanisms

should guarantee the interests of all the stakeholders. This perspective

includes shareholders as a specific type of stakeholders. Thus, the

scope of board effectiveness extends as the perspective of corporate

governance broadens. Our result reinforces the idea that shareholder

and stakeholder interests may be protected at the same time.

Our findings may also be explained by the fact that the interests

of shareholders are expanding and they are giving greater importance

to CSR. This is particularly the case of significant shareholders. As a

consequence of their long-term interest in the firm, they are more

likely to invest in CSR (Godos-Díez, Fernández-Gago, Cabeza-García

& Martínez-Campillo, 2014). In addition, these shareholders are

concerned about maintaining their reputation, which is closely linked

to that of their corporations and may be preserved through CSR

(Anderson, Mansi & Reeb, 2003). Thus, the interests of shareholders

are becoming partially aligned with those of the rest of stakeholders.

Therefore, in consonance with our results, when a board of directors

promotes TCR, it is effective in considering the interests of significant

shareholders and stakeholders, at the same time.

All control variables have the expected significant and positive

effect on TCR. Consistent with previous research (Fifka, 2013; Hahn

& Kühnen, 2013), we found that larger companies are more likely to

offer more transparent CSR information. Firms operating in

environmentally sensitive industries also produce more transparent


52

SRs. As Young and Marais (2012) concluded, companies belonging to

these industries provide better CSR reporting to gain legitimacy.

Finally, firms from stakeholder-oriented countries publish more

transparent SRs. This result corroborates the result of Young and

Marais (2012), who found that companies from stakeholder-oriented

countries disclose better CSR information than do those from

shareholder-oriented countries. It also corroborates the finding of

Simnett et al. (2009), who reported that companies from those

countries assure their SRs more.

2.6. Concluding remarks

In this chapter, we study whether effective boards in protecting

shareholder interests satisfy the stakeholders’ information interest in

CSR impacts. Through TCR, companies provide their stakeholder

with information that allows them to appreciate CSR impacts. We

develop a measure of board effectiveness, based on the shareholder

perspective, and analyse its effect on TCR, in a sample of 2,366

companies from 17 countries.

Our main finding shows that firms with boards that are

effective under the shareholder perspective publish more transparent

SRs than other companies. Therefore, effective boards of directors

guarantee the interests of both, shareholders and the rest of

stakeholders. With this result, this chapter contributes to research on

the relationship between CSR reporting and boards of directors.

Additionally, we found that large firms, firms that operate in

environmentally sensitive industries and firms that are from countries

with a stakeholder-oriented system of corporate governance are more

likely to issue more transparent SRs than other companies.

Moreover, this chapter adds to literature on corporate

governance in two ways. First, we demonstrate that board

effectiveness based on the shareholder perspective of corporate

governance may also be applied to the stakeholder perspective, by

considering TCR as its proxy. Board effectiveness can be asserted to

promote the protection of the interests of all the stakeholders of a

firm, within which the shareholders conform a particular group.


53

Secondly, we establish a measurement model for board effectiveness

using the demographic characteristics of boards that determine their

performance in developing their tasks. As far as we are aware, this

approach is the first attempt to capture and measure board

effectiveness in a single variable. In so doing, we aim to improve the

understanding of the elements that determine the effectiveness of

boards of directors (Van den Berghe & Levrau, 2004).

Finally, our results have implications for policy-makers. Many

characteristics of boards that drive board effectiveness (e.g., a

majority of outsiders, increased female representation, CEO-chairman

separation, the establishment of committees, etc.) are suggested in

corporate governance codes all over the world (Adams & Ferreira,

2009; Denis & McConnell, 2014). By introducing these

recommendations, corporate governance codes may improve board

effectiveness to protect the interests of shareholders and to satisfy the

information interests of the rest of stakeholders through TCR.

Our findings should be viewed in light of some limitations. All

analysed firms are public because information on boards of directors

of non-listed companies is not easily accessible. Shareholders are

important stakeholders for those firms that financially depend on the

market. Thus, our results may be influenced by the relevance of

shareholders as a specific group of stakeholders in our sample.

Additionally, mainstream corporate governance research postulates

that board behaviour and processes are more critical than

demographic characteristics in determining board effectiveness

(Forbes & Milliken, 1999; Minichilli et al., 2012; Minichilli, Zattoni &

Zona, 2009). As this study represents a first attempt to capture board

effectiveness in a single variable, we used demographic variables

because they are more objective and may be directly measured

(Pfeffer, 1983). Finally, we note that the dependent and independent

variables refer to the same time period. This could affect the capacity

to infer causality. We built our variables by gathering information

from the years 2009-2012. The use of lagged data for the independent

variables would not have been a solution. Some years would continue

to be included in both types of variables. Moreover, this could have

reduced the size of the sample given that data on board characteristics

of some firms was unavailable for the year 2008.


54

This chapter suggests several ideas for future research. First, the

sample could be extended and include non-listed corporations to

check for possible differences between quoted and non-quoted firms.

Second, it may be interesting to develop a measurement model of

board effectiveness based on behavioural and procedural aspects of

the board and check its correlation with the measurement model

presented in this chapter. Additionally, we analysed how board

effectiveness, under the shareholder perspective, impacts on the

stakeholder perspective. Future research should analyse whether the

causal relationship could also be the opposite: whether being

concerned about stakeholder interests could be a precursor of

effectively responding to shareholder interests. Finally, the use of PLS

also provides another course of research. This technique quantifies

the value of the latent variable board effectiveness for each company,

which allows us to analyse whether industry or geographic factors

may have influence on it.

55

OWNERSHIP STRUCTURE AND

THE TRANSPARENCY OF CSR

REPORTING

3.1. Introduction

This chapter analyses the influence of ownership structure on the

transparency of corporate social responsibility reporting (TCR)

provided by Spanish listed firms. Prior literature found mixed results

when studying the effect of ownership structure on corporate social

responsibility (CSR) reporting. Some authors found a negative

relationship (Brammer & Pavelin, 2008, Gamerschlag et al., 2011;

Khan et al., 2013), while others found a neutral (Eng & Mak, 2003) or

even a positive one (Rao et al., 2012). In the case of Spain, mixed

results were also reported (Prado-Lorenzo et al., 2009; Reverte, 2009).

We contribute to this line of research by considering two key features

that can allow us to better understand the relationship between

ownership structure and CSR reporting.

First, and in contrast to previous studies that analysed CSR

disclosure ratings (Reverte, 2009) and CSR reporting practices (Prado-

Lorenzo et al., 2009), we focus on TCR. Sustainability reports (SRs)

are the most common tool to communicate CSR information

(Fernandez-Feijoo et al., 2014b). An essential element of these reports

is the level of TCR that they provide (Kaptein & Van Tulder, 2003).

According to the Global Reporting Initiative (GRI), TCR is an

underlying value that determines the other characteristics of SRs

(GRI, 2011). As we highlighted in the introduction of this

dissertation, the promotion of TCR provides advantages for society

Ownership structure and the transparency of CSR reporting

56

and firms. On the one hand, there is a growing social demand for

more transparent disclosures as a consequences of corporate scandals,

financial crisis and mismanagement (Fernández Sánchez et al., 2011;

Kolk, 2008). On the other hand, TCR enhances allocative and

dynamic efficiency, it helps to identify socially responsible firms, it

gives consumers access to more information, it promotes honest

attitudes within companies, and it develops responsible behaviour

among consumers. (Dubbink et al., 2008).

Second, we assess ownership structure using a different

approach from prior research. Instead of focusing on ownership

concentration, we distinguish two types of significant shareholders

depending on whether or not they are members of the board of

directors. According to Godos Díez et al. (2012) and Godos-Díez et

al. (2014), significant shareholders of Spanish firms are in favour of

promoting CSR activities. Consequently, they could be expected to be

interested in knowing how their companies are addressing CSR.

Therefore, this chapter considers that CSR reporting works as a

mechanism to monitor whether managers contribute to satisfy

shareholder interests in CSR (Carnevale & Mazzuca, 2014; Herda,

Taylor & Winterbotham, 2014; Lu, Shailer & Yu, 2016). Significant

shareholders who are members of the board have access to

information in order to monitor managers. By contrast, significant

shareholders who are not directors cannot access the information in

the same way. Thus, they might require firms to disclose information

on CSR, which could lead to better and more transparent SRs.

Based on the previous arguments, we anticipate that the

relationship between each type of shareholder and TCR should be

different. When using ownership concentration, significant

shareholders are considered as an only group. Hence, the effect on

CSR reporting of significant shareholders who are not directors could

be compensated by the effect of significant shareholders that are

members of the board. In this chapter, we separate these two types of

directors to disentangle their effect on TCR. We expect that

significant shareholders who are not directors have a positive effect

on TCR. By contrast, we argue that significant shareholders on board

may have a different effect on CSR reporting depending on the

percentage of shares that they jointly hold. Following, Leung and


57

Horwitz (2004), we expect that when board ownership is above 25%,

firms disclose less transparent SRs than do companies in which

directors own below that threshold. Significant shareholders on

boards in the former companies may regard CSR reporting as a cost

that adds no value to their monitoring role. By contrast, significant

shareholders on boards in the second group of firms may promote

TCR as a way of providing positive signals to the market. The

different behaviour of significant shareholders depending on their

belonging or not to the board and the percentage that the board

jointly hold could be the underlying explanations of the mixed results

reported by previous literature.

In contrast to Chapter 2, we decided to limit our sample to

companies from Spain because this country represents an appropriate

research setting for several reasons. First, Spain is a leader in CSR

reporting. Spanish companies publish more SRs following the GRI

Guidelines than do firms from more industrialized countries

(Fernandez-Feijoo, Romero & Ruiz, 2012), and they also provide

higher levels of CSR disclosure (Cuadrado-Ballesteros, Rodríguez-

Ariza & García-Sánchez, 2015). Second, significant shareholders of

Spanish firms are interested in promoting CSR (Godos Díez et al.,

2012; Godos-Díez et al., 2014). This is a key condition given that we

consider CSR reporting as a mechanism to monitor whether

managers effectively establish CSR strategies. Third, the ownership

structure of Spanish companies also makes this country an interesting

setting. Similarly to other civil law countries, the ownership is

concentrated among few significant shareholders (Azofra Palenzuela,

Saona Hoffmann, & Vallelado González, 2007; de Miguel, Pindado &

de la Torre, 2004). According to Kirchmaier and Grant (2005), the

most common type of ownership in Spanish listed firms is legal

control, namely, when a shareholder or a group of shareholders own

over 50% of voting rights. Particularly, families, financial institutions

and crossholdings are the most important shareholders (Cuadrado-

Ballesteros et al., 2015; Ruiz-Mallorquí & Santana-Martín, 2009;

Tribo, Berrone & Surroca, 2007). Furthermore, compared to Anglo-

Saxon countries, the Spanish capital market is underdeveloped, has

low liquidity (de Miguel et al., 2004; Tribo et al., 2007), as well as a


58

low level of investor protection (La Porta, Lopez-de-Silanes, Shleifer

& Vishny, 1997).

Using a sample of 128 Spanish listed firms throughout the

period ranging from 2009 to2011, we measure TCR for each

company. We used listed firms to check our expected hypotheses

because boards of directors play a more important role in these

companies than in not-listed firms. As we expected, our main results

indicate that the influence of significant shareholders on TCR is

different, depending on whether or not they are directors. Significant

shareholders who are not members of the board have a positive effect

on TCR. Conversely, the relationship between the significant

shareholders who are directors and TCR depends on the stake that

directors jointly own. Firms with boards that hold more than 25% of

ownership provide lower levels of TCR than firms in which directors

own below that threshold.

The remainder of the chapter is structured as follows. Section

3.2 reviews previous literature on ownership and CSR and poses our

hypotheses. The methodology is described in section 3.3. Section 3.4

presents the results, which are discussed in section 3.5. Finally,

section 3.6 sets out the concluding remarks, limitations and future

research.

3.2. Literature review and hypotheses

In their seminal study, Berle and Means (1932) postulated that large

firms are characterised by a divergence between ownership and

control, a premise that still holds today. Agency theory argues that

this situation could lead to agency problems because managers may

behave opportunistically at the expense of shareholder interests

(Jensen & Meckling, 1976). The divergence between ownership and

control also creates a problem of asymmetric information as

shareholders do not directly have the information required to assess

whether their interests are being fulfilled. To mitigate these problems,

different corporate governance mechanisms have been established

(Fernández & Gómez, 1999). Among them, the disclosure of financial


59

statements is regarded as an effective mechanism to control managers

and reduce information asymmetries (Bushman & Smith, 2001).

Over the last decades, firms’ responsibilities and accountability

have grown resulting from the society’s and investors’ awareness on

the CSR impacts of corporate activities (Gray, 2006a; Herda et al.

2014). This situation has encouraged firms to disclose information

about their CSR impacts. Ownership structure plays a relevant role in

determining the level of corporate disclosures (Akhtaruddin & Haron,

2010). Most papers that analysed the relationship between ownership

and CSR reporting focused on the effect of ownership concentration.

However, other characteristics of the firm’s ownership structure

could also influence CSR reporting.

In the Spanish context, research on the influence of ownership

structure on CSR is scant (Godos Díez et al., 2012). Particularly,

literature analysing its effect on CSR reporting is even scarcer and

focuses on assessing ownership concentration. Reverte (2009) studied

the influence of several industry and firm characteristics, among them

ownership concentration, on the CSR disclosure ratings of the

Spanish firms listed in the IBEX-35 for 2005 and 2006. He measured

ownership concentration as a dichotomous variable that indicated

whether or not the company has a majority shareholder. When

analysing ownership as an isolated variable, he found that firms with a

majority shareholder are negatively related to CSR disclosure ratings.

However, when he included all the explanatory variables in the

regression, the effect of ownership is no longer significant. His results

also show that CSR disclosure ratings are higher for larger and more

highly exposed firms as well as those operating in environmentally

sensitive industries. Based on these results, he concluded that

legitimacy theory is the most relevant framework to explain why

Spanish listed companies disclose CSR information.

Similarly, Prado-Lorenzo et al. (2009) analysed the relationship

between ownership structure and the publication of SRs in a sample

of 99 Spanish non-financial listed firms. These authors used three

variables to assess ownership: a dichotomous variable indicating

whether financial institutions are part of the ownership structure; a

dichotomous variable indicating the existence of a physical dominant

shareholder; and the percentage of independent directors as proxy for


60

the power of minority shareholders. To assess SRs, they performed a

principal component analysis of five variables related to CSR

information which resulted in three components: 1) the publication of

information on economic, environmental and social aspects; 2) the

use of the GRI Guidelines; and 3) the validation of the disclosure by

certifying compliance with GRI and by assuring the information.

They found that the existence of a dominant shareholder is the only

ownership variable that has a significant effect on CSR reporting.

Particularly, it has a positive effect on the adoption of the GRI

Guidelines. The authors attributed this result to the interest of

dominant shareholders in the long-term survival of the company.

Godos Díez et al. (2012) and Godos-Díez et al. (2014) found

that significant shareholders of Spanish companies promote CSR

practices, among them the publication of SRs, for several reasons.

Significant shareholders want to maintain their reputation, which is

closely linked to that of their company (Anderson et al. 2003). CSR

contributes to achieve this objective. Additionally, CSR helps to

reduce financial risks and the likelihood of future legal or commercial

sanctions. Managers are ultimately responsible for implementing CSR

practices. In this regard, the authors found that the profile and the

CSR perception of the CEO determine the establishment of CSR

actions. So, according to them, CEO traits should be aligned with

shareholder interests in promoting CSR.

Consequent to their interest in CSR and the separation of

ownership and management, significant shareholders may be

expected to require CSR information to assess whether their interests

are fulfilled. Additionally, financial reasons could also explain their

demand for CSR information. Shareholders are the main providers of

financial capital. Despite the fact that firms incur in costs to

implement CSR actions, investors and shareholders consider that CSR

information is value relevant and allows them to evaluate the financial

risks resulting from CSR issues (Al-Tuwaijiri, Christensen & Hughes,

2004; Orlitzky, Schmidt & Rynes, 2003; Reverte, 2012). Hence, as

signalling theory suggests (Connelly et al., 2010), SRs could be used as

a monitoring mechanism that complements financial reporting to

mitigate information asymmetries, particularly in countries with low

investor protection (Carnevale & Mazzuca, 2014; Herda et al., 2014;


61

Lu et al., 2016). This assumption does not exclude the fact that firms

may disclose CSR information for other reasons (e.g., mandatory

requirements, legitimating, or greenwashing). The view of CSR

reporting as a monitoring mechanism falls in line with the broadening

of the scope of corporate governance, which advocates the

establishment of mechanisms to protect the interests of both

shareholders and the rest of the firm’s stakeholders (Letza et al.,

2004), as we explained in Chapter 2.

Significant shareholders can be categorised into two groups.

While some shareholders are represented on the board of directors,

others are not. This distinction defines two types of ownership: board

ownership and non-board ownership. Each type of shareholder has

different access to information about firms, which could result in a

different behaviour towards the information required and its

characteristics, TCR for instance. The board of directors monitors

management to avoid agency problems (Fernández & Gómez, 1999;

Kroll et al., 2008). For that purpose, agency theory assumes that

directors have access to all the information that they require to

control managers (Nowak & McCabe, 2003). Thus, significant

shareholders that are members of the board may easily access to

firm’s information. Conversely, outside shareholders do not have this

source of information and depend on the managerial attitude towards

disclosure practices (Akhtaruddin & Haron, 2010). Given that

significant shareholders are interested in promoting CSR (Godos

Díez et al., 2012; Godos-Díez et al., 2014), those shareholders who

are not directors may demand firms to provide them with

information on CSR issues. As a response to this request, firms may

disclose SRs with high TCR.

Academic literature on the similarity between the evolutions of

CSR reporting and financial reporting reinforces our argument.

(Tschopp & Huefner, 2015; Tschopp & Nastanski, 2014).

Additionally, studies on the relationship between board ownership

and financial information also support our reasoning. Using a sample

of Spanish listed firms between 1999 and 2002, Sánchez Ballesta and

García-Meca (2005) found that firms with directors from the owning

family report less transparent financial information. Akhtaruddin and

Haron (2010) studied a Malaysian sample of listed companies and


62

reported that board ownership is negatively related to voluntary

disclosure. Similarly, Chau and Gray (2002) analysed a sample of

listed companies from Hong Kong and Singapore. They found that

family-controlled firms disclose less voluntary information, while

firms with higher ownership held by shareholders who are not

directors issue more information. These authors concluded that

shareholders not represented on the board require more information

than do the members of the controlling family who are also directors,

because the latter already have the information. Companies from the

three countries (Malaysia, Hong Kong and Singapore) are

characterised by a concentrated ownership in which families are one

of the most important shareholders. This is also the case in Spain.

Based on the previous arguments, we state our first hypothesis

as follows:

Hypothesis 1: Non-board ownership has a positive effect on

the transparency of CSR reporting.

In relation to significant shareholders on the board, they have

direct access to the information on how the firm is being managed.

This information should cover all the relevant issues on the firm’s

strategy and management, including CSR policies and performance.

Firms compare costs and benefits to decide whether or not to

disclose voluntary information (Healy & Palepu, 2001). The

publication of SRs, especially those with high-quality information,

implies the assumption of costs by companies (Brammer & Pavelin,

2008; Jones & Solomon, 2010). Therefore, promoting TCR could be

of no interest to significant shareholders who are directors, given that

they may at first regard it as a cost adding no value to their

assessment on the way managers run the firm. The influence of these

shareholders on CSR reporting depends on their power to decide

within the board, represented by their percentage of ownership.

Leung and Horwitz (2004) analysed the relationship between board

ownership and voluntary financial disclosure in a sample of listed

companies from Honk Kong. They found that board ownership has a

positive effect on voluntary disclosure when it is below 25%. In this

situation, it contributes to align the interests between shareholders


63

and managers by means of a tougher supervision. When board

ownership increases above that threshold, agency problems shift from

managers/shareholders (type I of agency problems) to controlling

shareholders/minority shareholders (type II of agency problems). In

this situation, boards and managers entrench, which leads to less

disclosure.

As aforementioned, we assume that CSR reporting plays a

complementary role to that of financial reporting as a monitoring

mechanism of managers. Therefore, we expect a similar relationship

as the one reported by Leung and Horwitz (2004). When significant

shareholders on board jointly hold less than 25% of ownership, they

may behave similarly to non-board shareholders. Thus, in this

situation, board ownership should be positively related to TCR as a

signal to markets that boards and managers are considering the

interests of shareholders, especially those that are not seated on the

board. This effect is particularly important for our setting, as we are

dealing with listed firms. Conversely, when shareholders who are

directors hold more than 25% of ownership, we expect that firms

provide lower TCR. In this ownership structure, the consideration of

the interests of significant shareholders who are not directors may be

relatively small, and accountability towards them and minority

shareholders becomes less important (Khan et al., 2013).

The previous arguments lead us to state our second hypothesis

as follows:

Hypothesis 2: Firms with board ownership above 25% provide

lower transparency of CSR reporting than do firms with board

ownership below that threshold.

3.3. Methodology

3.3.1. Sample and data collection

Our initial sample consisted of 150 companies listed in the Spanish

Stock Exchange between 2009 and 2011. Since 2008, Spain has been


64

going through an economic crisis which has led to important

adjustments in companies’ structures. As a consequence, many

corporations disappeared or merged and others changed their names.

The situation of each company was analysed before collecting data.

We identified 9 companies that were included twice under different

names, and we eliminated the duplicates.

We hand collected the information on ownership structure and

on the composition of boards of directors from the annual corporate

governance reports available on the webpage of the Spanish National

Stock Market Commission (Comisión Nacional del Mercado de

Valores (CNMV)). Listed companies in Spain have to deposit their

corporate governance report in the CNMV each year. However, we

could not obtain the reports of 13 companies; hence, we removed

them. After these adjustments, our final sample consists of 128

companies for the three-year period.

We used the GRI database as our source for information on the

SRs published by the firms included in our sample. Nonetheless,

some firms that issued SRs following GRI might not be included in

this database (Iyer & Lulseged, 2013). We checked the webpage of

each company to corroborate the accuracy of the data of GRI and to

collect the information on the SRs of those firms that were not

available in the database.

Finally, we gathered data on firm characteristics from SABI

database, annual reports, and the webpages of the Spanish Stock

Exchange and of the Corporate Reputation Business Monitor

(Monitor Empresarial de Responsabilidad Corporativa, MERCO).

3.3.2. Variables

3.3.2.1. Dependent variable

TCR is the dependent variable. As in Chapter 2, we used the

methodology developed by Fernandez-Feijoo et al. (2014a) to

measure it. As already mentioned, these authors identified several

characteristics of TCR based on data available in the GRI database:

frequency of reporting, level of application of the GRI Guidelines,


65

declaration of the level, and the existence of assurance statement.

This method is applicable to different periods of time because each of

the components of the variables is calculated as the proportion of the

number of years analysed.

Frequency of reporting. It measures the average number of

years a company published a SR respect to the number of years in the

analysed period. It ranges from 0 to 1. This variable is a proxy for the

level of the disclosure intensity, which is related to TCR.

Level of application of the GRI Guidelines. It measures the

average number of times a company got an A, the maximum level

according to G3 and G3.1 (GRI, 2006, 2011), respect to the number

of SRs published during the analysed period. It ranges from 0 to 1.

This variable is a proxy for the level of completeness, relevance and

public disclosure, which are related to TCR.

Declaration of the level. It measures the average number of

times the level of a company was declared by GRI or a third party

respect to the number of SRs published during the analysed period. It

ranges from 0 to 1. This variable is a proxy for the reliability and

verifiability, which are related to TCR.

Existence of assurance statement. It measures the average

number of times a company presented an assurance statement respect

to the number of SRs published during the analysed period. It ranges

from 0 to 1. This variable is a proxy for the credibility of the

information, which is related to TCR.

Table 3.1. Principal components analysis

Variables Component 1

Frequency of reporting 0.949

Level of application 0.960

Declaration of level 0.950

Assurance 0.951

1 component extracted

KMO 0.876

Bartlett’s spherecity test 628.367***

KMO: Kaiser-Meyer-Olkin coefficient ***p<0.001

In this chapter, we applied Fernandez-Feijoo et al. (2014a)’s

methodology as it was originally proposed. We performed a


66

dimension reduction with a principal component analysis of the four

variables to gather them in a single variable. Table 3.1 shows that the

Kaiser-Meyer-Olkin coefficient and the Bartlett’s spherecity test

indicate that the reduction is adequate. The analysis extracted one

component. We used this component as the dependent variable.

3.2.2.2. Independent variables

We defined specific independent variables to test each hypothesis. We

use non-board ownership (NBO) to test Hypothesis 1. This variable

measures the average percentage of voting rights held by significant

shareholders who were not members of the board of directors during

the period.

We use board ownership above 25% (BO25) to test Hypothesis

2. It is a dichotomous variable that takes the value of 1 if the average

percentage of voting rights held by significant shareholders who were

members of the board of directors during the period is above 25%,

and 0 otherwise. If the coefficient of this variable is negative, it will

indicate that firms with board ownership above 25% provide lower

levels of TCR compare to those companies in which board ownership

is equal or below the threshold. We defined board ownership in this

way due to the concentration of ownership that characterises Spanish

firms (de Miguel et al., 2004; Azofra Palenzuela et al., 2007).

Similarly to Godos-Díez et al. (2014), we followed the criterion

of the CNMV, and we considered a significant shareholder as the one

who owns at least 3% of the voting rights. We computed this variable

using the data collected from firms’ corporate governance reports.

These reports have to indicate the name of shareholders that own at

least 3% of the voting rights, the percentage that they hold and

whether or not they are directors.

3.2.2.3. Control variables

We included two sets of control variables that have a significant effect

on CSR reporting, according to previous literature. The first group


67

comprises the three main board characteristics that affect CSR

reporting practices. First, although some authors found a negative

(Brammer & Pavelin, 2008; Haniffa & Cooke, 2005) or neutral

relationship (Amran et al., 2014; Prado-Lorenzo et al., 2009), the level

of independence of the board is generally related to better CSR

reporting (Barako & Brown, 2008; Garcia-Sanchez et al., 2014; Khan

et al., 2013; Prado Lorenzo et al., 2009; Rodríguez-Ariza et al., 2014).

Second, the presence of female directors has a positive effect on CSR

reporting (Barako & Brown, 2008; Fernandez-Feijoo, Romero &

Ruiz, 2014c; Garcia-Sanchez et al., 2014; Rodríguez-Ariza et al.,

2014). Finally, some studies reported a negative relationship between

CSR reporting and CEO duality (when the same person is the CEO

and the chairperson of the board) (Lattemann et al., 2009; Mallin &

Michelon, 2011). Particularly, in the Spanish context, Prado Lorenzo

et al. (2009) found that this variable has a negative effect on the

publication of SRs.

We measured the independence of the board as the average

proportion of outside directors during the period (OUT), in a similar

way as Amran et al. (2014), Barako and Brown (2008), and Prado

Lorenzo et al. (2009) did it. Following Barako and Brown (2008),

Garcia-Sanchez et al.(2014) and Rodríguez-Ariza et al. (2014), we

measured the presence of female directors as the average proportion

of women on the board during the period (WOM). Finally, we

measured CEO duality as the number of years when the chairperson

of the board was also the CEO of the company, respect to the three

years analysed (DUA). This variable was used by Khan et al. (2013),

Lattemann et al. (2009) and Prado Lorenzo et al. (2009).

The second group of control variables focuses on firm

characteristics. According to Hahn and Kühnen (2013) and Fifka

(2013) firm size has a positive influence on CSR reporting.

Companies belonging to environmentally sensitive industries provide

higher levels of CSR reporting (Archel, 2003; Brammer & Pavelin,

2008; Reverte, 2009). Additionally, firms with higher visibility and

media exposure publish better SRs than the rest (Brammer & Pavelin,

2008; Garcia-Sanchez et al., 2014; Luna Sotorrío & Fernández

Sánchez, 2010; Reverte, 2009).


68

We measured size as the average logarithm of the firm’s total

assets during the period (SIZE). We coded industry as a dichotomous

variable (ENV). It takes the value of 1 if the firm belongs to an

environmentally sensitive industry, and 0 otherwise. We used the

categorisation of the Spanish Stock Exchange and classified the group

of basic material, industry and construction, as well as the group of

petroleum and energy, as environmentally sensitive industries. Finally,

to measure visibility (VIS), we adapted one of the proxies used by

Luna Sotorrío and Fernández Sánchez (2010) to assess this construct:

corporate reputation considering the inclusion of the company in the

MERCO Index. We measured this variable as the number of years

that a company was included in the MERCO index respect to the

three years analysed.

3.3.3. Research model

We defined a multiple linear regression model to test each hypothesis.

We used two different models to avoid multicollinearity problems

between the independent variables as one is built on the other.

TCR = β0 + β1NBO + β2OUT + β3WOM + β4DUA + β5SIZE

+ β6ENV + β7VIS + 𝜀

TCR = β0 + β1BO25 + β2OUT + β3WOM + β4DUA + β5SIZE

+ β6ENV + β7VIS + 𝜀

where TCR is transparency of CSR reporting, NBO is non-

board ownership, BO25 indicates if board ownership is above 25%,

OUT is the percentage of outside directors, WOM is the percentage

of female directors, DUA is CEO duality, SIZE is company’s size,

ENV indicates if the company belongs to an environmentally

sensitive industry, VIS is visibility, and ε is the error term.

Before running the regression analysis, we obtained the Pearson

correlation coefficient matrix. The dependent variable is continuous;

hence, we performed an ordinary least squares (OLS) regression to

estimate the coefficients of each model. Before that, we applied a


69

battery of tests to verify the fulfilment of the assumptions required to

run OLS.

3.4. Results

3.4.1. Descriptive statistics and correlation matrix

Table 3.2 presents the descriptive statistics of the continuous (Panel

A) and dichotomous (Panel B) variables. Firms with board ownership

above 25% represent 42.2% of the sample. Significant shareholders

that were not directors owned on average 33.0% of the voting rights

and significant shareholders that were members of the board held

25.0% (this figure is not reported in the table). By combining both

figures, we obtain that significant shareholders roughly owned 58% of

the voting rights. This percentage corroborates the high ownership

concentration in Spain. For instance, de Miguel et al. (2004) reported

that significant shareholders held on average 64.31% of common

shares, for their sample between 1990 and 1999. Similarly, Sánchez

Ballesta and García-Meca (2005) found that significant shareholders

owned 58.0% of the shares, on average, between 1999 and 2002.

These authors also reported that directors held, on average, 18.6% of

shares. If we compared this figure to the 25.0% in our sample, it

indicates an increase of board ownership in the last decade.

Table 3.2. Descriptive statistics

Panel A: Continuous variables

Mean Std. dev. Min. Max.

TCR 0.000 1.000 -0.740 1.579 Non-board ownership 0.330 0.268 0.000 0.974 Outsiders 0.817 0.113 0.467 1.000 Women 0.093 0.089 0.000 0.430 Duality 0.690 0.443 0.000 1.000 Firm size 9.061 0.947 7.520 11.640 Visibility 0.250 0.435 0.000 1.000

Panel B: Dichotomous variables

1 0

Abs. Rel. Abs. Rel.

Board ownership above 25% 54 42.19% 74 57.81% Environmentally sensitive industry 43 33.59% 85 66.41%


70

In relation to the characteristics of boards, the percentage of

outside directors was 81.7% on average. It is also noteworthy that in

nearly 70% of the companies the chairperson was also the CEO.

Finally, only 9.3% of the directors were women. This figure shows the

existence of gender inequality on Spanish boards.

Regarding corporate characteristics, the mean of the logarithm

of the firms’ total assets was 9.06. Firms operating in environmentally

sensitive industries represent 33.6% of the sample. Finally, the

average percentage of times that the companies were included in the

MERCO Index during the period was 25.0%.

Table 3.3 presents the correlation matrix among variables. All

correlations between independent variables and TCR are significant,

which support the association between the predictors and the

dependent variable. Yet, there are also significant correlations

between some control variables, which could pose multicollinearity

concerns. Table 3.4 presents the variance inflation factor (VIF) for

the independent variables in both models. The highest VIF (1.949) is

below the threshold of 3.3 suggested by Roberts and Thatcher (2009).

Thus, there are no multicollinearity problems. The correlation matrix

also shows that the main independent variables, NBO and BO25, are

highly and significantly correlated. We run a trial regression and found

that the VIFs of the independent variables rose if we included both

ownership variables in the same model. Thus, we tested these

variables in different models to reduce the multicollinearity that could

affect the estimated coefficients, as we explained above.

3.4.2. Empirical results

Table 3.4 presents the standardised coefficients and the bilateral

significance of the OLS regressions. Model 1 includes the variable

NBO to test Hypothesis 1, while model 2 includes the variable BO25

to test Hypothesis 2. Both models are significant and have an adjusted

R square of 65.40% and 63.40%, respectively.


71

Tab

le 3

.3. C

orr

elat

ion

mat

rix

(1

) (2

) (3

) (4

) (5

)

(6)

(7)

(8)

(9)

(1)

TC

R

1.0

00

(2)

No

n-b

oar

d o

wn

ersh

ip

0.2

66**

1

.000

(3)

Bo

ard

ow

ner

ship

ab

ove

25%

-

0.2

63**

* -0

.567**

*

1.0

00

(4)

Outs

ider

s

0.1

80*

0.1

95*

-0.2

31**

1.0

00

(5)

Wo

men

0.2

33**

0

.162†

0.1

30

0.1

20

1.0

00

(6)

Dual

ity

0.1

95*

-0.2

47**

0.1

70†

-0.3

41**

* 0

.028

1 .000

(7)

Fir

m s

ize

0.6

14**

* 0

.259**

-

0.3

21**

*

0.1

38

0.0

81

0.1

53†

1.0

00

(8)

En

vir

on

men

t. s

ensi

tive

ind

ust

ry

0.2

12*

0.0

57

-0.0

38

0.2

19*

0.0

58

-0.0

25

0.0

27

1.0

00

(9)

Vis

ibili

ty

0.7

44**

* 0

.071

-0.1

84*

0.1

24

0.2

17*

0.2

55**

0.6

06**

* 0

.162†

1.0

00

† p

<0.1

0; *

p<

0.0

5; **

p<

0.0

1; **

* p

<0.0

01


72

Before analysing the results, we checked that the assumptions

required to apply OLS were fulfilled. As previously stated, there were

no multicollinearity problems. The histograms of the residuals and the

Q-Q plots showed an almost normal distribution for the two models.

The Durbin-Watson statistic indicated that there were no

autocorrelation issues in any model (DW=1.917, DW=1.989). Finally,

none of the observations could be considered potential outliers

because Cook’s distances were always less than F8,120,0.50=0.923, as

suggested by Neter, Waserman and Kutner (1985).

Model 1 shows that non-board ownership has a positive and

significant effect on TCR. As we expected, significant shareholders

who are not directors positively affect TCR. Conversely, board

ownership above 25% has a negative and significant standardised

coefficient in model 2. This result indicates that firms in which

directors hold more than 25% of ownership publish SRs with lower

TCR than do firms with board ownership equal or below that

threshold.

Table 3.4. Results of the OLS regression and variance inflation factor

Variables

Model 1 Model 2

Std. Coef.

t-value VIF Std.

Coef. t-value VIF

Non-board ownership 0.184 3.170** 1.236

Board ownership above 25% -0.101 -1.688† 1.243

Outsiders 0.050 0.849 1.272 0.050 0.821 1.290

Women 0.107 1.937† 1.116 0.089 1.581 1.110

Duality 0.076 1.246 1.350 0.045 0.739 1.304

Firm size 0.155 2.181* 1.860 0.178 2.428* 1.870

Environ. sensitive industry 0.097 1.797† 1.080 0.104 1.866† 1.079

Visibility 0.593 8.155*** 1.945 0.590 7.876*** 1.949

Adj. R2 65.40% 63.40%

F-statistic 35.343*** 32.437***

Dependent variable: transparency of CSR reporting (TCR)

† p<0.10; * p<0.05; ** p<0.01; *** p<0.001

Regarding board characteristics, both models indicate that the

proportion of outside directors, as a proxy for board independence,

does not affect TCR. We also found that CEO duality has no

significant effect on TCR. Besides, in model 1, we observed that


73

female directors are positively related to TCR. Additionally, we found

that all of their coefficients have their expected sign. Firms size, the

fact that the firm operates in environmentally sensitive industries, and

visibility have a positive and significant effect on TCR in both

models.

To assess the consistency of our results, we performed a

sensitivity analysis (Table 3.5). We ran other regressions including,

excluding and changing the definition of some independent variables,

one at a time, and leaving the others as they were initially.

In model 3, we included both ownership variables at a time, and

controlling for the other independent variables. The effect of non-

board ownership remained positive and significant; while board

ownership above 25% has a negative but non-significant effect. This

could be due to the multicollinearity problem that we pointed out

when we explained the research models in section 3.3.

In model 4, we tested the effect of board ownership, measured

as the percentage of voting rights held by significant shareholders

who are directors. The results show that this variable has a negative

and significant effect on TCR. When board ownership is very high,

shareholders on board entrench, leading to less complete and

transparent disclosures, including CSR. This model corroborates the

behaviour of board ownership above 25% found in model 2

In models 5 and 6, we used the two ownership variables of

models 1 and 2. Similarly to Garcia-Sanchez et al. (2014) and Prado

Lorenzo et al. (2009), we broke down the representation of outside

directors into independent and proprietary directors, in models 5.1

and 5.2. Model 5.1 shows that both types of directors are not

significant. Yet, the coefficient of proprietary directors is positive and

significant at a 10% level in model 5.2. This result might be explained

by the fact that proprietary directors are members of the board

representing shareholders that are not on the board. Thus, proprietary

directors behave as non-board shareholders. The significance of the

rest of the variables remains the same as in the original models.


74

Tab

le 3

.5. Sen

siti

vit

y an

alys

is

Vari

ab

les

Sta

nd

ard

ised

co

eff

icie

nts

Mo

del

3

Mo

del

4

Mo

del

5.1

M

od

el

5.2

M

od

el

6.1

M

od

el

6.2

No

n-b

oar

d o

wn

ersh

ip

0.1

75**

0.1

76**

0.1

91**

*

Bo

ard

ow

ner

ship

ab

ove

25%

-0.0

18

-

0.1

07†

-0.0

74

Bo

ard

ow

ner

ship

-

0.1

12†

Outs

ider

s

0.0

48

0.0

39

0.0

49

0.0

57

Ind

epen

den

ts

0.1

21

0.1

06

Pro

pri

etar

y

0.1

16

0.1

60†

Wo

men

0.1

08†

0.0

89

0.0

99†

0.0

88

0.1

10*

0.0

84

Dual

ity

0.0

77

0.0

45

0.0

72

0.0

58

0.0

75

0.0

38

Fir

ms

size

0.1

52*

0.1

81*

0.1

62*

0.1

83*

IBE

X

0.3

25**

*

0.3

23**

*

En

vir

on

men

tally

sen

siti

ve

ind

ust

ry

0.0

98†

0.1

13*

0.0

99†

0.0

95†

0.0

62

0.0

66

Vis

ibili

ty

0.5

92**

*

0.5

88**

*

0.5

82**

*

0.5

84**

*

7.4

10**

*

0.5

12**

*

Ad

j. R

2 65.2

0%

63.6

0%

65.6

0%

64.0

0%

70.5

0%

67.7

0%

F

30.6

96**

* 32.7

05**

* 31.2

75**

* 29.1

95**

* 44.4

14**

* 39.0

35**

*

Dep

end

ent

var

iab

le: tr

ansp

aren

cy o

f C

SR

rep

ort

ing

(TC

R)

† p

<0.1

0; *

p<

0.0

5; **

p<

0.0

1; **

* p

<0.0

01


75

Finally, in models 6.1 and 6.2, we used the dichotomous

variable IBEX as proxy for firm size, instead of the average logarithm

of the total assets. IBEX takes the value of 1 if the company was

listed in the IBEX-35 between 2009 and 2011. This stock market

index includes the 35 largest listed companies by capitalization in

Spain. The coefficient of this proxy for firm’s size is positive and

significant, while the rest of the results remain similar to the ones in

models 1 and 2. We must note that in model 6.2, board ownership

above 25% has a non-significant effect. IBEX-35 firms are

significantly less likely to own more than 25% of ownership. This

different distribution of BO25 among firms could drive the

unexpected non-significant result.

To sum up, the results of the additional regressions are similar

to those of our initial models. The positive and significant effect on

TCR of non-board ownership seems consistent. Therefore, we accept

Hypothesis 1. Regarding board ownership above 25%, the

significance of this variable decreases in model 3 when also

controlling for non-board ownership and in model 6.2. Therefore, we

partially accept Hypothesis 2. Finally, the effect of the control

variables women, firm size, environmentally sensitive industry, and

visibility are robust and consistent with prior research.

3.5. Discussion

Our main result indicates that the relationship between ownership

and TCR is different depending on whether or not significant

shareholders are members of the board of directors. Significant

shareholders who are not directors are positively related to TCR. Our

findings indicate that, although significant shareholders in Spain

encourage CSR policies and strategies (Godos-Díez et al., 2014), their

effect on the promotion of more transparent CSR reporting is

different. Due to the monitoring role of the board, managers must

provide directors with all the required information to assess the

performance and the strategy of the firm, including its CSR policies.

As a consequence, those significant shareholders who are not

directors are more likely to demand and incentive TCR. These results


76

are consistent with those studies that found that the level of financial

and voluntary disclosures are lower when the percentage of

ownership held by directors increases (Akhtaruddin & Haron, 2010;

Chau & Gray, 2002; Sánchez Ballesta & García-Meca, 2005). We also

agree with Fernández Sánchez et al. (2011), who found that the

percentage of ownership held by shareholders who are not directors

is positively related to the CSR behaviour of the company.

Regarding significant shareholders who are directors, we found

that their effect depends on the stake that they jointly hold. When

board ownership is above 25%, significant shareholders on boards

regard the disclosure of SRs with high TCR as a cost that does not

contribute to monitor managers. Additionally, these firms may be less

dependent on the market, and they may not need to provide positive

signals. As Khan et al. (2013) reported, public accountability is less

relevant for firms with high board ownership, which leads to lower

levels of reporting. Conversely, firms with board ownership lower

than the 25% threshold publish more transparent SR. These

companies may do that to show that the interests in CSR of

significant shareholders not represented on the board are being

considered. In so doing, they could provide positive signals to the

market and minority shareholders at the same time.

The non-significant relationship between board independence

and TCR that we found contributes to the debate on the influence of

board independence on CSR reporting. Previous research, in Spain

and in other countries, has not reached a consensus on the effect of

this variable on CSR reporting. While some studies reported a

positive effect on how companies disclose CSR information (Barako

& Brown, 2008; Khan et al., 2013; Prado Lorenzo et al., 2009;

Rodríguez-Ariza et al., 2014), other authors found a negative one

(Brammer & Pavelin, 2008; Haniffa & Cooke, 2005), and a third

group reported a non-significant relationship (Amran et al., 2014;

Prado-Lorenzo et al., 2009). Our finding is in line with the last group

of studies. For instance, Prado-Lorenzo et al. (2009) explain the non-

significant relationship is because these directors represent minority

shareholders, who are more interested in financial performance than

in CSR. Amran et al. (2014) provide a different possible explanation

for this result. These authors suggested that outside directors are not


77

related to how companies are being managed on a daily basis. This

situation balances their expected positive influence on CSR

information.

Our results about the positive influence of female directors is

consistent with previous studies that analysed the relationship

between women on boards and CSR reporting in Spain (Garcia-

Sanchez et al., 2014) and in other countries (Barako & Brown, 2008;

Fernandez-Feijoo et al., 2014c; Rodríguez-Ariza et al., 2014). It is

noteworthy that, despite their low presence on Spanish boards,

women have a significant and positive effect on TCR. Female

directors promote corporate social performance consequent to their

greater sensitivity towards others and concern about stakeholder

interests (Mallin & Michelon, 2011). This major consideration for

stakeholders is demonstrated in the disclosure of more transparent

SRs, to satisfy their demands for greater TCR (Gray, 2006a; Nielsen

& Thomsen, 2007).

Unexpectedly, we found that CEO duality does not affect TCR.

CEO duality is supposed to hinder the accountability of the company

because it limits board independence and leads to a conflict of

interests (Roberts, McNulty & Stiles, 2005). Previous studies reported

this effect and found that it leads to lower levels of CSR (Latteman et

al., 2009; Mallin & Michelon, 2011). However, the ownership

structure of Spanish firms justifies our result. Khan et al. (2013)

found a non-significant relationship between duality and CSR

reporting in Bangladesh. These authors argued that this result is

driven by a particular characteristic of the Bangladeshi firms: the

selection of the chairperson and the CEO from the owning family.

This situation renders the CEO-chairperson separation to a mere

ritual with no actual effect. We think that this argument can also be

applied in this case. Spanish listed firms are characterised by a highly

concentrated ownership, with families being one of the most

important shareholders (Ruiz-Mallorquí & Santana-Martín, 2009).

According to La Porta, Lopez-de-Silanes and Shleifer (1999), it is very

common for the CEO and the chairperson to be a member of the

controlling family in countries where these two characteristics are met

(e.g., almost 70% of the CEOs in our sample are also chairs). As the

reputation of the owning family is aligned to the firm’s reputation, the


78

family has incentives to fulfil the expectations of stakeholders (Iyer &

Lulseged, 2013). Thus, this situation dilutes the negative effect of

CEO duality.

The three variables related to firm characteristics have a

positive relationship with TCR. Larger companies are more likely to

provide more transparent SRs. Other authors reported similar results

on the relationship between corporate size and CSR reporting (Fifka,

2013; Hahn & Kühnen, 2013). Particularly, IBEX-35 companies,

which are included in the sample, are pioneers in CSR and publish

more SRs (De la Cuesta & Valor, 2013) and assure them more than

others (Zorio, García-Benau & Sierra, 2013). These characteristics

promote TCR. Companies operating in environmentally sensitive

industries also provide higher levels of TCR. This result is in line with

those of Brammer and Pavelin (2008), García-Sánchez (2008), and

Reverte (2009). Finally, consistent with previous studies (Brammer &

Pavelin, 2008; Garcia-Sanchez et al., 2014; Luna Sotorrío &

Fernández Sánchez, 2010; Reverte, 2009), we found that the more

visible the firms are, the more likely they are to publish more

transparent SRs.


This chapter analyses the relationship between ownership structure

and TCR in a sample of Spanish listed firms between 2009 and 2011.

Specifically, we analyse the effect of ownership by distinguishing

between the significant shareholders who are directors and those

significant shareholders who are not. Research on ownership

structure in Spain is especially relevant because it is an important

internal corporate governance mechanism, particularly in civil law

countries (Godos-Díez et al., 2014; La Porta, López-de-Silanes,

Shleifer & Vishny, 2000).

We found that significant shareholders who are not directors

have a positive effect on TCR. Regarding significant shareholders

who are members of the board, our results indicate their relationship

to TCR is different depending on the stake they jointly hold. Our

findings show that when board ownership is above 25%, these


79

shareholders hinder TCR. This result may be explained by the

strength position that they hold in the board. They do not need to

promote voluntary and transparent CSR reporting given that they

have complete access to all firm’s information. Conversely, when their

ownership position is not so strong, less than 25%, they are more

likely to provide higher levels of TCR and tend to behave in a similar

way as shareholders who are not directors.

Our results indicate that information asymmetry exists between

significant shareholders because those who are not members of the

board may not be directly provided with the transparent information

on CSR impacts that they could require. So, the disclosure of more

transparent SRs could be regarded as a way to mitigate this

asymmetry. Two main reasons may explain the interest of those

shareholders in more transparent CSR information: the strategic

importance of CSR and the value relevance of CSR information. CSR

has become a paramount element of corporate agendas because of its

strategic implications (McWilliams, Siegel & Wright, 2006; Smith,

2003), as it can be a source of competitive advantages, innovation,

and opportunities for companies (Porter & Kramer, 2006). Moreover,

CSR has a long-term orientation, which is in line with the long-term

interest of significant shareholders in the survival of the company

(Godos-Díez et al., 2014). Therefore, the disclosure of more

transparent SRs helps shareholders who are not directors to analyse

how their companies are implementing their CSR policies and

strategies. This could be even more important due to the current

economic situation in Spain, given that the establishment of a CSR

strategy requires managing several elements (e.g., innovation,

stakeholder relationships, or self-assessment) that could contribute to

overcome the crisis (Fernandez-Feijoo, 2009).

Additionally, financial markets value the disclosure of

transparent and high-quality SRs. Investors and shareholders consider

that CSR information is value relevant and allows them to evaluate

the financial risks resulting from CSR issues (Al-Tuwaijiri et al., 2004;

Orlitzky et al., 2003; Reverte, 2012). Carnevale, Mazzuca and

Venturini (2012) reported that the publication of SRs by financial

institutions in Spain is positively related to firm market value. In a

similar vein, Reverte (2012) found that Spanish listed firms that


80

publish SRs with higher quality have lower costs of equity capital.

However, those firms where ownership is highly concentrated and

also highly represented on the board, they are less dependent on the

financial market and these issues could be less important. Thus, for

these companies, CSR reporting could be regarded as a cost that

should be avoided.

This chapter contributes to the academic literature on the

relationship between ownership and CSR reporting. Previous studies

that analysed this relationship in Spain focused on ownership

concentration (Prado-Lorenzo et al., 2009; Reverte, 2009). In contrast

to them, we assessed ownership differently by distinguishing whether

or not the significant shareholders are directors. The relationship

between ownership and CSR reporting has also been studied in other

countries (Brammer & Pavelin, 2008; Eng & Mak, 2003; Gamerschlag

et al., 2011; Haji, 2013; Iyer & Lulseged, 2013; Khan et al., 2013; Rao

et al., 2012; Zheng, Balsara & Huang, 2014). As the results of a

Spanish sample can be extrapolated to countries with similar

corporate governance characteristics (Ruiz-Mallorquí & Santana-

Martín, 2009), this chapter could add to research on the matter at an

international level.

Our results also contribute to previous research that studied the

relationship between boards of directors and CSR reporting. First,

our findings indicate that board independence and CEO duality do

not affect TCR. Thus, our findings participate in the mixed debate on

the influence of these variables on CSR reporting (Amran et al., 2014;

Barako & Brown, 2008; Brammer & Pavelin, 2008; Khan et al., 2013;

Prado-Lorenzo et al., 2009; Prado Lorenzo et al., 2009; Rodríguez-

Ariza et al., 2014). Second, the chapter corroborates the positive

influence of female directors on the disclosure of CSR information

reported by previous studies (Barako & Brown, 2008; Fernandez-

Feijoo et al., 2014c; Garcia-Sanchez et al., 2014; Rodríguez-Ariza et

al., 2014).

Our findings could have implications for policy-makers. Firms

in which significant shareholders on the board have an important

percentage of ownership are less likely to satisfy the information

requirements of the shareholders who are not directors and the rest

of the firm’s stakeholders. Therefore, corporate governance codes


81

should include additional recommendations that focus on TCR as a

means of reducing information asymmetries.

Finally, we highlight the great gender inequality that

characterises the composition of Spanish boards of directors. Women

only represent 9.29% of the directors, on average, in our sample.

Thus, as Carrasco and Laffarga (2013) suggested, the regulation that

fosters the presence of female directors in Spain seems to be

unsuccessful. The recently issued Spanish corporate governance code

(CNMV, 2015) establishes the objective that, at least, 30% of the

directors should be women in 2020. Based on the current situation, it

seems unlikely that this aim will be achieved.

Our findings must be considered in light of some limitations.

The Spanish economy is suffering a deep crisis which might have

influenced some of the variables. We also reduced our sample

because we could not obtain the annual corporate governance report

of some companies. Additionally, as in Chapter 2, we acknowledge

that the dependent and independent variables refer to the same time

period, which could affect the capacity of the model to infer causality.

The variables were computed by gathering data from 2009 to 2011.

Thus, using the lagged values of the independent variables could not

have solved this issue. Fourth, our sample comprises only non-listed

firms. The Spanish corporate governance code is addressed to listed

companies, which are the only ones subjected to reporting on

corporate governance. Finally, this chapter analyses firms from only

one country, Spain.

Some of these limitations suggest potential avenues for future

research. It would be interesting to analyse the effect of ownership on

TCR, and differentiating whether or not the shareholders are

directors, in non-listed companies and in different countries. The

latter analysis could add to literature on corporate governance at an

international level. Differences may appear between the Anglo-Saxon

countries, characterised by a shareholder-orientated model of

corporate governance, and the continental countries, characterised by

a stakeholder-orientated model (Van der Laan Smith, Adhikar &

Tondkar, 2005).

83

EXPLORING THE

COMMUNICATION CAPACITY OF

CSR REPORTING PRACTICES

4.1. Introduction

Corporate social responsibility (CSR) reporting is a communication

process between companies and stakeholders. Despite firms’ self-

interested drivers to communicate CSR information (Crane & Glozer,

2016), the main objective of CSR reporting is to help stakeholders in

making decisions (Tschopp & Huefner, 2015). For that purpose, CSR

reporting must disclose information that enables stakeholders to

appreciate firms’ economic, environmental and social impacts (CSR

impacts) (European Union, 2014; Michelon et al., 2015; O’Dwyer et

al., 2005). By comprehensively representing CSR impacts, companies

foster the transparency of CSR reporting (TCR) (Bebbington,

Unerman & O’Dwyer, 2014). Therefore, an effective CSR

communication happens when firms provide stakeholders with

transparent information on their CSR impacts. Practitioners and

academics highlight that current CSR reporting practices do not

communicate CSR information in an effective and transparent way

(Bouten et al., 2011; FEE, 2015; Gray, 2006a; Haji & Hossain, 2016;

Laufer, 2003; Milne & Gray, 2013). This chapter approaches this issue

from a broad perspective, to disentangle the reasons that explain why

CSR reporting practices fail to effectively communicate transparent

information on impacts.

Firms use different types of report to disclose CSR information:

sustainability reports (SRs), integrated reports (IRs), environmental

reports, or social reports, among others. According to KPMG

The communication capacity of CSR reporting practices

84

(2015a)’s survey, the SR is the most common type of report to

communicate CSR information nowadays. To elaborate SRs, firms

may apply several CSR reporting models (Tschopp & Nastanski,

2014). Among them, the Global Reporting Initiative (GRI)

Guidelines are the most followed (KPMG, 2015a; Tschopp &

Huefner, 2015). Recently, IRs have emerged as a reporting practice

that jointly discloses CSR and financial information (Alexander &

Blum, 2016; Frias-Aceituno et al., 2013). The International Integrated

Reporting Council (IIRC) is an organisation that seeks to promote the

disclosure of IRs. The IIRC issued the main reporting model to

produce IRs, the International <IR> Framework (IIRF), in 2013. The

publication of the IIRF fostered the publication of IRs. Firms that

issued IRs doubled from 2013 to 2015 (KPMG, 2015a).

The GRI and the IIRC reporting models are voluntary and

companies are free to decide the extent to which they apply them

(Chen & Bouvain, 2008; Flower, 2015). The freedom of companies in

applying reporting models is considered as the key reason for the low

transparency of current CSR reporting practices (Boiral 2013; Bouten

et al., 2011; Haji & Hossain, 2016; Knebel & Seele, 2015). To

communicate effectively, two conditions should be met: a reporting

model that provides a clear standard to elaborate reports and an

adequate application of the model by firms (Flower, 2015). The few

papers that questioned the suitability of CSR reporting models

focused on whether the models appropriately consider the concepts

of sustainability and CSR (Alexander & Blum, 2016; Flower, 2015;

Moneva et al., 2006) or on how they address materiality (Bellantuono

et al., 2016; Calabrese et al., 2016). However, the achievement of

effective CSR communication involves not only what themes are

being reported, but also how and to what extent they are covered.

Based on communication theory, this chapter goes a step further in

understanding the reasons for the low transparency of reporting

practices. For that purpose, we study whether the GRI and the IIRC

reporting models, their application by firms, or both, are the cause(s)

of the failure to enable effective and transparent CSR communication.

To address this objective, this chapter approaches CSR

reporting from the cybernetic perspective of communication theory.

This perspective considers communication as an information-


85

processing system and focuses on how the information is transmitted

(Craig, 1999). CSR reporting is a communication system in which

firms provide stakeholders with information on CSR impacts

(Gamerschlag et al., 2011; Morsing & Schultz, 2006). Therefore, we

rely on Shannon and Weaver (1949) to represent CSR reporting as a

communication system. Shannon’s system is a cornerstone in the

cybernetic perspective (Craig, 1999), and it has been applied in

different disciplines, such as engineering, linguistics, or economics

(Ribeiro & Prataviera, 2014). Several papers in the 1960s and 1970s

also relied on this approach to analyse financial accounting (Bedford

& Baladouni, 1962; Li, 1963; Mace, 1977; Nakano, 1972). Recently,

some papers have considered it again to study financial reporting

(Hussey & Ong, 2005; Ribeiro & Prataviera, 2014, Ross, 2016), and,

to a lesser extent, CSR reporting (Gamerschlag et al., 2011; Williams,

2015). Despite having been overlooked by mainstream research, the

application of communication theory may draw important

implications for accounting and corporate reporting (Hutchinson,

2013). Communication theory and Shannon’s system may allow

researchers to get a more in-depth understanding of the reporting

process and to identify the issues that affect it (Hussey & Ong, 2005;

Ross, 2016).

By representing CSR reporting as a communication system, we

developed a framework to study whether the problem of the

communication failure is driven by reporting models and/or by their

application. Following Bedford and Baladouni (1962), one of the

papers that applied Shannon’s system to financial reporting, we

identified two key characteristics of the reporting process for enabling

effective and transparent communication: significance and fidelity.

Significance is the capacity of the reporting model to facilitate firms

to elaborate a report that accurately represents the firm’s CSR

impacts. Fidelity is the capacity of the CSR reporting model to

facilitate firms to elaborate a report that can be easily understood by

the stakeholders. As it was aforementioned, firms can define the level

at which they follow reporting models. Therefore, achieving effective

communication, and hence TCR, depends on both, the reporting

model and the firm’s application of the model.


86

We used interpretive textual analysis to assess significance and

fidelity (Laine, 2005, 2009, 2010; Tregidga & Milne, 2006; Ylönen &

Laine, 2015). This qualitative research method allows us to interpret

whether both characteristics are provided by completely

(theoretically) applying the GRI and IIRC reporting models, and by a

report elaborated by (practically) applying them. To guarantee the

best application possible, we selected a critical research case and

chose a report considered as “best practice” for each reporting model.

Overall, we found that reporting models are the main issue that

explains why stakeholders are not provided with information that

allows them to appreciate CSR impacts. Most of the issues that

constrain effective and transparent communication are inherent to

reporting models, and they are transferred to the produced reports.

The remainder of this chapter is structured as follows. After

this introduction, section 4.2 presents CSR reporting as a

communication system and defines the characteristics to assess

effective and transparent CSR communication. Section 4.3 describes

the methodology. In section 4.4 and 4.5, we apply the framework to

evaluate the GRI Guidelines and its application, respectively. We do

the same for the IIRF and its application in sections 4.6 and 4.7.

Section 4.8 discusses our main findings. Finally, Section 4.9 presents

the concluding remarks.

4.2. Communication theory and CSR reporting

Shannon’s communication system consists of several elements

(Figure 4.1). The information source initiates the communication process

by selecting the message to be communicated. The transmitter

transforms this message into a signal through an encoding process.

This signal carries the message, which is sent through a particular

medium, the channel. A receiver mechanism decodes the signal into a

message, which is interpreted by the destination.

Shannon and Weaver (1949) identified three types of problems

that can affect communication. First, technical problems focus on the

accuracy of the transfer from sender to receiver. These problems

relate to the capacity of the channel to deliver any signal that the


87

source can produce. Second, semantic problems focus on the

receiver’s misinterpretation of the message. Finally, effectiveness

problems focus on the effect of the message on the receiver’s

behaviour.

Figure 4.1. Shannon’s communication system (adapted from Shannon & Weaver, 1949)

We adapted Shannon’s communication system to analyse CSR

reporting as follows (Figure 4.2). The firm is the information source

that decides the message, the CSR information. The message is then

transformed through a transmitter, a CSR reporting model (e.g., GRI

Guidelines, IIRF), into a signal, the report (e.g., SR, IR). Firms may not

follow a reporting model and apply their own standards as the

transmitter. Afterwards, firms distribute the report to their

stakeholders through the channel (e.g., physical report, downloadable

pdf, interactive webpage). Finally, the stakeholders play the role of both,

the receiver and the destination. They decode the report and interpret

its information. Firms select the message they want to convey in the

report depending on their reason for disclosing CSR information

(e.g., accountability, greenwashing, legitimisation, mandatory

requirements). The accuracy with which each message represents CSR

impacts may vary. We focus on achieving effective and transparent

CSR communication, so the message should ideally convey a message

that allows stakeholders to duly appreciate CSR impacts.

To study the capacity of CSR reporting practices to

communicate the message, we assess how problems in Shannon’s

communication system may affect the CSR reporting model

(transmitter) and the report (signal). Both are the key elements of the

system that determine whether or not stakeholders are effectively

provided with transparent information on CSR impacts.

Signal

Information

source Transmitter Receiver Destination

Channel

Message Message


88

Sta

keh

old

er e

nga

gem

ent

Ch

ann

el

(e.g

., p

hys

ical

rep

ort

, p

df,

web

pag

e)

Rec

eiver

(S

takeh

old

ers)

Info

rmat

ion

so

urc

e (F

irm

)

Tra

nsm

itte

r (e

.g.,

GR

I, I

IRC

, o

wn

cri

teri

a)

Mes

sage

Sig

nal

(e.g

., SR

, IR

)

Des

tin

atio

n

(Sta

keh

old

ers)

Fid

elit

y

S

ign

ific

an

ce

Mes

sage

Fig

ure

4.2

. C

SR

rep

ort

ing

as a

co

mm

un

icat

ion

sys

tem


89

Firms choose the type of report (e.g., SR or IR) through which

they communicate CSR information. This choice determines the

reporting model to be applied (e.g., GRI Guidelines, IIRF), that is, the

way in which the information should be conveyed. However, firms

are free to decide the extent to which they apply the reporting model

to produce reports (Chen & Bouvain, 2008; Flower, 2015). Therefore,

the firms’ application of the reporting model also influences the

capacity of the system to allow effective CSR communication and

enable TCR.

Technical problems affect the correct delivery of reports to

stakeholders. These problems are specific to the channel and are not

driven by the characteristics of the transmitter (reporting model) nor

by the signal (report). Therefore, we exclude technical problems from

our analysis.

By contrast, semantic and effectiveness problems are key in

evaluating the communication capacity of CSR reporting. To analyse

these issues, we link them to two characteristics of the reporting

process: significance and fidelity. Bedford and Baladouni's (1962)

represented financial reporting as a communication system and

identified that both, significance and fidelity, determine the capacity

of financial reporting to effectively communicate information. The

authors considered significance as the extent to which financial

statements adequately represent the economic world of the firm, and

fidelity as the extent to which the audience of financial statements can

correctly understand them.

We argue that significance and fidelity are respectively

associated with effectiveness and semantic problems. Effectiveness

problems are related to the influence of the message on the receiver’s

behaviour (Shannon & Weaver, 1949). Therefore, the level at which

the report provides an adequate representation of the firm’s position

affects the decisions that the destination takes. Semantic problems are

related to the misinterpretation of the message by the receiver

(Shannon & Weaver, 1949). Therefore, the level at which the receiver

can easily understand the report affects how it interprets the

information.

We adapted Bedford and Baladouni (1962)’s definitions of

significance and fidelity to the field of CSR reporting. Although they


90

were originally developed for financial reporting, the frameworks and

features used to analyse financial reporting can also be insightful to

study CSR reporting (Tschopp & Nastanski, 2014; Tschopp &

Hueffner, 2015). We disaggregated significance and fidelity into

several sub-characteristics, by linking them to qualitative

characteristics that determine the usefulness of reports (International

Accounting Standards Board [IASB], 2015). This disaggregation

allows us to assess the significance and fidelity that CSR reporting

models can provide, and how they are transferred to reports when

applying these models. Hence, following Bedford and Baladouni

(1962) and IASB (2015), we consider significance and fidelity as

follows:

Significance is the capacity of the CSR reporting model to

facilitate the elaboration of a report that discloses information

that is relevant and provides a faithful representation of firms’

CSR impacts.

o Relevance means that the information is useful for the

stakeholders’ decision-making process. It depends on two

factors: materiality and measurement uncertainty. Materiality

implies that firms must provide information only on the

impacts that are significant for its stakeholders.

Measurement uncertainty implies that it is possible to trace

how the reported figures were obtained.

o Faithful representation means that the information

accurately depicts a true picture of CSR impacts. It depends

on three factors: completeness, neutrality and freedom from

error. Completeness implies that stakeholders are provided

with all necessary information to totally evaluate an impact.

Neutrality implies that information covers positive and

negative impacts to provide an unbiased image of the firm.

Finally, freedom from error implies that there are no

significant mistakes or omissions when describing and

collecting information about impacts.


91

Fidelity is the capacity of the CSR reporting model to facilitate

the elaboration of a report that discloses information that is

comparable and understandable to avoid misinterpretations.

o Comparability means that stakeholders can compare the

information among firms, and over time. This implies that

the information is presented using a similar structure and

methodology. Thus, stakeholders can understand and

interpret the content of the report from different firms, and

from the same firm compared to previous reports.

o Understandability means that stakeholders can easily

interpret the information. It depends on two factors:

clearness and conciseness. Clearness implies that the

information is free from doubt and easily perceived by

stakeholders. Conciseness implies that the information only

offers necessary details.

Table 4.1 provides a summary of the qualitative sub-

characteristics related to significance and fidelity and the factors to

which we link them.

Table 4.1. Characteristics of reporting that determine effective CSR communication

Communication problem

Characteristic of reporting

Qualitative

sub-characteristic Factors

Technical problems

Not considered

Effectiveness problems

Significance

Relevance

- Materiality

- Measurement uncertainty

Faithful representation

- Completeness

- Neutrality

- Freedom from error

Semantic problems

Fidelity

Comparability - Among firms

- Over time

Understandability - Clearness

- Conciseness


92

As we noted above, relevance depends on the materiality of the

information. The range of stakeholders that could be interested in a

firm’s CSR impacts is broad. Given that each group of stakeholders,

and even individual actors within each group, may consider different

information as relevant, firms should use engagement mechanisms to

identify the impacts that each type of stakeholders regards as material

(Tschopp & Huefner, 2015). By establishing these mechanisms, firms

should take into account the CSR impacts in which their stakeholders

are interested and report on them. Therefore, the communication

process becomes a bidirectional system (Figure 4.2). According to

Morsing and Schultz (2006), this type of communication represents

the third step in a firm’s CSR communication strategy, which they

coined “stakeholder involvement strategy”.

4.3. Methodology and materials

This chapter focuses on two specific CSR reporting practices: the

disclosure of SRs and IRs as a means to communicate CSR

information. To evaluate whether they are able to provide transparent

information on CSR impacts, we assessed the extent to which they

provide significance and fidelity. For each CSR reporting practice, we

explored these characteristics at two levels. First, we studied the

reporting model to assess the significance and fidelity that its correct

and complete application could at most enable. Second, we assessed

the application of the reporting model by a firm, using a specific

report. We evaluated the significance and fidelity that the report

provides respect to the one that its corresponding reporting model

could enables at most. With this distinction, we studied if the

reporting model itself or the way in which firms apply it drives the

low transparency of current CSR reporting practices. To guarantee

the best application of the reporting model and avoid potential biases,

we chose a report considered as a “best practice” for each reporting

model.

For SRs, we selected the GRI Guidelines to assess the reporting

model because they represent the typical case (Yin, 2009). GRI issues

the most widely used reporting model to produce SRs (Bellantuono et


93

al., 2016; KPMG, 2015a). Additionally, GRI is the most developed

reporting model and has the capacity to provide more useful

information, compared to other reporting models for SRs (Behnam &

MacLean, 2011; Tschopp & Nastanski, 2014). We focused on the

most recent version of the GRI Guidelines when we started the

research: G4 Sustainability Reporting Guidelines, issued in 2013. G4

is organised in two parts. The first part, Reporting Principles and

Standard Disclosures (GRI, 2013a), presents the Principles for

defining the content and quality of SRs, as well as the main

information about disclosures on management approach (DMAs) and

indicators. The second part, the Implementation Manual (IM) (GRI,

2013b), explains how to apply the Principles and prepare the

information. G4 differentiates two “in accordance” options. The core

option discloses the basic information about CSR impacts. The

comprehensive option provides more information to extensively

communicate impacts. To assess the highest significance and fidelity

that the GRI reporting model provides, we focused on

comprehensive option.

To analyse the application of the GRI reporting model, the

suitable SR had to meet three criteria: being prepared following the

comprehensive option of G4; being recommended by GRI as a good

reporting example (https://www.globalreporting.org/services/

Communication / featured-reports-service / featured-reports / Pages

/default.aspx); and not being issued by a firm from country with

regulation on CSR information. We included this last requirement to

avoid the potential effect that mandatory regulation could have on

our assessment. The selected report was BHP Billiton SR (BHP SR)

2016. This company is a listed Australian firm that operates in the

mining industry. BHP Billiton had $30.9 billion of revenues and

around 65,000 employees in 2016 (BHP Billiton Annual Report,

2016b). The company has a long-standing tradition of CSR reporting.

It published its first environmental report 20 years ago (BHP SR,

2016a).

Regarding the reporting model for IRs, we selected the

International <IR> Framework (IIRF), which was issued by the IIRC

in 2013. The IIRF is principle-based and it is the main standard that

guides firms in the elaboration of IRs (Alexander & Blum, 2016). It


94

establishes a set of Guiding Principles and Content Elements that

seek to define the content and presentation of IRs. The IIRF is

structured in paragraphs. To be considered as an IR in accordance

with the Framework, the IIRC only requires firm to apply 19 out of

its 168 paragraphs (IIRF, 2013, p. 37-38). We assessed the whole IIRF

to study the level at which the best application could enable

significance and fidelity.

We selected Asahi IR 2015 to analyse the application of the

IIRC reporting. The criteria to select the IR was the same that for the

SR. In this case, the IR had to be recognised as a leading practice by

the IIRC (http://examples.integratedreporting.org/recognized_

reports). Asahi Group Holdings, Ltd. is a Japanese listed firm that

manufactures and sales food and beverages. Its total sales amounted

to ¥1,785.4 billion and it had over 22,000 employees in 2015 (Asahi

IR, 2015). The firm published its first IR for the year 2014. Before

that, it had been published SRs since 2004.

We used interpretive textual analysis to study whether the

reporting model and the application achieve significance and fidelity.

This method involves an iterative process of several rounds of

readings and discussions among researchers to arrive to coherent

interpretations and mitigate subjective issues affecting the analysis

(Laine, 2005, 2009, 2010; Tregidga & Milne, 2006; Ylönen & Laine,

2015). We followed a two-stage process. In the first stage, the

researcher read carefully the document explaining the reporting model

to identify evidences related to the sub-characteristics and factors of

significance and fidelity. The researcher made notes about his first

impressions and prepared a draft. This draft was discussed with one

of the supervisors, who has expertise in CSR reporting, to arrive to

common perceptions.

In the second stage, the researcher made a closer reading of the

document and built a database that collects passages about elements

related to the significance and fidelity of the reporting model. The

researcher accompanied the passages with comments explaining the

relationship. Detailed notes were also included in the database with

reference to whole sections of the document, because in some cases

drawing out specific citations may not be worthwhile (Laine, 2009).


95

After the second round of reading, the researcher analysed in

depth the extracts and notes to form his interpretations on the

maximum significance and fidelity that the complete and correct

application of the reporting model could achieve. The outcome of

this analysis was a draft that was presented to the supervisors. If there

were disagreements about conclusions, they were discussed and the

database and the document were analysed again until consensus was

reached.

We repeated this two-stage process to analyse the application of

the reporting model. In this case, we drew conclusions about the

levels of significance and fidelity that the report provides. Then we

compared this analysis to the extent to which the reporting model

enables significance and fidelity. We followed this procedure to study

the GRI reporting model and its application. Afterwards, we applied

the whole method again to study the IIRC reporting model and its

application. The conclusions for each reporting model are

independent and we do not compare them.

4.4. The GRI reporting model: The G4 Guidelines

The GRI reporting model emphasises that SRs must cover CSR

impacts. According to G4, “a sustainability report conveys disclosures

on an organization’s impacts – be they positive or negative – on the

environment, society and the economy” (G4 Reporting Principles and

Standard Disclosures, 2013a, p. 3). GRI defines nine Principles that

determine the content and quality of SRs. We link the Principles to

the characteristics of the communication theory framework (Table

4.2). We anticipate that, if they could be properly applied, the

Principles could contribute to achieve significance (relevance and

faithful representation) and fidelity (understandability and

comparability).


96

Tab

le 4

.2. G

RI

Rep

ort

ing

Pri

nci

ple

s an

d c

har

acte

rist

ics

of

effe

ctiv

e C

SR

co

mm

un

icat

ion

GR

I R

ep

ort

ing

Pri

ncip

les

Rela

ted

to

Pri

ncip

les

Defi

nit

ion

C

hara

cte

rist

ic

Su

b-c

hara

cte

rist

ic

Facto

r

Mat

eria

lity

Th

e re

po

rt s

ho

uld

co

ver

Asp

ects

th

at:

- R

efle

ct

the

org

aniz

atio

n’s

si

gnif

ican

t ec

on

om

ic,

envir

on

men

tal an

d s

oci

al im

pac

ts; o

r

- Sub

stan

tivel

y in

fluen

ce t

he

asse

ssm

ents

an

d d

ecis

ion

s o

f st

akeh

old

ers.

Sig

nif

ican

ce

Rel

evan

ce

Mat

eria

lity

Sta

keh

old

er

incl

usi

ven

ess

Th

e o

rgan

izat

ion

sh

ould

id

enti

fy

its

stak

eho

lder

s,

and

ex

pla

in

ho

w

it

has

re

spo

nd

ed

to

thei

r re

aso

nab

le

exp

ecta

tio

ns

and

in

tere

sts.

Sig

nif

ican

ce

Rel

evan

ce

Mat

eria

lity

Su

stai

nab

ilit

y co

nte

xt

Th

e re

po

rt

sho

uld

p

rese

nt

the

org

aniz

atio

n’s

p

erfo

rman

ce in

th

e w

ider

co

nte

xt o

f su

stai

nab

ilit

y.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

C

om

ple

ten

ess

Co

mp

lete

nes

s

Th

e re

po

rt s

ho

uld

in

clud

e co

ver

age

of

mat

eria

l A

spec

ts

and

th

eir

Bo

un

dar

ies,

su

ffic

ien

t to

re

flec

t si

gnif

ican

t ec

on

om

ic,

envir

on

men

tal

and

so

cial

im

pac

ts,

and

to

en

able

st

akeh

old

ers

to

asse

ss

the

org

aniz

atio

n’s

p

erfo

rman

ce in

th

e re

po

rtin

g p

erio

d.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

C

om

ple

ten

ess

Bal

ance

T

he

rep

ort

sh

ould

ref

lect

po

siti

ve

and

neg

ativ

e as

pec

ts o

f th

e o

rgan

izat

ion

’s

per

form

ance

to

en

able

a

reas

on

ed

asse

ssm

ent

of

over

all p

erfo

rman

ce.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

N

eutr

alit

y

Acc

ura

cy

Th

e re

po

rted

in

form

atio

n s

ho

uld

be

suff

icie

ntl

y ac

cura

te

and

det

aile

d f

or

stak

eho

lder

s to

ass

ess

the

org

aniz

atio

n’s

p

erfo

rman

ce.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

F

reed

om

fr

om

err

or


97

Tab

le 4

.2 (

con

tin

ued

)

Rel

iab

ilit

y

Th

e o

rgan

isat

ion

sh

ould

gat

her

, re

cord

, co

mp

ile,

anal

yse

and

d

iscl

ose

in

form

atio

n

and

p

roce

sses

use

d

in

the

pre

par

atio

n o

f a

rep

ort

in

a w

ay t

hat

th

ey c

an b

e su

bje

ct

to

exam

inat

ion

an

d

that

es

tab

lish

es

the

qual

ity

and

m

ater

ialit

y o

f th

e in

form

atio

n.

Sig

nif

ican

ce

F

aith

ful

rep

rese

nta

tio

n

Fre

edo

m

fro

m e

rro

r

Co

mp

arab

ilit

y

Th

e o

rgan

isat

ion

sh

ould

se

lect

, co

mp

ile

and

re

po

rt

info

rmat

ion

co

nsi

sten

tly.

T

he

rep

ort

ed

info

rmat

ion

sh

ould

b

e p

rese

nte

d

in

a m

ann

er

that

en

able

s st

akeh

old

ers

to

anal

yse

chan

ges

in

the

org

aniz

atio

n’s

p

erfo

rman

ce o

ver

tim

e, a

nd

th

at c

ould

sup

po

rt a

nal

ysis

re

lati

ve

to o

ther

org

aniz

atio

ns.

Fid

elit

y C

om

par

abilit

y A

mo

ng

firm

s O

ver

tim

e

Tim

elin

ess

Th

e o

rgan

isat

ion

sh

ould

rep

ort

on

a r

egula

r sc

hed

ule

so

th

at i

nfo

rmat

ion

is

avai

lab

le i

n t

ime

for

stak

eho

lder

s to

m

ake

info

rmed

dec

isio

ns.

F

idel

ity

Co

mp

arab

ilit

y A

mo

ng

firm

s O

ver

tim

e

Cla

rity

T

he

org

anis

atio

n s

ho

uld

mak

e in

form

atio

n a

vai

lab

le i

n a

m

ann

er

that

is

un

der

stan

dab

le

and

ac

cess

ible

to

st

akeh

old

ers

usi

ng

the

rep

ort

. F

idel

ity

Un

der

stan

dab

ility

C

lear

nes

s C

on

cise

nes

s


98

4.4.1. Significance: Relevance

We link the first factor of relevance, materiality, to the GRI Principles

of Materiality and Stakeholder Inclusiveness. Materiality is not only a

Principle but also a priority that is embedded in all G4’s sections. For

GRI, materiality determines whether information on an impact

should be disclosed. It depends on two variables: being significant for

the organisation and influencing the stakeholders’ decisions (G4

Reporting Principles and Standard Disclosures, 2013a, p. 7).

Given that stakeholders are an essential element in the process

of defining the content of SRs, firms must engage with both, internal

and external stakeholders, to develop that process:

The process of stakeholder engagement may serve as a tool for

understanding the reasonable expectations and interests of stakeholders.

[…]

When the process of stakeholder engagement is used for reporting

purposes, it should be based on systematic or generally accepted

approaches, methodologies, or principles. (G4 IM, 2013b, p. 9,

emphasis added)

As firms could be related to a broad range of stakeholders, they

could identify many material impacts. GRI notes that the initial

identified impacts should be prioritised considering their influence on

stakeholders’ decisions and their importance for firms. G4 indicates

that companies should carefully describe this process (indicator G4-

18) and the stakeholder engagement mechanisms established for that

purpose (indicators G4-24 to G4-27). G4 requires firms to follow a

“systematic, documented and replicable” method to define the

content of SRs (G4 IM, 2013, p. 32). It even suggests the involvement

between stakeholders and the firms’ highest governance body to

manage and identify CSR impacts (indicators G4-37, G4-45). To

promote materiality, GRI also published several Sector Supplements

on material issues for specific industries (GRI Reporting Principles

and Standard Disclosures, 2013, p. 87). Therefore, the Guidelines

seem, at first, to enable high relevance by focusing on materiality.


99

However, G4 suffers from several insufficiencies that question

whether it could actually facilitate materiality. The IM provides

examples of engagement mechanisms and proposes two useful tools

for defining content: a list of material impacts and a matrix

prioritising them (G4 IM, 2013b, p. 33, 37). Nevertheless, the nine-

page section about the process of determining materiality fails to offer

clear and practical explanations to establish engagement mechanisms

and produce those outcomes (G4 IM, 2013b, p. 32-40). This lack of

definite guidance reduces the materiality that the GRI reporting

model could enable. Another problem is the G4’s differentiation of

“topic” and “aspect”. Topics are “any possible sustainability subject”

(G4 Reporting Principles and Standards Disclosures, 2013a, p. 92). By

contrast, aspects are the subjects included in the list proposed by G4

(G4 Reporting Principles and Standards Disclosures, 2013a, p. 9).

GRI recommends using this list as the starting point to define

material matters, and encourages firms to include other material

topics identified during the process (G4 IM, 2013b, p. 33). Despite

this suggestion, the use of a predetermined selection of subjects could

exclude relevant CSR impacts.

In relation to the other factor of relevance, measurement

uncertainty, even though we could not identify a specific link to any

GRI Principle, we observe evidences on it in different parts of the

Guidelines. G4 stresses the importance of “explaining the methods

and assumptions used to prepare information” (G4 IM, 2013b, p. 14).

The IM could be useful for that purpose. However, a closer look to it

shows that it omits specific explanations on how to collect and

produce indicators. For instance, when some indicators require to

“report the impacts” or “the extent of the impact”, the IM only

provides examples about impacts and fails to describe how they could

be compiled or assessed (e.g., indicators G4-EN24, G4-EN26, G4-

SO2).

To sum up, the GRI reporting model has a proper basis to

provide relevant information (e.g., importance of materiality and

stakeholder engagement, sector supplements). Nonetheless, the

absence of specificity in explaining how to apply principles, engage

stakeholders and produce information hampers its capacity to

elaborate SRs that fulfil relevance.


100

4.4.2. Significance: Faithful representation

The completeness factor of faithful representation is related to the

GRI Principles of Sustainability Context and Completeness.

Sustainability Context Principle establishes that firms should prepare

SRs that present “its performance in a manner that attempts to

communicate the magnitude of its impact and contribution in appropriate

geographical contexts.” (G4 IM, 2013b, p. 11, emphasis added).

According to this claim, GRI seems to support a complete coverage

of impacts, including the extent of the consequences of corporate

activities. The GRI Principle of Completeness further develops

coverage by considering their scope (range of CSR issues), boundaries

(inside and outside the organisation) and time of impacts (coverage of

the whole reporting period) (G4 IM, 2013b, p. 12-13). However, as

we noted above, G4 does not explain how to practically implement its

Principles. The introductions of the sections about economic,

environmental and social categories also stress the need to report on

consequences. GRI claims that each dimension “concerns the

organization’s impacts on” the economy, environment and society (G4

Reporting Principles and Standards Disclosures, 2013a, p. 48, 52, 64,

emphasis added).

Nonteheless, a closer reading of the suggested disclosures for

CSR dimensions shows that the GRI reporting model fails to

completely account for impacts. DMAs focus on the management

and responsibility of impacts within firms. Most indicators provide

information on the inputs causing impacts (mainly in the

environmental category) and their management (mainly in the social

category). Only few indicators cover consequences, but the IM lacks

practical explanations to produce them. Thus, although firms

completely applied G4, important information to effectively

appreciate CSR impacts could still be missing. Finally, we note that

G4 allows firms to omit information under particular circumstances,

but warns that reports with a large number of omissions cannot be

referred as SRs (G4 Reporting Principles and Standard Disclosures,

2013a, p. 13). This exclusion could be positive for completeness, as it

could promote the disclosure of information that completely covers

impacts.


101

Neutrality is represented in the GRI Principle of Balance. This

Principle emphasises that “[t]he overall presentation of the report’s

content should provide an unbiased picture of the organization’s

performance” (G4 Reporting Principles and Standards Disclosures,

2013a, p. 17, emphasis added). The whole G4 highlights the need to

account for both, positive and negative impacts. Nonetheless, it is

noteworthy that some indicators are inclined to provide a positively

or negatively biased image. For instance, some environmental

indicators disclose information on the reduction of inputs that cause

impacts (e.g., indicators G4-EN6, G-EN7, G4-EN19), while others

within the same category report the absolute quantity of those inputs

(e.g., indicators G4-EN3, G4-EN4, G4-EN-15 to G4-EN17). G4

should either take also into account the significant increases of inputs,

or exclude both, reductions and increases, to provide a neutral image.

Other indicators could lead to a negatively biased representation. For

example, some of them focus on the negative impacts of firms’

supply chain on the environment and society (e.g., indicators G4-

EN33, G4-LA15, G4-HR11, G4-SO11), without acknowledging the

positive impacts that could exist, because firms can encourage

suppliers to promote good practices. Other issue that reduces

neutrality is the inclusion of narrative information. GRI suggests

disclosing qualitative and quantitative information. Firms could use

qualitative disclosures to include narrative information, which is easily

subject to interpretation and could influence the readers’ perceptions.

Finally, the Guidelines recommend aggregating information, but

cautions that it could hide information (G4 IM, 2013b, p. 256). Thus,

it may be used to mask negative impacts.

The last factor of faithful representation, freedom from error, is

related to the GRI Principles of Accuracy and Reliability. Tests to

check the latter’s application focus on providing “reliable evidence to

support assumptions or complex calculations” and “attesting to its [of

information] accuracy within acceptable margins of error” (G4 IM, 2013b,

p. 16, emphasis added). GRI warns that the accuracy and reliability of

disclosures partly depends on the type of information, either

qualitative or quantitative. G4 highlights that “[t]he report should

clearly distinguish between factual presentation and the organization’s

interpretation of information” (G4 IM, 2013b, p. 17, emphasis added).


102

This is essential to guarantee that stakeholders interpret SRs without

error. GRI also remarks the importance of explaining omissions (G4

Reporting Principles and Standard Disclosures, 2013a, p. 13). G4 asks

firms to identify the information that is missing and the reasons for

its omissions. Additionally, they should indicate the boundaries

considered for all information, as well as restatements that could have

been done. GRI also suggests hiring external assurance to increase the

credibility of information and certify that SRs are free from error.

Given that SRs are aimed at fulfilling stakeholders´ information

needs, GRI remarks the importance of their confidence about

disclosures and notes that stakeholder engagement should be part of

the process of assuring SRs (G4 IM, 2013b, p. 2). Nevertheless, G4

fails to explain how to implement stakeholder engagement in that

process.

To recapitulate, our assessment shows that the GRI reporting

model could provide, to some extent, reasonable levels of neutrality

and freedom from error. Notwithstanding, the exclusion of

information on the consequences resulted from corporate activities

hinders completeness, as that content is essential to effectively

appreciate CSR impacts. Consequently, GRI lacks a key element to

provide significance trough faithful representation.

4.4.3. Fidelity: Comparability

This sub-characteristic of fidelity is present in the Principle of

Comparability. For GRI, comparability is achieved when stakeholders

can assess differences among firms and over time (G4 IM, 2013b, p.

14), as in the communication theory framework. Comparability is also

related to the GRI Principle of Timeliness. For the application of this

Principle, G4 highlights that “[c]onsistency in the frequency of reporting

and the length of reporting periods is also necessary to ensure

comparability of information over time […]” (G4 IM, 2013b, p. 15,

emphasis added). To facilitate comparability from one period to

another, G4 proposes to provide information on impacts for the

current and two last reporting periods (G4 IM, 2013b, p. 256), and to

explain changes in reporting policies and boundaries from on period


103

to another (G4 IM, 2013b, p. 14). GRI also asks companies to clearly

indicate the period to which impacts are referred (G4 IM, 2013b, p.

15), as well as the boundary for each impact (indicator G4-20). These

two suggestions are also helpful to enable comparability among firms

to check whether the coverage of impacts has the same scope.

Regardless of these positive elements, G4 suffers from an

important problem that hinders its comparability both, among firms

and overtime. GRI suggests no structure to organise the content of

SRs. The classification of indicators in categories and sub-categories

could be regarded as a possible structure that firms could follow, but

G4 does not propose it for that aim. Yet, G4 asks companies to

disclose a GRI content index, which indicates what information is

reported and where it is provided (G4 Reporting Principles and

Standards Disclosures, 2013a, p. 13). This requirement could help to

overcome the lack of a predetermined structure. The type of

information suggested (qualitative and quantitative) is also

troublesome for comparison purposes. Narrative disclosures are more

easily subject to interpretation, which could influence comparisons.

Another aspect impeding comparability, especially among firms, is the

possibility of using references (G4 Reporting Principles and Standards

Disclosures, 2013a, p. 13). Stakeholders may need to go to a certain

type of report in a firm and to a different document in another

company.

Our analysis shows that the GRI reporting model tries to

promote comparability. G4 makes important suggestions to enable

comparisons among firms and overtime. Nonetheless, the absence of

a predetermined structure that firms could use to organise SRs is an

acute problem. This issue, along with the other concerns presented

above, impedes that the GRI reporting model achieves effective

comparability.

4.4.4. Fidelity: Understandability

In relation to understandability, we link clearness to the GRI

Principle of Clarity. G4 specifies that the application of this Principle

implies that “[i]nformation should be presented in a manner that is


104

comprehensible to stakeholders who have a reasonable understanding of

the organization and its activities” (G4 Reporting Principles and

Standards Disclosures, 2013a, p. 12, emphasis added). To facilitate

clearness, GRI proposes the disclosure of graphics and consolidated

data, as well as avoiding jargon or unfamiliar concepts (G4 IM, 2013b,

p. 16). Nonetheless, the GRI reporting model presents some

limitations that obstruct clearness. These issues are related to its l

failure to provide practical explanations on how to implement G4.

First of all, we highlight the lack of a predetermined structure that

organises content in an intelligible and clear way. As abovementioned,

GRI fails to do that, at least directly. Second, the use of references, in

addition to reduce comparability, also inhibits clearness because

information might by difficult to find. Finally, DMAs and some

indicators require the disclosure of huge amounts of information,

both quantitative and qualitative, which could overwhelm readers.

Conciseness is also related to the GRI Principle of Clarity. G4

emphasises prioritising CSR issues to include only information on the

most material impacts for stakeholders (G4 IM, 2013b, p.33). It also

notes that firms should consider whether “the report contains the

level of information required by stakeholders, but avoids excessive and

unnecessary detail” (G4 IM, 2013b, p. 16, emphasis added). The use of

references to other documents and the aggregation of information are

useful to increase conciseness (G4 IM, 2013b, p.256). These two

elements reduce other sub-characteristics of the communication

framework, as we argued above. Therefore, firms should balance their

use to avoid improvements in conciseness at the expense of

neutrality, comparability or clearness. The GRI content index is also

helpful to present information more concisely. If properly compiled,

it lists and summarises the indicators included in SRs. However, there

are also signs that question whether G4 enables conciseness. For

instance, DMAs are narrative and could be quite long when following

the suggestions of the IM. Thus, it makes sense that G4 allows

organisation to report DMAs only once if they are common to several

CSR issues. Regarding indicators, some of them are concise, but

others require large amounts of qualitative and quantitative

information. There are examples of overwhelming indicators in the

different categories of aspects, such as those covering general issues


105

(e.g., G4-1, G4-2), as well as in those focusing on economic (e.g., G4-

EC2, G4-EC3), environmental (e.g., G4-EN11, G4-EN30) and social

subjects (e.g., G4-LA10, G4-HR4). It is noteworthy that these

indicators are the ones that do not cover the consequences of

impacts.

To recapitulate, the GRI reporting model promotes

understandability by means of both, clearness and conciseness. Yet,

the requirements of some GRI indicators and DMAs reduce

understandability. Additionally, understandability is a tricky sub-

characteristic of the communication framework because conciseness

positively depends on some elements (e.g., references or aggregation)

that negatively affect clearness.

To summarise, we conclude that GRI reporting model shows

important problems to facilitate effective and transparent CSR

communication. Although G4 supports elements that try to foster all

the sub-characteristics of significance and fidelity, it suffers from

acute limitations. The lack of clear and practical explanations on how

to implement G4 Principles and compile the information hinders the

provision of the required significance to allow stakeholders to

appreciate CSR impacts. Regarding fidelity, there are also important

issues that overshadow GRI’s efforts to promote comparability and

understandability. The most constraining elements are the failure of

proposing a predetermined structure to organise the report and the

type of information suggested to be disclosed.

4.5. The application of the GRI reporting model: BHP

Billiton Sustainability Report 2016

BHP Billiton SR 2016, entitled “Integrity, Resilience, Growth”, has 68

pages and is structured in several sections about the firm’s identified

CSR material issues (BHP SR, 2016a, p. 12-13). The SR covers the

firm’s fiscal year 2016, from 1 July 2015 to 30 June 2016, the same

period of BHP Billiton Annual Report 2016. The company states that

the SR was prepared “in accordance with the Global Reporting

Initiative G4 Comprehensive-level reporting” (BHP SR, 2016a, p. 57).


106


BHP Billiton SR pays especial attention to materiality. One of the first

sections of the document, “Sustainability at glance”, presents the list

of material impacts that are covered in the subsequent sections (BHP

SR, 2016a, p. 12-13). The firm states that it engaged with its

stakeholder to identify, prioritise and determine the material impacts

that are included in the SR (BHP SR, 2016a, p. 12-13). BHP Billiton

lists the key stakeholders with whom it engages to define the content

of the report and describes the mechanisms that were used for that

purpose (BHP SR, 2016a, p. 57). Therefore, the definition of

materiality and the description about how it was determined seem to

be appropriate and adequately based on stakeholder engagement,

despite G4’s lack of clear and practical explanations. Additionally,

BHP Billiton SR follows the GRI Mining and Metals Sector

Supplement and discloses the indicators that it suggests (BHP Billiton

Sustainability Report Navigator, 2016c, p. 2). In relation to the GRI’s

difference between topic and aspect, we were unable to assess

whether material CSR impacts were excluded due to this issue.

Regarding measurement uncertainty, most tables have

footnotes that provide explanations about how figures were

calculated and how the information was gathered. Nonetheless, in

some cases these explanations are difficult to understand. After two

careful rounds of readings, one of the researchers has still problems in

understanding some figures (e.g., Table on greenhouse emissions,

BHP SR, 2016a, p. 21).

Table 4.3 compares our main findings on the relevance of the

GRI reporting model and its application. Our overall assessment

indicates that BHP Billiton SR provides, at least, the relevance that

could be expected based on the GRI reporting model. The SR seems

to beat the level of materiality that could be achieved based on the

concerns that we have identified in G4. Thus, for this particular case,

the application might be more effective than the reporting model to

enable transparent communication. In relation to measurement

uncertainty, the problem of understanding some of the figures and

information could be regarded as a consequence of the G4 IM’s

vagueness in describing how to gather and compile information.


107

Tab

le 4

.3. R

elev

ance

of

the

GR

I re

po

rtin

g m

od

el a

nd

its

ap

plic

atio

n

Facto

r G

RI

rep

ort

ing

mo

del

BH

P B

illi

ton

SR

2016

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Mat

eria

lity

G

4 e

mp

has

ises

th

at s

takeh

old

ers

sho

uld

be

con

sid

ered

in

def

inin

g th

e m

ater

ial C

SR

im

pac

ts t

o b

e co

ver

ed.

Po

siti

ve

Mat

eria

l to

pic

s w

ere

def

ined

by

mea

ns

of

stak

eho

lder

en

gage

men

t.

Po

siti

ve

G

4 p

rovid

es s

ecto

r su

pp

lem

ents

. P

osi

tive

Th

e SR

fo

llow

s th

e M

inin

g an

d

Met

als

G4 S

ecto

r D

iscl

osu

res.

P

osi

tive

G4 f

ails

to

pra

ctic

ally

exp

lain

ho

w

to e

stab

lish

sta

keh

old

er

enga

gem

ent

mec

han

ism

s, a

nd

ho

w

to d

evel

op

th

e p

roce

ss o

f d

efin

ing

mat

eria

lity.

Neg

ativ

e T

he

firm

exp

lain

s h

ow

it

enga

ged

w

ith

its

sta

keh

old

ers

to id

enti

fy

mat

eria

l im

pac

ts.

Po

siti

ve

Rep

ort

ing

Mo

del

G

4 d

iffe

ren

tiat

es b

etw

een

“to

pic

” an

d “

asp

ect”

, w

hic

h c

ould

exc

lud

e m

ater

ial su

bje

cts.

Neg

ativ

e N

ot

po

ssib

le t

o a

sses

s

Rep

ort

ing

Mo

del

Mea

sure

men

t U

nce

rtai

nty

G4 r

emar

ks

the

imp

ort

ance

of

exp

lain

ing

met

ho

ds

to e

lab

ora

te

info

rmat

ion

.

Po

siti

ve

Fo

otn

ote

s ex

pla

in h

ow

fig

ure

s w

ere

calc

ula

ted

. P

osi

tive

G4 is

vag

ue

in e

xpla

inin

g h

ow

to

ga

ther

an

d c

om

pile

in

form

atio

n.

Neg

ativ

e So

me

figu

res

are

still

dif

ficu

lt t

o

inte

rpre

t, d

esp

ite

foo

tno

tes.

N

egat

ive

Rep

ort

ing

Mo

del


108


Two issues question the completeness of BHP Billiton SR. First, the

SR provides little information that allows readers to assess the extent

of the consequence of the firm’s activities. Most information covers

inputs causing the impacts, how the firm manages the impacts and

who is responsible for their management within the firm. This

limitation is driven by the GRI reporting model. For instance, the

section about the firm’s performance on the economic dimension

focuses on the distribution of the economic value generated and

payments to governments (BHP SR, 2016a, p. 17-18). Another

example is the use of investments in managing impacts as the measure

for its “performance”. Investments in managing impacts do not

assess the extent to which the company generates impacts and how

they affect CSR dimensions In this regard, it is noteworthy that the

company reports US$178.1 million investment on voluntary social

programmes to assess its performance regarding communities’ quality

of life (BHP SR, 2016a, p. 39) and human rights (BHP SR, 2016a, p.

49).

The second issue that hampers completeness is that the SR fails

to cover impacts within and outside the firm. BHP Billiton recognises

that: “our non-operated joint ventures are not included within the scope of

this Sustainability Report” (BHP SR, 2016a, p. 57, emphasis added).

The exclusion of impacts generated outside the company is due to the

firm’s misapplication of G4. Regarding omissions, we are not able to

judge whether important information was omitted. The report is

recognised as SR by GRI. Given the G4’s restriction of the omissions

that could be made (G4 Reporting Principles and Standard

Disclosures, 2013a, p. 13), it is reasonable to expect that there are no

significant omissions.

BHP Billiton SR does not achieve neutrality. The SR mostly

discloses information on positive impacts. The firm highlights them

whenever possible. However, it only discloses negative impacts

whenever it is absolutely essential to do so. BHP Billiton claims that it

may have some negative impacts but no additional information is

disclosed. Statements such as “[w]hile no significant community

incidents occurred at our operated sites, […]” (BHP SR, 2016a, p. 37)


109

are common in the report for several types of impacts (BHP SR,

2016a, p. 12, 13, 31, 49). The SR only provides information on one

negative issue: the failure of the dam in one of the joint-venture of

the company. Excluding this catastrophe would have been inevitable

due to its terrible consequences, which involved 19 deaths. The

CEO’s review acknowledges this problem (BHP SR, 2016a, p. 1), and

the SR devotes its first section to it (BHP SR, 2016a, p. 2-5).

However, the firm seems to use this section to create a positive image

by highlighting its response to the problem rather than its

consequences. Only half page out of the four pages is dedicated to

cover negative impacts. The rest of the section provides statements

highlighting its immediate and committed response. For instance, the

company claims that: “Immediately following the Samarco dam failure,

BHP Billiton Brasil extended its support and assistance to Samarco in the

response effort (BHP SR, 2016a, p. 2, emphasis added). The CEO also

emphasises the reaction of the company in his review:

Our response to this tragedy is a priority for BHP Billiton. We will

work tirelessly with the mine operator, Samarco Mineração S.A.,

our joint venture partner Vale, the community and the Brazilian

authorities in the response effort. We are committed to doing the

right thing both now and in the long term. (BHP SR, 2016a, p. 1,

emphasis added).

The prior passages demonstrate that the firm uses narrative

information to include words that emphasise its positive performance.

There are other examples throughout the report, for instance “we

have set ourselves a challenging goal” (BHP SR, 2016a, p. 22) or “[w]e

are wholly committed to ethical business practices and the highest

standards of governance” (BHP SR, 2016a, p. 28). BHP Billiton also

discloses most G4 indicators inclined to provide a biased

representation (BHP Billiton Sustainability Report Navigator, 2016c,

GRI Content Index). Additionally, the information is normally

aggregated at the company level in many tables provided in the

report, but most evidently in those include in the appendix (BHP SR,

2016a, p. 59-63). Aggregated figures could be hiding negative impacts.


110

Tab

le 4

.4. F

aith

ful re

pre

sen

tati

on

of

the

GR

I re

po

rtin

g m

od

el a

nd

its

ap

plic

atio

n

Facto

r G

RI

rep

ort

ing

mo

del

BH

P B

illi

ton

SR

2016

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Co

mp

lete

nes

s G

4 a

sks

firm

s to

co

nsi

der

im

pac

ts

wit

hin

an

d o

uts

ide

the

org

anis

atio

n, an

d r

elat

ed t

o t

he

rep

ort

ing

per

iod

.

Po

siti

ve

Th

e SR

do

es n

ot

cover

im

pac

ts

gen

erat

ed b

y n

on

-op

erat

ed jo

int

ven

ture

s.

Neg

ativ

e A

pp

licat

ion

G

4 a

llow

s o

mit

tin

g in

form

atio

n.

Yet

, a

rep

ort

wit

h m

any

om

issi

on

s ca

nn

ot

be

con

sid

ered

as

a SR

.

Po

siti

ve

No

t p

oss

ible

to

ass

es

G4 f

ails

to

co

mp

lete

ly a

cco

un

t fo

r th

e ex

ten

t o

f im

pac

ts. Sugg

este

d

dis

clo

sure

s co

ver

s in

puts

, m

anag

emen

t an

d r

esp

on

sib

iliti

es.

Th

e fe

w in

dic

ato

rs a

bo

ut

outc

om

es a

re n

ot

easy

to

co

mp

ile.

Neg

ativ

e M

ost

in

form

atio

n c

over

s in

puts

an

d m

anag

emen

t. I

nves

tmen

ts a

re

use

d t

o m

easu

re im

pac

ts.

Neg

ativ

e R

epo

rtin

g m

od

el

Neu

tral

ity

G4 h

igh

ligh

ts t

he

nee

d t

o a

cco

un

t fo

r p

osi

tive

and

neg

ativ

e im

pac

ts.

Po

siti

ve

Mo

st in

form

atio

n is

po

siti

ve.

Th

e fi

rm u

ses

a n

egat

ive

even

t to

em

ph

asis

e it

s p

osi

tive

atti

tud

e.

Neg

ativ

e A

pp

licat

ion

G4 p

rop

ose

s so

me

ind

icat

ors

th

at

are

incl

ined

to

pro

vid

e a

bia

sed

re

pre

sen

tati

on

of

imp

acts

.

Neg

ativ

e T

he

SR

dis

clo

ses

mo

st o

f th

ese

ind

icat

ors

.

Neg

ativ

e R

epo

rtin

g m

od

el

G

4 p

rop

ose

s n

arra

tive

dis

clo

sure

s,

wh

ich

co

uld

be

use

d t

o c

reat

e a

po

siti

ve

rep

rese

nta

tio

n o

f im

pac

ts.

Neg

ativ

e W

ord

s ar

e use

d t

o m

agn

ify

the

firm

’s p

osi

tive

imp

acts

.

Neg

ativ

e R

epo

rtin

g m

od

el

G

4 s

ugg

ests

agg

rega

tin

g d

ata,

w

hic

h c

ould

hid

e n

egat

ive

imp

acts

. N

egat

ive

Th

e SR

pro

vid

es a

ggre

gate

d d

ata

at

the

com

pan

y le

vel

. N

egat

ive

Rep

ort

ing

mo

del


111

Tab

le 4

.4 (

con

tin

ued

)

Fre

edo

m f

rom

er

ror

G4 s

ugg

ests

pro

vid

ing

evid

ence

ab

out

imp

acts

. P

osi

tive

Th

e SR

dis

clo

ses

case

stu

die

s o

n

po

siti

ve

and

co

ncr

ete

acti

on

s as

ev

iden

ce. F

igure

s p

rovid

ed in

th

e ap

pen

dix

are

no

t co

nn

ecte

d t

o

thei

r sp

ecif

ic s

ecti

on

s.

Neg

ativ

e A

pp

licat

ion

G

4 s

ugg

ests

in

dic

atin

g an

d

exp

lain

ing

om

issi

on

s an

d

bo

un

dar

ies.

Po

siti

ve

Om

issi

on

s an

d b

oun

dar

ies

are

clea

rly

spec

ifie

d.

Po

siti

ve

G

4 s

ugg

ests

hir

ing

assu

ran

ce

serv

ices

. P

osi

tive

Th

e fi

rm h

ired

ass

ura

nce

ser

vic

es.

Po

siti

ve

G

4 s

ugg

ests

en

gagi

ng

stak

eho

lder

s in

ass

uri

ng

info

rmat

ion

but

fails

to

exp

lain

ho

w t

o d

o s

o.

Neg

ativ

e T

he

assu

ran

ce s

tate

men

t m

akes

no

re

fere

nce

ab

out

invo

lvin

g st

akeh

old

ers

in t

he

pro

cess

.

Neg

ativ

e R

epo

rtin

g M

od

el


112

Finally, BHP Billiton SR also shows problems regarding

freedom from error. Most sections use case studies focusing on

specific actions or programmes as evidence on its impacts. These

cases are concrete and are no prove of the firm’s overall CSR impacts.

Moreover, many of the cases do not provide factual figures to

support its claims (e.g., cases in BHP SR, 2016a, p. 23, 32). The

appendix discloses many tables with figures about the firm’s

economic, environmental and social performance (BHP SR, 2016a, p.

59-63). However, the SR fails to embed or connect these data to the

sections related to their topics as evidences on their statements.

Despite this manifest lack of evidence, the firm tries to increase the

credibility of its SR by hiring assurance services (BHP SR, 2016a, p.

64), as recommended by GRI. However, the assurance statement

makes no reference to the involvement of stakeholders in the process

to guarantee that the SR satisfies their needs (BHP SR, 2016a, p. 64).

In relation to omissions, the definition of the elements that are

included and not included in the SR is clear (BHP SR, 2016a, p. 57).

Our analysis indicates that BHP Billiton SR achieves lower

faithful representation than the one that expected from the correct

application of the GRI reporting model. As shown in Table 4.4, the

failure of fulfilling completeness, neutrality and freedom from error is

due to the transference of the limitations of G4, as well as from the

misapplication of the few GRI’s positive suggestions.


As proposed by GRI, BHP Billiton SR specified the time period and

the boundaries to which the information is related (BHP SR, 2016a,

p.57). The firm also provides notes explaining if changes in

calculations were made when it discloses information from prior

years. Despite these drivers, the SR shows significant issues that

hampers its comparability, among firms and over time. The most

important concern is its structure. The SR is organised in several

sections that cover the firm’s identified material topics (BHP SR,

2016a, p. 12-13). This organisation differs from the GRI classification

of material aspects, which could be regarded as a potential way of


113

structuring information. This issue impedes comparability among

firms because other companies might organise their SRs differently.

The structure also hinders comparability over time because BHP

Billiton SR 2015 has a different organisation (BHP SR, 2015).

Additionally, most of the information is qualitative and narrative, and

the use of references to sections within the SR and to other document

are common throughout the whole document. These problems are

due to the GRI reporting model. However, the SR fails to meet G4’s

suggestions to promote comparability. The firm provides a GRI

Content Index, but it is difficult to access. The SR does not disclose

this table and makes no reference to it. We had to google “BHP

Billiton GRI Content Index” to check that it exists and retrieve it.

Finally, the firm fails to provide information about the two reporting

periods in many of their tables. The most remarkable example is the

appendix. Most quantitative information is disclosed in this section,

but no table provides that information (BHP SR, 2016a, p. 59-63).

Overall, our assessment shows that BHP Billiton SR fails to

enable comparability among firms, as well as over time. Table 4.5

demonstrates that this failure is mostly a consequence of the

limitations of the GRI reporting model. In addition, BHP Billiton has

not correctly applied some of G4’s suggestions.


Regarding clearness, the language in the SR is generally clear and

avoids technical jargon. Also in line with GRI’s suggestions, the SR

provides graphics and tables with consolidated information. Many of

them are very straightforward and visible (BHP SR, 2016a, p. 38, 42,

56). Yet, some are difficult to interpret, for instance, the

aforementioned table on greenhouse emissions (BHP SR, 2016a, p.

21), or the figure about the distribution of the economic value

generated (BHP SR, 2016a, p. 17). We specially highlight the latter

example. The figure presents the amount of euros dedicated to social

investment in millions ($178.7m), whereas the rest of the amounts are

in billions (ranging from $3.6b to $26.7b). The font is bigger for

numbers than for letters indicating the scale. At first sight, the reader


114

could get the impression that the firm dedicates an enormous amount

of money to social investments, which is not true. There are other

constraining elements of clearness. As we argued above, the structure

of the SR could be different from other companies, and is actually

different from BHP Billiton SR 2015. Consequently, stakeholders

could be unfamiliar with how the information is structured and it

might be difficult for them to find specific data. In addition, the SR

refers to other documents and discloses large amounts of

information, most of which is narrative and qualitative.

The presence of long narratives also reduces the other factor of

understandability, conciseness. The SR discloses many truisms, which

makes it longer with actually delivering useful information to

appreciate CSR impacts. Long statements that could be applicable for

any firm and which seem to be aimed at emphasising the firm’s

positive attitudes are very common. For example:

We believe a strong compliance framework reflects our

commitment to our host communities and governments. Our

stakeholders’ interests are best served when the areas in which

we operate have a stable social, political and economic

environment. Our role in creating that environment is to follow

the rule of law, be transparent about our activities and provide

opportunities for people to participate in policy and decision-

making processes that are free from the influence of

corruption. (BHP SR, 2016a, p. 26).

Despite this issue, BHP Billiton prioritised important topics for

stakeholders to report only on those that are material (BHP SR,

2016a, p. 12-13). To increase conciseness, the SR contains many

references to sections of the report and to other documents. Data is

also usually aggregated at company level, as shown by the numerous

tables provided in the report and in the appendix (BHP SR, 2016a, p.

59-63). These efforts to increase conciseness contrast with the

disclosure of long case studies that focus on very particular projects

and actions. Finally, as we mentioned above, the GRI Content Index

is provided, which increases conciseness. Yet, the difficulty to access

to this document could inhibit its potential benefits.


115

Tab

le 4

.5. C

om

par

abili

ty o

f th

e G

RI

rep

ort

ing

mo

del

an

d its

ap

plic

atio

n

Facto

r G

RI

rep

ort

ing

mo

del

BH

P B

illi

ton

SR

2016

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Am

on

g f

irm

s G

4 s

ugg

ests

in

dic

atin

g th

e p

erio

d

and

bo

un

dar

ies

of

info

rmat

ion

. P

osi

tive

Th

e p

erio

d a

nd

bo

un

dar

ies

of

info

rmat

ion

are

cle

arly

sta

ted

. P

osi

tive

G4 r

equir

es d

iscl

osi

ng

a G

RI

Co

nte

nt

Ind

ex.

Po

siti

ve

GR

I C

on

ten

t In

dex

is

pro

vid

ed,

but

it is

dif

ficu

lt t

o o

bta

in.

Neg

ativ

e A

pp

licat

ion

G

4 d

oes

no

t p

rop

ose

a

pre

det

erm

ined

str

uct

ure

. N

egat

ive

Th

e st

ruct

ure

co

uld

be

dif

fere

nt

fro

m o

ther

fir

ms.

N

egat

ive

Rep

ort

ing

mo

del

G

4 s

ugg

ests

dis

clo

sin

g qual

itat

ive

info

rmat

ion

. N

egat

ive

Mo

st in

form

atio

n is

qual

itat

ive

and

n

arra

tive.

N

egat

ive

Rep

ort

ing

mo

del

G

4 a

llow

s usi

ng

refe

ren

ces

to o

ther

d

ocu

men

ts.

Neg

ativ

e R

efer

ence

s w

ith

in t

he

SR

an

d t

o

oth

er d

ocu

men

ts a

re c

om

mo

n.

Neg

ativ

e R

epo

rtin

g m

od

el

Ove

r ti

me

G4 s

ugg

ests

dis

clo

sin

g in

form

atio

n

abo

ut

the

two

pri

or

per

iod

s.

Po

siti

ve

Tab

les

do

no

t d

iscl

ose

in

form

atio

n

abo

ut

the

two

pri

or

per

iod

s.

Neg

ativ

e A

pp

licat

ion

G

4 s

ugg

ests

exp

lain

ing

chan

ges

in

rep

ort

ing

po

licie

s an

d b

ou

nd

arie

s.

Po

siti

ve

Fo

otn

ote

s ex

pla

in c

han

ges

and

ad

just

men

ts f

rom

pri

or

year

s.

Po

siti

ve

G

4 s

ugg

ests

in

dic

atin

g th

e p

erio

d

and

bo

un

dar

ies

of

info

rmat

ion

. P

osi

tive

Th

e p

erio

d a

nd

bo

un

dar

ies

of

info

rmat

ion

are

cle

arly

sta

ted

. P

osi

tive

G

4 r

equir

es d

iscl

osi

ng

a G

RI

Co

nte

nt

Ind

ex.

Po

siti

ve

GR

I C

on

ten

t In

dex

is

pro

vid

ed,

but

it is

dif

ficu

lt t

o o

bta

in.

Neg

ativ

e A

pp

licat

ion

G

4 d

oes

no

t p

rop

ose

a

pre

det

erm

ined

str

uct

ure

. N

egat

ive

Pri

or

rep

ort

fo

llo

ws

a d

iffe

ren

t st

ruct

ure

. N

egat

ive

Rep

ort

ing

mo

del

G

4 s

ugg

ests

dis

clo

sin

g qual

itat

ive

info

rmat

ion

. N

egat

ive

Mo

st in

form

atio

n is

qual

itat

ive

and

n

arra

tive.

N

egat

ive

Rep

ort

ing

mo

del


116

To sum up, BHP Billiton SR lacks clearness. In terms of

conciseness, the SR follows some suggestions of G4. Yet, the large

amount of narrative disclosures makes it long, without enabling a

comprehensive representation of CSR impacts. Table 4.6 shows that

the GRI reporting model drives most problems. But it also indicates

that the firm misapplied some positive suggestions of G4.

Our overall analysis of BHP Billiton SR 2016, as proxy for the

application of the GRI reporting model, shows that it fails to allow

effective and transparent communication. Significance is achieved to

some extent through relevance, as the firm seems to have

appropriately engaged with its stakeholders to identify material

subjects. Yet, problems regarding measurement uncertainty and

faithful representation (completeness, neutrality and freedom from

error) hamper the overall significance of the SR. In terms of fidelity,

the SR can neither be compared with its prior SR nor the SRs of

other firms. Clearness and conciseness are provided to some degree,

but not to the one expected had the firm appropriately applied G4.

Although BHP Billiton wrongly applied some positive proposals of

G4, most of the constraints that reduce the communication capacity

of the SR are consequence of the limitations of the GRI reporting

model.

4.6. The IIRC reporting model: The <IR> Framework

The IIRF makes no explicit reference to CSR impacts, but they are

indirectly addressed. The Framework notes that “[a]n integrated

report aims to provide insight about the resources and relationships used

and affected by an organisation – these are collectively referred to as

“the capitals” in this Framework” (IIRF, 2013, p. 4, emphasis added).

Firms should consider 6 types of capitals when producing IRs:

financial, manufactured, intellectual, human, social and relationship,

and natural capitals (IIRF, 2013, p. 11-12, par. 2.15). These capitals

are related to CSR dimensions. The IIRF states that changes in

capitals determine the “value created” by firms, which should be

covered in IRs (IIRF, 2013, p. 1, 10). Thus, the effects on capitals are

how CSR impacts are considered by the IIRC reporting model.


117

Tab

le 4

.6. U

nd

erst

and

abili

ty o

f th

e G

RI

rep

ort

ing

mo

del

an

d its

ap

plic

atio

n

Facto

r G

RI

rep

ort

ing

mo

del

BH

P B

illi

ton

SR

2016

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Cle

arn

ess

G4 s

ugg

ests

dis

clo

sin

g gr

aph

ic a

nd

co

nso

lidat

ed d

ata.

P

osi

tive

Th

e SR

dis

clo

ses

som

e gr

aph

ics

and

tab

les,

but

som

e o

f th

em a

re

no

t cl

ear.

Neg

ativ

e A

pp

licat

ion

G

4 s

ugg

ests

avo

idin

g ja

rgo

n a

nd

un

fam

iliar

ter

ms.

P

osi

tive

Th

e SR

use

s si

mp

le lan

guag

e an

d

avo

ids

jarg

on

or

spec

ific

ter

ms.

P

osi

tive

G

4 d

oes

no

t p

rop

ose

a

pre

det

erm

ined

str

uct

ure

. N

egat

ive

Th

e st

ruct

ure

is

bas

ed o

n t

he

firm

’s

mat

eria

l to

pic

s.

Neg

ativ

e R

epo

rtin

g m

od

el

G

4 a

llow

s usi

ng

refe

ren

ces

to o

ther

d

ocu

men

ts.

Neg

ativ

e R

efer

ence

s w

ith

in t

he

SR

an

d t

o

oth

er d

ocu

men

ts a

re c

om

mo

n.

Neg

ativ

e R

epo

rtin

g m

od

el

G

4 r

equir

es d

iscl

osi

ng

larg

e am

oun

ts o

f qual

itat

ive

and

quan

tita

tive

info

rmat

ion

.

Neg

ativ

e T

he

SR

dis

clo

ses

larg

e am

ou

nts

of

info

rmat

ion

, m

ost

ly n

arra

tive

and

qual

itat

ive.

Neg

ativ

e R

epo

rtin

g m

od

el

Co

nci

sen

ess

G4 e

mp

has

ises

th

at s

takeh

old

ers

sho

uld

be

con

sid

ered

in

pri

ori

tisi

ng

con

ten

t.

Po

siti

ve

Mat

eria

l to

pic

s w

ere

pri

ori

tise

d b

y m

ean

s o

f st

akeh

old

er e

nga

gem

ent.

P

osi

tive

G

4 a

llow

s usi

ng

refe

ren

ces

to o

ther

d

ocu

men

ts.

Po

siti

ve

Ref

eren

ces

wit

hin

th

e SR

an

d t

o

oth

er d

ocu

men

ts a

re c

om

mo

n.

Po

siti

ve

G

4 s

ugg

ests

agg

rega

tin

g d

ata.

P

osi

tive

Th

e SR

agg

rega

tes

info

rmat

ion

in

ta

ble

s at

th

e fi

rm lev

el.

Po

siti

ve

G

4 r

equir

es d

iscl

osi

ng

a G

RI

Co

nte

nt

Ind

ex.

Po

siti

ve

GR

I C

on

ten

t In

dex

is

no

t ea

sy t

o

ob

tain

. N

egat

ive

Ap

plic

atio

n

G

4 r

equir

es d

iscl

osi

ng

larg

e am

oun

ts o

f qual

itat

ive

and

quan

tita

tive

info

rmat

ion

.

Neg

ativ

e T

he

SR

dis

clo

ses

larg

e am

ou

nts

of

info

rmat

ion

, m

ost

ly n

arra

tive

(tru

ism

s an

d c

ase

stud

ies)

.

Neg

ativ

e R

epo

rtin

g m

od

el


118

The IIRF is principle-based and lacks a manual that explains its

practical implementation. For our analysis, we link the IIRF’s Guiding

Principles (IIRF, 2013, p. 5) to the characteristics of effective CSR

communication (Table 4.7).


The IIRF Materiality Principle explicitly addresses relevance through

materiality. We also link materiality to the Principle of Stakeholder

relationships, which suggests responding to stakeholders’ needs, as a

means to improve transparency and accountability (IIRF, 2013, p. 18

par. 3.10 3.14). The IIRF stresses that providers of financial capitals

are the key audience of IRs, but it notes that these documents could

be useful for all stakeholders (IIRF, 2013, p. 7 par. 1.7–1.8). However,

the Framework states that materiality should be defined based on the

extent to which CSR impacts (changes in capitals) affect the capacity

of firms to generate value for itself and for providers of financial

capitals.

The ability of an organization to create value for itself enables

financial returns to the providers of financial capital. This is

interrelated with the value the organization creates for

stakeholders and society at large through a wide range of

activities, interactions and relationships. When these are

material to the organization's ability to create value for itself,

they are included in the integrated report. (IIRF, 2013, p. 4)

The premise that materiality is limited to what is material for

providers of financial capitals, and not all stakeholders, is also

reinforced in paragraphs 2.5 and 2.7. (IIRF, 2013, p. 10). The

Glossary provides further evidence on this issue (IIRF, 2013, p. 33).

In this section, the providers of financial capitals have their own

definition (definition 13), but they are also listed in the definition of

stakeholders (definition 15).

119

Tab

le 4

.7. II

RC

Guid

ing

Pri

nci

ple

s an

d c

har

acte

rist

ics

of

effe

ctiv

e C

SR

co

mm

un

icat

ion

IIR

C G

uid

ing

Pri

ncip

les

Rela

ted

to

Pri

ncip

les

Defi

nit

ion

C

hara

cte

rist

ic

Su

b-

ch

ara

cte

rist

ic

Facto

r

Mat

eria

lity

A

n i

nte

grat

ed r

epo

rt s

ho

uld

dis

clo

se in

form

atio

n a

bo

ut

mat

ters

th

at

sub

stan

tivel

y af

fect

th

e o

rgan

isat

ion

’s a

bili

ty t

o c

reat

e val

ue

ove

r th

e sh

ort

, m

ediu

m a

nd

lo

ng

term

. Sig

nif

ican

ce

Rel

evan

ce

Mat

eria

lity

Sta

keh

old

er

rela

tio

nsh

ips

An

in

tegr

ated

re

po

rt sh

ould

p

rovid

e in

sigh

t in

to th

e n

ature

an

d

qual

ity

of

the

org

aniz

atio

n’s

rel

atio

nsh

ips

wit

h i

ts k

ey s

takeh

old

ers,

in

clud

ing

ho

w an

d to

w

hat

ex

ten

t th

e o

rgan

isat

ion

un

der

stan

ds,

ta

kes

in

to

acco

un

t an

d

resp

on

ds

to

thei

r le

giti

mat

e n

eed

s an

d

inte

rest

s.

Sig

nif

ican

ce

Rel

evan

ce

Mat

eria

lity

Str

ateg

ic f

ocu

s an

d f

utu

re

ori

enta

tio

n

An

in

tegr

ated

rep

ort

sh

ould

pro

vid

e in

sigh

t in

to t

he

org

anis

atio

n’s

st

rate

gy,

and

ho

w i

t re

late

s to

th

e o

rgan

izat

ion

’s a

bilit

y to

cre

ate

val

ue

in t

he

sho

rt,

med

ium

an

d l

on

g te

rm,

and

to

its

use

of

and

ef

fect

s o

n t

he

cap

ital

s.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

C

om

ple

ten

ess

Co

nn

ecti

vity

of

info

rmat

ion

An

in

tegr

ated

re

po

rt

sho

uld

sh

ow

a

ho

list

ic

pic

ture

o

f th

e co

mb

inat

ion

, in

terr

elat

edn

ess

and

dep

end

enci

es b

etw

een

th

e fa

cto

rs

that

aff

ect

the

org

aniz

atio

n’s

ab

ility

to

cre

ate

val

ue

over

tim

e.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

C

om

ple

ten

ess

Rel

iab

ilit

y an

d

com

ple

ten

ess

An

in

tegr

ated

re

po

rt

sho

uld

in

clud

e al

l m

ater

ial

mat

ters

, b

oth

p

osi

tive

and

neg

ativ

e, in

a b

alan

ced

way

an

d w

ith

out

mat

eria

l er

ror.

Sig

nif

ican

ce

Fai

thfu

l re

pre

sen

tati

on

Co

mp

lete

nes

s N

eutr

alit

y F

reed

om

fro

m

erro

r

Co

nsi

sten

cy

and

co

mp

arab

ilit

y

Th

e in

form

atio

n i

n a

n i

nte

grat

ed r

epo

rt s

ho

uld

be

pre

sen

ted

: (a

) o

n

a b

asis

th

at i

s co

nsi

sten

t o

ver

tim

e; a

nd

(b

) in

a w

ay t

hat

en

able

s co

mp

aris

on

wit

h o

ther

org

aniz

atio

ns

to t

he

exte

nt

it i

s m

ater

ial

to

the

org

aniz

atio

n’s

ow

n a

bili

ty t

o c

reat

e val

ue

over

tim

e.

Fid

elit

y C

om

par

abilit

y A

mo

ng

firm

s O

ver

tim

e

Co

nci

sen

ess

An

in

tegr

ated

rep

ort

sh

ould

be

con

cise

. F

idel

ity

Un

der

stan

dab

ility

C

lear

nes

s C

on

cise

nes

s

120

The Framework asks firms to provide a summary of their

process to determine materiality (IIRF, 2013, p.29, par. 4.41). The

vague description of the steps of that process (IIRF, 2013, p. 18-19,

par. 3.18-3.29) provides additional evidence on the little consideration

of stakeholders. The IIRF suggests engaging with providers of

financial capitals and stakeholders to identify relevant maters (IIRF,

2013, p. 18-19, par. 3.20, 3.22), but notes that the process should be

aimed at meeting the main purpose of IRs (IIRF, 2013, p.18-19, par.

3.20 and 3.29): “to explain to providers of financial capital how an

organization creates value over time” (IIRF, 2013, p. 7, par. 1.7).

Despite its reasons for engaging with stakeholders, the IIRF does not

explain how to practically implement it, and argues that it should be

driven by “integrated thinking” (IIRF, 2013, p. 18, par. 3.13). The

Framework defines “integrated thinking” as “the active consideration

by an organization of the relationships between its various operating

and functional units and the capitals that the organization uses or

affects” (IIRF, 2013, p. 2). Yet, the Framework lacks an explicit

description on how to embed it in firms. This is especially worrisome

given that many of the benefits that IR could provide are supposed to

be consequence of “integrated thinking”.

The treatment and classification of capitals also reduces

materiality. The IIRF suggests using its list of capitals to guarantee

that all potential impacts are considered when identifying material

subjects (IIRF, 2013, p. 12, par. 2.19). The set of capitals suggested is

quite comprehensive, but it does not include the economic dimension

of CSR, which goes beyond financial performance. Moreover, the

Framework allows firms to exclude capitals if they are not relevant

(IIRF, 2013, p. 12, par. 2.16). Capitals are broad enough to be

considered material and relevant for any firm’s stakeholders. These

two issues may exclude material CSR impacts for stakeholders.

Regarding measurement uncertainty, the IIRF indicates that

firms should briefly explain the methods to quantify and assess

material matters in IRs (IIRF, 2013, p. 29, par. 4.41). However, the

reporting model does not suggest methods for that purpose (IIRF,

2013, p. 7, par. 1.10). This issue is especially worrisome for

quantitative information because the IIRF enumerates a list of


121

characteristics that this information should meet to be suitable (IIRF,

2013, p. 31, par. 4.53).

In sum, our analysis shows that the IIRC reporting model fails

to provide effective relevance. Materiality in the IIRF focuses strictly

on the providers of financial capitals and neglects the rest of

stakeholders. Additionally, capitals are only taken into account if they

ultimately affect the firm’s value for financial stakeholders. The

Framework has also no proper basis to enable measurement

uncertainty as it does not suggest methods or, at least, key guidance to

prepare information.


We link completeness to three Guiding Principles: Strategic

focus and future orientation, Connectivity of information, and

Reliability and completeness. Based on these principles, IRs should

provide information that allows stakeholder to completely appreciate

the extent of impacts. The Principle of Strategic focus and future

orientation claims that IRs should offer information about a firm’s

effects on capitals and its capacity to do so in the future (IIRF, 2013,

p. 16, par. 3.4). The Principle of Connectivity of information claims

that IRs should represent the interrelationships among effects on

capitals (IIRF, 2013, p. 16, par. 3.6). Finally, the Principle of

Reliability and completeness claims that IRs should account for all

material matters (IIRF, 2013, p. 21, par. 3.39). Two Content

Elements, Business model and Performance, focus on the

consequences of corporate activities. Business model should provide

information on outcomes (IIRF, 2013, p. 25, par. 4.12), which are

“[t]he internal and external consequences (positive and negative) for

the capitals as a result of an organization’s business activities and

outputs” (IIRF, 2013, p. 33, def.10). Performance covers the firm’s

effects on capitals (IIRF, 2013, p. 28, par. 4.30-4.31). Additionally, the

Framework highlights that IRs should explain the interdependencies

within and among capitals and their transformations (IIRF, 2013, p. 2,

17, 30, 31, par. 3.8, 4.50, 4.51). The explanation of trade-offs and

interrelationships is useful to comprehensively appreciate impacts.


122

The IIRF seems also to support a broad scope for impacts. It

considers their effect in “the short, medium and long term” (IIRF,

2013, p. 7, par. 1.6), as well as their internal and external outcomes

beyond the firm’s boundaries (IIRF, 2013, p. 26, par. 4.19). It also

indicates that material matters could not be excluded due to the cost

of obtaining information (IIRF, 2013, p. 22, par. 3.49). However, the

IIRF actually fails to explain how to enable all these suggestions. First,

Content Elements are stated as questions and they do not enumerate

the information that should be reported (IIRF, 2013, p. 24, par. 4.3).

The IIRF suggests that quantitative and monetarised information,

combined with qualitative information, could be useful to measure

impacts on capitals (IIRF, 2013, p. 9, par. 1.11). However, it lacks

explanation on how to elaborate and compile that information to

respond to Content Elements. This issue may be also extended to the

representation of interrelationships within and among capitals. The

IIRF argues that they would be consequence, again, of “integrated

thinking” (IIRF, 2013, p. 16, par. 3.17). Second, similarly to

materiality, the coverage and scope of impacts are determined to the

extent that they affect firms’ capacity to create value. Disclosures

about the effect on capitals “[a]re determined by their effects on the

organization’s ability to create value over time, rather than whether or not

they are owned by the organization” (IIRF, 2013, p. 31, par. 4.54).

The IIRF also says that “[t]he purpose of looking beyond the

financial reporting boundary is to identify risks, opportunities and

outcomes that materially affect the organization’s ability to create value

(IIRF, 2013, p. 20, par. 3.35, emphasis). Therefore, information on

impacts fails to provide a complete coverage of CSR impacts.

Neutrality is presented in the Guiding Principle of Reliability

and completeness. This Principle states that an IR should disclose “all

material matters, both positive and negative, in a balanced way”

(IIRF, 2013, p. 21, par. 3.39), and it provides general suggestions to

achieve it (IIRF, 2013, p. 22, 3.45). The IIRF highlights the

consideration of positive and negative impacts in the definition of

outcomes (IIRF, 2013, p. 14, par. 2.25) and in the process of

determining material matters (IIRF, 2013, p. 18, par. 3.19). However,

the consideration of neutrality is limited to providers of financial

capitals. The IIRF considers neutrality in its definition of value


123

creation, as “[t]he process that results in increases, decreases or

transformations of the capitals caused by the organization’s business

activities and outputs” (IIRF, 2013, p. 33, def. 18, emphasis added).

As we explained above, value creation is a key concept for the IIRF

that focuses on what affects the capacity of the firm to create value

for providers of financial capitals. This could cause IRs to be neutral

for providers of financial capitals, but biased for the rest of

stakeholders. There are also other elements that limit the capacity of

the IIRC reporting model to achieve neutrality, such as the suggestion

to disclose qualitative information (IIRF, 2013, p. 28, par. 4.32),

which could be used to create positive perceptions; and the

aggregation of data, which could hide impacts (IIRF, 2013, p. 32, par.

4.60 and 4.61).

Regarding the last factor of faithful representation, we also link

freedom from error with the Principle of Reliability and

completeness, which highlights that IRs should disclose on “material

matters […] without material error” (IIRF, 2013, p. 22, par. 3.39). The

IIRF asks firms to indicate the existence of reasonable omissions and

their motives (IIRF, 2013, p. 8, par. 1.18), the disclosure of estimates

and how they were made (IIRF, 2013, p. 22, 3.46), the boundaries to

which information is related (IIRF, 2013, p. 29, par. 4.41), and

uncertainties about matters that could exist and assumptions that

could affect information (IIRF, 2013, p. 30, par. 4.50). Additionally, it

suggests external assurance and stakeholder engagement to increase

reliability (IIRF, 2013, p. 21, par. 3.40). Nonetheless, the IIRF makes

no reference to the provision of evidence on what is reported.

To sum up, the IIRC reporting model fails to enable two out of

the three factors of faithful representation. The IIRF links

completeness and neutrality to its conceptualisation of value creation.

Thus, it only considers these factors relative to the information

needed by the providers of financial capitals, rather than the

information required by all the stakeholders. Although this was not

the case, the lack of prescribed ways in compiling information reduces

the capacity of the IIRF to achieve completeness and neutrality.

Regarding freedom from error, the IIRC reporting model seems to

enable a reasonable level of this factor, despite its limitations.


124


The Guiding Principle of Consistency and comparability highlights

that an IR should be comparable among firms and over time (IIRF,

2013, p. 23, par. 3.54). The IIRF makes suggestions that promote

comparability, such as disclosing information about prior years (IIRF,

2013, p. 30 par. 4.50), and avoiding changes in reporting policies, or at

least explaining their effect if they were done (IIRF, 2013, p. 23, par.

3.55). These recommendations refer to firm’s previous IRs. However,

the Framework shows many elements that constrain comparability

among firms. First, although it suggests that IRs should be “logically

structured” (IIRF, 2013, p. 17, par. 3.9), it prescribes no

predetermined structure for organising the information. Furthermore,

it remarks that the classification of capitals and Content Elements,

which could be a way to organise information, are not suggested for

structuring content (IIRF, 2013, p. 12, 24, par. 2.17 and 4.2). It even

allows firms to categorise capitals in their own way (IIRF, 2013, p. 12,

par. 2.17). Second, the IIRF suggests different formats to produce

IRs, either as independent documents or as sections within other

corporate reports (IIRF, 2013, p. 8, par. 1.15). This issue reduces

comparability as the format might be different among firms and over

time. Third, content could be different among firms. The Framework

argues that responding to the questions that define Content Elements

could increase comparability (IIRF, 2013, p. 23, par. 3.56). However,

it is doubtful that this could be the case because firms may address

these questions differently. Fourth, figures may not be comparable

among firms. The IIRC suggests disclosing quantitative and

qualitative information (IIRF, 2013, p. 18, par. 3.8), but it highlights

that the former facilitates comparability (IIRF, 2013, p. 31, par. 4.53).

However, the IIRF does not prescribe specific measures or indicators

(IIRF 2013, p. 4), and indicates that each firm should determine the

measurement techniques that it deems suitable (IIRF, 2013, p. 7, par.

1.10). Fifth, the IIRF fosters the disclosure of qualitative information,

which is more difficult to compare, among firms and over time. If we

also consider the lack of concrete methods to produce quantitative

information, along with the formulation of Content Elements as

questions, we can affirm that the IIRF actually promotes the


125

reporting of narrative information. Sixth, the IIRF allows using

references to information provided in other documents, which

reduces comparability among firms (IIRF, 2013, p. 8, par. 1.16).

Finally, the Framework does not suggest the length of the period that

IRs should cover (IIRF, 2013, p. 32, par. 4.57). This inhibits

comparability because the period to which effects on capitals are

related could be different, among firms and from one IR to the prior

one.

To sum up, the IIRC reporting model fails to enable effective

comparability. The Framework claims that comparability is a key

characteristic and argues that its principle-based approach helps to

achieve it (IIRF, 2013, p. 7 par. 1.9). Nonetheless, our assessment

shows that it obstructs comparability because there is too much

flexibility and vagueness in their proposal.


The first sub-characteristic of understandability, clearness, is indirectly

present in the Guiding Principle of Connectivity of information,

which argues that:

The connectivity of information and the overall usefulness of

an integrated report is enhanced when it is logically structured, well

presented, written in clear, understandable and jargon-free language, and

includes effective navigation devices, such as clearly delineated (but

linked) sections and cross-referencing. (IIRF, 2013, p. 17 par.

3.9, emphasis added)

The IIFR suggests using simple concepts and avoiding technical

language (IIRF 2013, p. 21, par. 3.38). To clearly explain the business

model, it proposes to identify its key elements, provide a logical

narrative description, identify the critical stakeholders, dependencies

and factors, and provide a figure that depicts the business model

(IIRF, 2013, p. 26, par. 4.13). The IIRF offers an example of that

figure, which synthesises the firm’s value creation process (IIRF,

2013, p. 13, Figure 2). Although figures and tables could facilitate


126

clearness, that is the only mention to their use. Nonetheless, the most

important problem that hinders clearness is the way in which the

IIRF suggests organising content. It argues that information on a

matter could be presented independently or by providing pieces of

information about it in different Content Elements (IIRF, 2013, p. 20,

par. 4.51). Disclosing information on the same impact in several

sections makes it difficult for stakeholders to grasp the overall impact.

Additionally, the IIRC does not propose a structure for the IR. Other

reason that inhibits clearness is the use of references to other

documents.

Conciseness is a key characteristic of IRs, according to the

IIRC. The Principle of Conciseness focuses on this feature (IIRF,

2013, p. 22, par. 3.36), which is also emphasised in the definition of

IR (IIRF, 2013, p. 7, par. 1.1). The IIRF makes several suggestions to

promote conciseness, such as the figure to represent the value

creation process of firms as a schematic figure. It also asks firms to

avoid reporting “boilerplate” information (IIRF, 2013, p. 21, par.

3.38) and generic disclosures (IIRF, 2013, p. 30, par. 4.52). It

proposes prioritising material topics to include only those that are the

most material. In this regard, it is remarkable that the IIRF states that:

“[i]t [the stakeholder relationships Principle] does not mean that an

integrated report should attempt to satisfy the information needs of

all stakeholders” (IIRF, 2013, p. 17, par. 3.11 p. 17). The use of

references and the aggregation of data may also promote conciseness.

On the other hand, the IIRF presents several issues that reduce

conciseness. The Content Elements of Business Models and

Performance should cover most information on impacts. The rest of

Content Elements could then be unnecessary to effectively appreciate

CSR impacts. In addition, firms may generate long narratives as their

response to Content Element, as there is no specific guidelines on

what information should be provided to address them. The failure to

propose the use of graphic or tables could also negatively affect

conciseness. Finally, the Framework acknowledges that drivers of

conciseness could be detrimental for other characteristics, particularly

completeness and comparability, and warns that balance should be

achieved (IIRF, 2013, p. 21, par. 3.38).


127

Overall, the IIRF fails to provide appropriate conciseness and

clearness. Despite making suggestions to improve both factors, it

poses several limitations that overcome them. In this regard, it is

noteworthy the effect of Content Elements. Their formulation could

lead to overloaded IRs and obstruct understandability because

information on a matter may be disseminated in several Content

Elements.

To recapitulate, our analysis shows that the IIRF proposes

elements that promote transparent CSR reporting. Nonetheless, they

are mitigated by the many important issues that make the IIRF

unsuitable to effectively communicate CSR impacts to stakeholders.

The most significant constraint is its focus on providers of financial

capitals and on the creation of value for the firm. These issues neglect

those impacts in which the rest of stakeholders could be interested in.

Additionally, the IIRF is so general and conceptual that fails to

explain how to actually produce IRs. Furthermore, it relies on

“integrated thinking” as the driver of the elements that contribute to

effective communication, but it fails to describe how to implement it.

4.7. The application of the IIRC reporting model: Asahi

Integrated Report 2015

Asahi Integrated Report 2015 is the second IR published by the

company. The 74-page document discloses financial and CSR

information jointly, and it consists of five main sections: Our

business, Leadership (Management), Corporate Value Creation

Process, Management Foundation, and Financial and Corporate

Information (Asahi IR, 2015, p. 1). The report covers the firm fiscal

year from 1 January 2015 to 31 December 2015. Asahi points out that

it followed the IIRF in preparing its IR (Asahi IR, 2015, p. Editorial

Policy). Asahi also notes that their IR received several prices as a

good integrated reporter, in addition to the recognition that we used

to select it as the case study for the application of the IIRC reporting

model (Asahi IR, 2015, p. 53).


128


Asahi follows the suggestion of the IIRF and explains how it

determined materiality to identify key CSR issues (Asahi IR, 2015, p.

40-41). The firm groups them in three broader themes, which are

listed several times (Asahi IR, 2015, p. 2, 3, 38, 40). The company

asserts that it considered the impact of these issues to identify

material matters (Asahi IR, 2015, p. 40), but fails to indicate to what

or whom the impact refers. Some claims seem to indicate that

material issues were determined based on their influence on both,

corporate value and “a sustainable society” (Asahi IR, 2015, p. 2), and

that stakeholders were involved in the process (Asahi IR, 2015, p. 48-

49). However, materiality was actually determined considering their

ultimate effect on the value created for providers of financial capital,

as emphasised by the IIRF. The figure describing Asahi’s corporate

philosophy depicts CSR material issues as a means to improve the

firm’s corporate value (Asahi, IR 2015, p. 2-3). For Asahi, corporate

value means financial value. The first section of the Letter from the

CEO directly links the creation of corporate value to a battery of

financial targets (Asahi IR, 2015, p. 16). The CEO affirms that they

consider CSR impacts as a way to create corporate (financial) value:

“[…] we will pursue the satisfaction of all our stakeholders by pursuing the

sophistication of not only our financial capital but of all our other

capital elements as well. This endeavor will be indispensable to enhancing our

corporate value” (Asahi IR, 2015, p. 16, emphasis added). The Message

from the President reinforces the financial consideration of corporate

value and specifically points to a CSR matter, the upcoming Tokyo

Olympics, as an opportunity to extend business (Asahi IR, 2015, p.

19-20). A similar example is the suggestion of manufacturing products

using green electricity to increase sales (Asahi IR, 2015, p. 12, 29).

The key priorities of the firm’s medium-term management

policy also show that materiality was determined based on financial

outcomes. The third of these priorities refers to the “[r]einforcement

of ESG [environmental, social and governance] initiatives to increase

sustainability” (Asahi IR, 2015, p. 18). The IR recognises that the

actual objective of this priority is to promote corporate value: “the

Group aims to continuously increase its corporate value by


129

incorporating ESG initiatives into its management strategy”. (Asahi

IR, 2015, p. 38). In fact, the firm only discloses financial information

when it describes the implementation of their medium-term key

priorities in its business areas (Asahi IR, 2015, p. 30-37).

Additionally, Asahi’s stakeholder engagement is far from being

appropriate because it focuses on financial issues. The firm claims to

dialogue with their stakeholder to determine materiality (Asahi IR,

2015, p. 40). However, the engagement is limited to just one meeting

of 5 directors and 2 external experts (Asahi IR, 2015, p. 41). At the

end of that dialogue, “the Company’s management team had a

stronger awareness of the need to increase corporate value through the

resolution of social issues” (Asahi IR, 2015, p. 41). As a consequence of

the limited consideration of the actual stakeholders’ interests in

defining materiality, many material CSR impacts are excluded in Asahi

IR. The list of key identified covers only 10 types of impacts and only

social and environmental issues are considered (Asahi IR, 2015, p.

38). Broad economic impacts beyond financial ones, which are related

to the CSR economic dimension, are missing.

In relation to measurement uncertainty, the firm provides

footnotes and explanations on how it measures the reported figures,

but most of them are related to financial information. Explanations

about the compilation of CSR information is quite limited (e.g., Asahi

IR, 2015, p. 51), and most of them are about corporate governance

(Asahi IR, 2015, p. 58-59). In this regard, the firm points out that it

does not quantitatively measure the targets of their ESG key priorities

in the medium-term (Asahi IR, 2015, p. 17), and they are narratively

and generically defined (Asahi IR, 2015, p. 18). Despite this limitation,

the firm clearly indicates the units of measure of the few quantified

information on CSR issues (e.g., Asahi IR, 2016, p. 13). By contrast,

financial targets are always quantified (Asahi IR, 2015, p. 18).

To sum up, Asahi IR fails to provide relevance through both,

materiality and measurement uncertainty. Material topics were

determined through an inappropriate stakeholder engagement and

they were considered only to the extent that the affect financial value.

In addition, the IR lacks clear descriptions on how CSR information

was prepared. Table 4.8 shows that the constraining elements are a

consequence of the limitations of the IIRF.


130

Tab

le 4

.8. R

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of

the

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131


Asahi IR shows little completeness. First, information about the few

CSR impacts reported is scarce and generic, and it focuses on the

management and responsibility of CSR policies, without considering

the consequences of corporate activities (e.g., Asahi IR, 2015, p. 39).

Some sections are expected to provide a more complete coverage of

CSR impacts, including information on outcomes (e.g., Asahi IR,

2015, p. 42-43 about ESG Initiative of the Asahi Group, 44-47 about

Enhancing human capital). However, they fail to do so and mostly

disclose narrative descriptions, with very few quantified figures, on

how the firm manages a bunch of CSR initiatives. Similarly, the

“Eleven-Year Financial Summary” devotes 6 out of its 32 quantitative

indicators to assess CSR issues (Asahi IR, 2015, p. 58-59), but they are

unrelated to outcomes. By contrast, financial impacts and issues are

more comprehensively covered. Some sections that report on both,

CSR and financial matters, demonstrate the unbalanced coverage.

They offer quantified and concrete information on financial issues, in

contrast to what they do with CSR information. The aforementioned

targets for the medium-term priority about ESG (Asahi IR, 2015, p.

26-27) are a clear example, but there are others in several sections

(e.g., Asahi IR, 2015, p. 28-29 about Driving Sustained Value Creation

by Upgrading Value Chains). Second, the IR does not account for the

interrelationships among CSR impacts and capitals. None

interdependency is mentioned or, at least, apparent in the report. This

is noteworthy due to the firm activity: alcoholic beverages obviously

have a social impact. Finally, the coverage and scope of information

on impacts is determined based on their influence on the firm’s

financial value creation. The firm considers CSR issues (e.g., Tokyo

Olympics, green electricity products) as a means to create corporate

value, without acknowledging how they affect the society or the

environment. Additionally, the long-term vision of the firm is limited

to the evolution of sales (Asahi IR, 2015, p. 18). Regarding the scope,

the IR specifies at the beginning that the period and boundary

covered are, respectively, “January 1, 2015–December 31, 2015.

Including some information outside this period”, and "Asahi Group

Holdings, Ltd. and Group companies” (Asahi IR, 2015, Editorial


132

Policy). This boundary does not apply for CSR information. The IR

indicates a different boundary for CSR topics, differentiating whether

it is external, internal or both (Asahi IR, 2015, p. 40). Yet, this is far

from being clear. In other parts of the IR, the firm indicates other

boundaries for certain CSR topics (e.g., water consumptions, CO2

emissions,) and not all companies in the Group were considered

when compiling information on them (Asahi, IR, p. 58-59). In any

case, it is obvious that CSR impacts were not fully taken into account.

Finally, we were unable to assess whether any information was not

provided due to the cost of obtaining it.

Asahi IR also fails to achieve neutrality, the second factor of

faithful representation. The little information on CSR impacts is

positive and seeks to provide a favourable image. For example,

disclosures on social initiatives, human resources and even corporate

reporting practices emphasise the positive attitude of the firm (Asahi

IR, 2015, p. 42-43, 47-48, 53). Even the financial information is also

positive, without acknowledging significant negative events. The firm

also includes words to increase the positive perception of its CSR

initiatives in narrative disclosures, for instance “uniquely”,

“priorities”, “enhance”, or “deepening”. Finally, the few quantified

information on CSR is aggregated at the group level. This could

counteract negative effects on some firms of the group that are

hidden at the expense of the positive effects of other companies. For

example, quantified CSR information in the “Eleven-Year Financial

Summary” refers to several companies of the group (Asahi IR, 2015,

p. 58-59).

Finally, the IR also suffers from problems related to freedom

from error. As it was aforementioned, the document is unclear in

identifying the boundary of information on CSR impacts. Asahi also

avoids the IIRF’s suggestion about external assurance. At least, the IR

makes no reference to having been assured. Finally, the document

does not provide evidence on their (positive) reported impacts. The

key examples about Asahi’s value creation related to CSR are general

and do not provide figures supporting its claims (Asahi IR, 2015, p.

26-27). This is striking given that information on financial issues

provided in the same pages is quantified. The sections that specifically

cover the firm’s social and environmental material themes also fail to


133

provide evidence on their positive attitudes (Asahi IR, 2015, p. 42-47).

Furthermore, some of the figures reported are not clear and raise

doubts. For instance, in several pages the firm indicates that its

percentage of female managers is 11.8% for the entire group (Asahi

IR, 2015, p. 7, 12). Yet, this figure does not appear when it discloses

specific information about this in another part of the report (Asahi

IR, 2015, p. 46).

To recapitulate, Asahi IR fails to achieve faithful representation.

The little coverage of impacts, particularly outcomes, indicates that

they are not completely represented. Additionally, information is

positive and lacks evidence that corroborates it. These concerns

reduce neutrality and freedom from error. Table 4.9 indicates that

most problems are driven by the limitations of the IIRC reporting

model.


Asahi IR lacks appropriate comparability. Its structure and content

could be different to other firms. The IR is not well organised and it

is adapted to the firm’s situation (see Asahi IR, 2015, p. 1, content

summary). Sections are unconnected, although some of them disclose

information on the same topic. Asahi combines financial and CSR

information, while other firms, also following the IIRF, could use a

different format. The report contains little quantitative information

about CSR impacts, as we highlighted above. Additionally, narratives

disclosures are not clear in how Asahi responds to each question of

Content Elements, which makes it difficult to compare to the

responses of other firms. Finally, the IR contains many references to

sections within the report and to other documents or webpages,

including one that is exclusively related to CSR issues, at the end of

the report (Asahi IR, 2015, p.71). Other problem that reduces

comparability is that the reporting period is not easy to identify. Asahi

indicates that the IR covers from “January 1, 2015–December 31,

2015, [i]ncluding some information outside this period” (Asahi IR,

2015, p. Editorial Policy). The last part of the statements raises

doubts about which period is exactly considered.


134

Tab

le 4

.9. F

aith

ful re

pre

sen

tati

on

of

the

IIR

C r

epo

rtin

g m

od

el a

nd

its

ap

plic

atio

n

Facto

r II

RC

rep

ort

ing

mo

del

Asa

hi

IR 2

015

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Co

mp

lete

nes

s II

RF

sta

tes

that

req

uir

ed

info

rmat

ion

co

uld

no

t b

e ex

clud

ed

bec

ause

of

the

cost

of

ob

tain

ing

it.

Po

siti

ve

No

t p

oss

ible

to

ass

ess

IIR

F s

ugg

ests

pro

vid

ing

info

rmat

ion

on

th

e co

nse

quen

ces

of

and

in

terr

elat

ion

ship

s b

etw

een

im

pac

ts. Y

et, it

fai

ls t

o e

xpla

in h

ow

to

co

mp

ile a

nd

ela

bo

rate

th

at

info

rmat

ion

.

Neg

ativ

e D

iscl

osu

res

on

CSR

im

pac

ts a

re

scar

ce a

nd

gen

eric

an

d f

ail to

co

ver

o

utc

om

es o

f an

d in

terd

epen

den

cies

am

on

g C

SR

iss

ues

.

Neg

ativ

e R

epo

rtin

g M

od

el

IIR

F s

ugg

ests

co

ver

age

over

tim

e an

d o

uts

ide

the

firm

, b

ut

on

ly t

o

the

exte

nt

to w

hic

h t

hey

aff

ect

the

val

ue

crea

ted

fo

r th

e fi

rm.

Neg

ativ

e T

he

cover

age

of

CSR

im

pac

ts i

s co

nsi

der

ed b

ased

on

th

eir

infl

uen

ce

on

th

e cr

eati

on

of

corp

ora

te v

alue.

B

oun

dar

ies

are

no

t cl

ear.

Neg

ativ

e R

epo

rtin

g M

od

el

Neu

tral

ity

IIR

F h

igh

ligh

ts t

hat

po

siti

ve

and

n

egat

ive

effe

cts

on

cap

ital

s sh

ould

b

e d

iscl

ose

d if

they

aff

ect

the

val

ue

crea

ted

fo

r th

e fi

rm.

Neg

ativ

e In

form

atio

n o

nly

co

ver

s p

osi

tive

CSR

iss

ues

. N

egat

ive

Rep

ort

ing

Mo

del

II

RF

sugg

ests

dis

clo

sin

g n

arra

tive

and

qual

itat

ive

info

rmat

ion

. N

egat

ive

Nar

rati

ve

dis

clo

sure

s in

clud

e w

ord

s to

em

ph

asis

e th

e p

osi

tive

imag

e o

f th

e fi

rm.

Neg

ativ

e R

epo

rtin

g M

od

el

II

RF

sugg

ests

agg

rega

tin

g d

ata.

N

egat

ive

Quan

tifi

ed f

igure

s ar

e ag

greg

ated

at

gro

up

lev

el.

Neg

ativ

e R

epo

rtin

g M

od

el


135

Tab

le 4

.9 (

con

tin

ued

)

Fre

edo

m

fro

m e

rro

r

IIR

F s

ugg

ests

in

dic

atin

g an

d

exp

lain

ing

om

issi

on

s, e

stim

ates

an

d

bo

un

dar

ies

in c

om

pili

ng

info

rmat

ion

.

Po

siti

ve

Bo

un

dar

ies

of

CSR

in

form

atio

n a

re

no

t cl

ear.

N

egat

ive

Ap

plic

atio

n

II

RF

sugg

ests

exte

rnal

ass

ura

nce

. P

osi

tive

CSR

in

form

atio

n in

th

e IR

is

no

t as

sure

d.

Neg

ativ

e A

pp

licat

ion

II

RF

do

es n

ot

requir

e p

rovid

ing

evid

ence

. N

egat

ive

Evid

ence

sup

po

rtin

g in

form

atio

n

on

CSR

im

pac

ts is

scar

ce a

nd

an

ecd

ota

l.

Neg

ativ

e R

epo

rtin

g M

od

el


136

Nonetheless, Asahi follows some IIRF’s suggestions to increase

comparability over time. The firm provides information about

previous years for the few quantitative data on CSR impacts (Asahi

IR, 2015, p. 10-13, 49, 58-59). The IR also indicates some changes in

reporting policies (Asahi IR, 2015, p. 12). Yet, we cannot assess if

there were more modifications. The IR also has a structure and

format that is consistent with the firm’s prior report (Asahi IR, 2014).

Overall, Table 4.10 shows that the IR is not comparable among

firms are all the issues driven by the IIRC reporting model are present

in the report. Regarding comparability over time, we note that the IR

seems comparable to a higher level that the one that could be

expected based on the IIRC reporting model.


Asahi follows some of the IIRF’s suggestions to increase clearness.

The document uses plain language and explains technical concepts if

they are included (e.g., Asahi IR, 2015, p. 51). The IR also provides a

figure that describes Asahi’s business model (Asahi IR, 2015, p. 8). In

addition, the firm discloses other graphics and tables on CSR impacts,

which is an improvement respect to what the reporting model

proposes (Asahi IR, 2015, p. 2-3, 39, 40, 44, 49, 50). However, they

are less frequent than those about financial information, particularly

in the sections that covers both types of information (Asahi IR, 2015,

p. 28-29; 3037). Yet, the IR also suffers from some limitations.

Several sections disclose information on the same CSR impact, which

could confuse readers. Examples of sections where this happens are

“Results of non-financial highlights” (Asahi IR, 2015, p.12-13), “ESG

Initiative of the Asahi Group” (Asahi IR, 2015, p. 42-43). “Enhancing

Human Capital” (Asahi IR, 2015, p. 44-47), “Source of Value

Creation” (Asahi IR, 2015, p. 6-7) or “Asahi’s Value Creation Process

(Key examples)” (Asahi IR, 2015, p. 26-27). In addition to the fact

that the IIRC allows firms to do it, this problem could be related to

the lack of a predetermined structure, which fails to explain the

relationships among sections. The use of references to other

documents also reduces clearness.


137

Tab

le 4

.10. C

om

par

abili

ty o

f th

e II

RC

rep

ort

ing

mo

del

an

d its

ap

plic

atio

n

Facto

r IR

RC

rep

ort

ing

mo

del

Asa

hi

IR 2

015

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Am

on

g f

irm

s II

RF

fai

ls t

o s

ugg

est

a st

ruct

ure

to

o

rgan

ise

IR c

on

ten

t.

Neg

ativ

e T

he

stru

cture

co

uld

be

dif

fere

nt

fro

m o

ther

fir

ms.

N

egat

ive

Rep

ort

ing

Mo

del

II

RF

allo

ws

usi

ng

dif

fere

nt

rep

ort

ing

form

ats.

N

egat

ive

Th

e IR

co

mb

ines

fin

anci

al a

nd

C

SR

in

form

atio

n in

th

e sa

me

rep

ort

.

Neg

ativ

e R

epo

rtin

g M

od

el

II

RF

sugg

ests

th

at c

on

ten

t sh

ould

b

e d

eter

min

ed b

y an

swer

ing

to

Co

nte

nt

Ele

men

ts q

ues

tio

ns.

Neg

ativ

e It

is

no

t cl

ear

ho

w A

sah

i re

spo

nd

to

Co

nte

nt

Ele

men

ts.

Neg

ativ

e R

epo

rtin

g M

od

el

IIR

F a

vo

ids

pro

po

sin

g m

easu

rem

ent

met

ho

ds

for

quan

tita

tive

info

rmat

ion

; h

ence

, th

is d

ata

could

no

t b

e co

mp

arab

le.

Neg

ativ

e T

he

IR p

rovid

es lit

tle

quan

tita

tive

info

rmat

ion

ab

out

CSR

im

pac

ts.

Neg

ativ

e R

epo

rtin

g M

od

el

II

RF

pro

mo

tes

the

dis

clo

sure

of

nar

rati

ve

info

rmat

ion

. N

egat

ive

Mo

st d

iscl

osu

res

are

nar

rati

ve.

N

egat

ive

Rep

ort

ing

Mo

del

II

RF

allo

ws

usi

ng

refe

ren

ces

to

con

ten

t in

oth

er r

epo

rts.

N

egat

ive

Th

ere

are

man

y re

fere

nce

s to

oth

er

do

cum

ents

an

d w

ebp

ages

. N

egat

ive

Rep

ort

ing

Mo

del


138

Tab

le 4

.10 (

con

tin

ued

)

Ove

r ti

me

IIR

F s

ugge

sts

dis

clo

sin

g in

form

atio

n f

rom

pri

or

year

s.

Po

siti

ve

Th

e IR

pro

vid

es f

igure

s fo

r th

e cu

rren

t an

d p

revio

us

year

s.

Po

siti

ve

II

RF

sugg

ests

avo

idin

g, o

r, a

t le

ast,

ex

pla

inin

g ch

ange

s in

rep

ort

ing

po

licie

s.

Po

siti

ve

Th

ere

are

exp

lan

atio

ns

ind

icat

ing

chan

ges

in r

epo

rtin

g p

olic

ies.

P

osi

tive

II

RF

fai

ls t

o s

ugg

est

a st

ruct

ure

to

o

rgan

ise

IR c

on

ten

t.

Neg

ativ

e T

he

stru

cture

is

con

sist

ent

wit

h t

he

on

e o

f th

e p

rio

r IR

. P

osi

tive

Rep

ort

ing

Mo

del

II

RF

allo

ws

usi

ng

dif

fere

nt

rep

ort

ing

form

ats.

N

egat

ive

Th

e fo

rmat

is

con

sist

ent

wit

h t

he

on

e o

f th

e p

rio

r IR

. P

osi

tive

Rep

ort

ing

Mo

del

II

RF

pro

mo

tes

the

dis

clo

sure

of

nar

rati

ve

info

rmat

ion

. N

egat

ive

Mo

st d

iscl

osu

res

are

nar

rati

ve.

N

egat

ive

Rep

ort

ing

Mo

del

II

RF

fai

ls t

o s

pec

ify

the

len

gth

of

the

per

iod

th

at I

Rs

sho

uld

co

ver

. N

egat

ive

Th

e p

erio

d c

over

ed is

no

t cl

ear.

N

egat

ive

Rep

ort

ing

Mo

del


139

In relation to conciseness, Asahi IR provides a figure depicting

the firm’s business model and also others, as abovementioned. The

company has also prioritised CSR themes based on materiality (Asahi

IR, 2015, p. 40), referenced content to other documents and

aggregated data to increase the produce a concise IR. Nonetheless,

most information on CSR impacts is generic and boilerplate; for

example, in the section on collaboration power and strengthen

collaborative partnership with various stakeholders (Asahi IR, 2015,

p. 6-7), and in the section on the firm’s basic philosophy about

diversity (Asahi IR, 2015, p. 46). Additionally, some information is

repeated in several sections. For instance, information on female

managers or on green electricity products is disclosed several times

(Asahi IR, 2015, p. 12, 29, 45). Furthermore, some narrative passages

are even the same in different sections, such as the disclosure about

Tokyo Olympics in the Message from the President (Asahi IR, 2015,

p. 21) and in the review of operations (Asahi IR, 2015, p. 30). Finally,

as already noted, most information is narrative and qualitative.

Our analysis indicates that Asahi IR is more understandable

than what could be expected based on the IIRF. Table 4.11 points out

that the firm does not follow one of the suggestions to increase

conciseness, but it improves one of the limitations of the reporting

model. Yet, most of the problems of the IIRF related to clearness and

conciseness are transferred to the IR.

In sum, our assessment of Asahi IR 2015 shows that it lacks

significance and fidelity. The most important problem is that the

information only covers impacts to the extent to which they affect

value for investors. In fact, Asahi recognises that even the IR has a

financial purpose (Asahi IR, 2015, p. 53). In addition, the IR is far

from being comparable, clear and concise. The majority of the

elements that negatively affect effective and transparent

communication are consequence of the IIRC reporting model,

although the application has also worsened some characteristics.


140

Tab

le 4

.11. U

nd

erst

and

abili

ty o

f th

e II

RC

rep

ort

ing

mo

del

an

d its

ap

plica

tio

n

Facto

r II

RC

rep

ort

ing

mo

del

Asa

hi

IR 2

015

Ele

men

t E

ffect

Ele

men

t E

ffect

Reaso

n

Cle

arn

ess

IIR

F s

ugg

ests

usi

ng

clea

r la

ngu

age

and

avo

idin

g ja

rgo

n.

Po

siti

ve

Th

e IR

use

s p

lain

lan

guag

e an

d

def

ined

tec

hn

ical

co

nce

pts

if

they

ar

e use

d.

Po

siti

ve

II

RF

pro

po

ses

a fi

gure

th

at

sum

mar

ises

th

e b

usi

nes

s m

od

el.

Po

siti

ve

Th

e fi

gure

ab

out

the

bu

sin

ess

mo

del

is

pro

vid

ed.

Po

siti

ve

II

RF

fai

ls t

o s

ugg

est

usi

ng

figu

res

and

tab

les

exce

pt

fro

m o

ne

abo

ut

the

busi

nes

s m

od

el.

Neg

ativ

e T

her

e ar

e fi

gure

s an

d t

able

s ab

out

CSR

im

pac

ts, b

ut

few

er t

han

th

ose

ab

out

fin

anci

al iss

ues

.

Po

siti

ve

Rep

ort

ing

Mo

del

II

RF

sugg

est

dis

clo

sin

g in

form

atio

n o

n a

n im

pac

t in

se

ver

al p

arts

of

the

rep

ort

.

Neg

ativ

e P

iece

s o

f in

form

atio

n o

n t

he

sam

e C

SR

im

pac

t ar

e re

po

rted

in

sev

eral

se

ctio

ns.

Neg

ativ

e R

epo

rtin

g M

od

el

II

RF

fai

ls t

o p

rop

ose

a

pre

det

erm

ined

str

uct

ure

fo

r o

rgan

isin

g th

e IR

.

Neg

ativ

e T

he

IR s

eem

s to

fo

llo

w its

ow

n

stru

cture

.

Neg

ativ

e R

epo

rtin

g M

od

el

II

RF

allo

ws

usi

ng

refe

ren

ces

to

con

ten

t in

oth

er r

epo

rts.

N

egat

ive

Th

ere

are

man

y re

fere

nce

s to

oth

er

do

cum

ents

an

d w

ebp

ages

. N

egat

ive

Rep

ort

ing

Mo

del


141

Tab

le 4

.11 (

con

tin

ued

)

Co

nci

sen

ess

IIR

F p

rop

ose

s a

figu

re t

hat

su

mm

aris

es t

he

busi

nes

s m

od

el.

Po

siti

ve

Th

e fi

gure

ab

out

the

bu

sin

ess

mo

del

is

pro

vid

ed.

Po

siti

ve

II

RF

sugg

ests

avo

idin

g “b

oiler

pla

te”

and

gen

eric

d

iscl

osu

res.

Po

siti

ve

Mo

st d

iscl

osu

res

on

CSR

im

pac

ts

are

“bo

ilerp

late

” an

d g

ener

ic, an

d

som

e in

form

atio

n is

rep

eate

d.

Neg

ativ

e A

pp

licat

ion

II

RF

sugg

est

pri

ori

tisi

ng

con

ten

t b

ased

on

mat

eria

lity.

P

osi

tive

Asa

hi p

rio

riti

sed

mat

eria

l su

bje

cts

wh

en d

efin

ing

mat

eria

lity.

P

osi

tive

II

RF

allo

ws

usi

ng

refe

ren

ces

to

con

ten

t in

oth

er r

epo

rts.

P

osi

tive

Th

ere

are

man

y re

fere

nce

s to

oth

er

do

cum

ents

an

d w

ebp

ages

. P

osi

tive

II

RF

allo

ws

aggr

egat

ing

info

rmat

ion

. P

osi

tive

Fig

ure

s ar

e ag

greg

ated

at

gro

up

le

vel

. P

osi

tive

II

RF

sugg

ests

nin

e C

on

ten

t E

lem

ents

. O

nly

tw

o a

re r

elat

ed t

o

outc

om

es o

f C

SR

im

pac

ts. C

on

ten

t E

lem

ent

could

in

crea

se n

arra

tive

dis

clo

sure

s.

Neg

ativ

e M

ost

in

form

atio

n o

n C

SR

im

pac

ts

is n

arra

tive.

N

egat

ive

Rep

ort

ing

Mo

del

II

RF

fai

ls t

o s

ugg

est

dis

clo

sin

g fi

gure

s an

d t

able

s, e

xcep

t fr

om

th

e o

ne

abo

ut

the

bu

sin

ess

mo

del

.

Neg

ativ

e T

her

e ar

e fi

gure

s an

d t

able

s ab

out

CSR

im

pac

ts.

Po

siti

ve

Rep

ort

ing

Mo

del


142

4.8. Discussion

Flower (2015) noted that CSR reporting practices should meet two

requirements to effectively communicate transparent information: a

comprehensive reporting model that facilitates the production of a

report and an adequate application of the model by firms. Our

qualitative analysis shows that the failure of current CSR reporting

practices to enable effective and transparent CSR communication is a

consequence of the GRI and IIRC reporting models, rather than their

applications. Most of the elements that hamper significance and

fidelity in the reports are driven by the problems presented in the

reporting models. Both reporting models make proposals that

promote communication, but these suggestions are overcome by their

limitations. If the reporting model has significant limitations, the

application has really no important role in determining the outcome.

Regarding GRI, our findings contribute to the results of

Tschopp and Nastanski (2014). These authors concluded that GRI is

the most likely to become agreed upon CSR reporting model for the

harmonisation of CSR reporting. They studied whether several CSR

reporting standards meet the characteristics for financial reports

defined by the Financial Accounting Standard Board. These

characteristics are similar to the ones that we borrowed from the

IASB to define significance and fidelity. Taking into account our

findings and those of Tschopp and Nastanski (2014), the GRI might

be the best CSR reporting model. However, our analysis shows that it

is still not appropriate to facilitate the production of a SR that

provides transparent information on CSR impacts.

Several studies also raised concerns about some of the issues

that we found that the GRI reporting model suffers from. Yet, they

identified them in relation to other purposes rather than

communication. Some authors developed practical methodologies

and techniques to define materiality and engage stakeholders based on

GRI’s general guidance, as it lacks specific explanations on how to do

it (Bellantuono et al., 2016; Calabrese et al., 2016). Although

materiality and stakeholder engagement has been emphasised by GRI

since its beginnings, how to undertake them has always been an issue


143

yet to be solved (Adams, 2004). According to Knebel and Seele

(2015), the problem of defining materiality is an important

shortcoming because it allows firms too much freedom to decide

what they do and do not want to report. Yet, firms should not be

blamed for misapplying materiality given that the reporting model

does not provide appropriate tools to do it correctly. Similar to us,

Bouten et al. (2011) also argued that some CSR impacts that could be

material for some firms are not covered in the list of items provided

by GRI (G3).

Other authors focused on whether and why firms correctly

apply GRI Principles. Moneva et al. (2006) observed that GRI fails to

effectively guide firms in implementing its Principles, while it places

more emphasis on how to compile indicators. By contrast, Etzion and

Ferraro (2010), as well as Benham and Maclean (2011), found that

GRI has focused on Principles, rather than on providing formats or

methods to produce SRs. Both studies, along with our assessment,

indicate that GRI fails to offer concrete guidance on how to produce

SRs. Benham and Maclean (2011) considered that this issue, rather

than being a problem, could be helpful for companies that voluntarily

adopt GRI. They argued that leaving the reporting model open to

interpretation provides flexibility to firms, which promotes an

effective application. Our findings indicate that this is not the case.

The lack of specific guidelines and explanations on how to apply the

GRI reporting model has a detrimental effect on CSR communication

and transparency. This problem reduces the GRI’s capacity to

facilitate the elaboration of a report that achieves significance and

fidelity, but it also reduces the correct and complete application by

firms. Our finding is in line with that of Chauvey, Giordano-Spring,

Cho and Patten (2015), who noted that absence of definitions and

methodologies for calculating indicators thwarts the clarity and

comprehensibility of the information. Additionally, we agree with

Isaksson and Steimle (2009). Similarly to us, these authors pointed out

that the content of SRs does not differentiate between enablers and

outcomes and attributed this problem to GRI because it does not

distinguish between indicators on resources and indicators on results.

From a communication perspective, the problem is not only that

there is no differentiation, but that there are very few indicators that


144

actually cover the consequences of corporate activities. Therefore, the

SRs produced based on the GRI reporting model cannot allow

stakeholders to completely assess CSR impacts.

SRs have been found to be of little relevance, completeness and

neutrality (Boiral, 2013; Bouten et al., 2011; Isaksson & Steimle, 2009;

Knebel & Seele, 2015; Leszczynska, 2012). Some authors also noted

that they provide excessive narrative disclosures (Michelon et al.,

2015; Solomon & Solomon, 2006). Consequently, SRs are quite

lengthy and they overload the reader (Boiral, 2013; KPMG 2013),

while they do not guarantee that stakeholders are provided with

complete information about CSR impacts (Michelon et al., 2015). We

found that these issues were present in BHP Billiton SR. However,

while most papers blame firms’ application of the model as the reason

for those problems (Archel et al., 2008; Boiral 2013; Bouten et al.,

2011; Haji & Hossain, 2016; Knebel & Seele, 2015; Leszsczynska,

2012), we show that most of them are actually driven by the GRI

reporting model.

In relation to IRs, our findings agree with those of a recent line

of studies that highlight the scarce presence of sustainability or CSR

information in the IIRF (Alexander & Blum, 2016; Flower, 2015;

Thomson, 2015). These papers claim that the IIRF does not aim to

provide information that covers firm’s CSR impacts. Instead, it

focuses on providing relevant information for financial investors. In

this regard, Flower (2015) emphasises that readers of the IIRF should

not forget that it uses the word value meaning value to providers of

financial capitals. In a similar vein, Thomson (2015) observes that the

IIRF ended advocating the business case of CSR. We identified the

same problem in our analysis. We found that, as a consequence of the

IIRF, the selected IR has a good coverage of financial topics, in

contrast to the scarce and poor content about CSR impacts.

According to Haji and Hossain (2016) the adoption of IRs has

been expected to change the reporting practices. They analysed

award-winning IRs from South African companies to see whether

that was the case. They found that the disclosure of IRs has not

improved corporate reporting. Similar to us, they observed that their

content is generic, biased and not relevant. Additionally, these authors

found that the size of reports has not been reduced despite the IIRF’s


145

call to produce concise reports. We also identified this lack of

conciseness, which has been pointed out in other papers (Setia,

Abhayawansa, Joshi & Huynh, 2015). Haji and Hossain (2016)

attempted to address “how” IRs influenced reporting practices, but

they noted that they did not study “why”. We believe that this chapter

contributes to filling this gap, as we identified problems in the IIRF

and the application that explain current IR reporting practices.

Finally, we observed that in both CSR reporting practices, firms

use narrative disclosures to create a positive perception about how

they manage their CSR impacts. This finding agrees with Neu,

Warsame and Pedwell (1998), who suggested that firms use narratives

to manage readers’ impressions.


This chapter explores why current CSR reporting practices are

unsuccessful in effectively communicating transparent information on

CSR impacts to stakeholders. Particularly, we assess whether this

problem is due to reporting models or by the firms’ application of

those models. We focus on two particular reporting models: the GRI

Guidelines for SRs and the IIRF for IRs. We use interpretive textual

analysis to evaluate the level at which the theoretical characteristics

that determine effective CSR communication (significance and

fidelity) are provided by reporting models and by their application in a

SR and an IR regarded as “best practice”. Thus, we consider the two

key elements that reporting practices need to effectively communicate

transparent CSR information: a reporting model that explains how to

elaborate reports and their application by firms (Flower, 2015).

Our analysis shows that the freedom of firms to apply reporting

models is not the main reason for the low level of transparency, as

suggested by some authors (Boiral 2013; Bouten et al., 2011; Haji &

Hossain, 2016; Knebel & Seele, 2015; Leszsczynska, 2012). We found

that the GRI and the IIRC reporting models suffer from important

limitations that thwart the production of reports that effectively

represents CSR impacts. When firms apply reporting models,

limitations are transferred to the reports.


146

Knebel and Seele (2015) argue that the problem of application

is because reporting models allow firms to do it inappropriately. In

this regard, Bouten et al. (2011) suggests that the compulsory

application of reporting models could lead to improved reports.

However, our findings suggest that mandating their application would

not guarantee effective and transparent CSR communication due to

the inherent limitations of reporting models. Furthermore, it could

have an adverse effect and inhibit firms to use the guidelines because

they could regard them as too stringent (Tschopp & Nastanski, 2014).

Reporting models need to further improve to facilitate the production

of reports that enable stakeholders to appreciate CSR impacts.

Particularly, they should appropriately balance vagueness and

concretion in defining how to produce reports. On the one hand,

firms require more concrete and practical explanations about the

implementation of Principles and compilation of information. On the

other, GRI and IIRF need to enable a certain level of flexibility to be

applicable by any organisation. However, we have serious concerns

about whether these improvements would ever take places. The

process of defining the GRI and the IIRC reporting model has been

captured by companies and accounting firms (Alexander & Blum,

2016; Brown et al., 2009; Flower, 2015). These groups may not be

successful in trying to adapt models to effectively represent CSR

impacts. Therefore, we are pessimistic about whether the analysed

reporting models would ever be able to meet the stakeholders’

information needs. We believe that a new type of report is needed to

increase TCR. As noted by Jones (2010), new forms of accounting

should be explored to appropriately measure, capture and disclose

CSR impacts. The reporting proposal should seek to communicate

CSR information in a different way from SRs and IRs to overcome

their main limitations.

This chapter makes several contributions. First, our main

findings add to the debate in mainstream CSR reporting research

about the suitability of reporting practices to deliver accountability

and allow stakeholders to appreciate CSR impacts (Archel et al., 2008;

Boiral 2013; Brown et al., 2009; Leszsczynska, 2012; Michelon et al.,

2015; Tschop & Huefner, 2015). Particularly, we contribute to a

recent line of research that questions CSR reporting using qualitative


147

methods (Cho et al., 2016; Laine, 2005, 2009, 2010; Tregidga & Milne,

2006; Ylönen & Laine, 2015). Second, the chapter responds to the

need of using different theories from the ones commonly applied to

study CSR reporting (Bebbington & Thomson 2013; Cho et al., 2015,

2016). We relied on communication theory to analyse reporting

models and their applications. Third, we collectively assessed the

delivery of all the characteristics of effective communication in the

reporting models and reports. As we showed in the discussion, several

papers studied some limitations of both elements in isolation.

However, the process of CSR reporting does not disentangle the

characteristics of communication as they are jointly provided in its

outcome, the produced report. Therefore, we should consider all the

characteristics to perform a consistent and coherent assessment of

how CSR impacts are being communicated.

Finally, our findings have implications for policy-makers and

regulatory bodies, especially in Europe, where CSR reporting

requirements are increasing. The European Union Directive 2014/95

about non-financial reporting highlights the need to improve TCR.

To do so, it suggests firms to use one of the reporting models and

formats that exits to communicate CSR information. However, the

results of this chapter indicate that the most widely used reporting

models are unsuitable to effectively communicate transparent CSR

information.

We recognise that our findings are subject to some limitations

inherent to the methodology that we applied. Interpretative textual

analysis is subjective in nature and could be biased by the researchers’

position. In line with other authors (Laine, 2005, 2009, 2010; Tregidga

& Milne, 2006; Ylönen & Laine, 2015), we performed several rounds

of reading and had discussions in order to increase the objectivity of

our research. Additionally, this study focuses only on the SR and IR

of one company, which limits the generalisation of our conclusions.

We selected the reports of firms considered as “best practice” to

analyse the most appropriate application of the models. If issues

appeared in these cases, then problems in the application are likelier

to appear in other reports. We also note that there were some

elements that we could not assess in the application. However, they

are minor issues and have no significant effect on our overall analysis.

149

THE TRIPLE BOTTOM LINE:

OUR ALTERNATIVE REPORTING

PROPOSAL

5.1. Introduction

Effective corporate social responsibility (CSR) communication

happens when CSR reporting practices provide stakeholders with

transparent information that allows them to appreciate firms’

economic, environmental and social impacts (CSR impacts)

(European Union, 2014; Michelon et al., 2015; O’Dwyer et al., 2005).

The effective communication of this information promotes the

transparency of CSR reporting (TCR) (Bebbington et al., 2014).

Drawing on the communication theory, Chapter 4 shows that the

most common CSR reporting practices nowadays, sustainability

reports (SRs) and integrated reports (IRs), fail to fulfil that purpose.

The Global Reporting Initiative (GRI) and the International

Integrated Reporting Council (IIRC) reporting models, which

respectively guide firms in producing SRs and IRs, suffer from severe

limitations that hinder their capacity to produce reports that

effectively communicate transparent information on CSR impacts by

means of significance and fidelity. Additionally, the reports produced

by applying these reporting models provide lower levels of both

characteristics. First, the problems of reporting models are transferred

to reports. Second, firms do not correctly apply some of the positive

proposals of reporting models. Consequently, we concluded that a

different type of report is required to improve the current level of

TCR to effectively communicate CSR impacts. This chapter addresses

this issue and suggests the triple bottom line report (TBL) as an

The triple bottom line: Our alternative reporting proposal

150

alternative reporting proposal to SRs and IRs. We develop a

conceptual essay in which we explain the key elements of an

accounting procedure to elaborate a TBL.

John Elkington coined the term TBL in 1997. Despite its

widespread use in academic and business fields alike, there is no

consensus about what TBL means (Tullberg, 2012). Among its

different conceptualisations, we consider the approach that regards

TBL as a report that uses the format and structure of financial

statements to jointly disclose CSR and financial information. For that

purpose, we suggest that the TBL implies an extension and

adjustment of the balance sheet, profit and loss statement, and notes,

to represent a firm’s overall financial and non-financial performances,

by capturing its CSR impacts.

The production of the TBL as we envision it, faces three

sequential challenges. First, CSR impacts need to be monetarised so

that they may be recorded (Richardson, 2004). Second, financial

statements must be extended to integrate CSR issues in their

structure. Third, an accounting recording process is required to

register impacts and generate the TBL at the end of the reporting

period. In this chapter, we address these issues. Although listing

valuation methods for all impacts is beyond the scope of the

dissertation, we enumerate and review several techniques that

monetarise CSR impacts. We also describe how financial statements

could be extended to accommodate CSR information. Finally, to

register impacts and produce the TBL, we propose a recording

process that relies on the double-entry bookkeeping system and on

off-balance accounts.

After explaining how to elaborate our reporting proposal, we

assess its capacity to provide significance and fidelity, in a similar way

as we did in the previous chapter. Our discussion shows that our

suggested TBL represents an alternative to current CSR reporting

practices that improves TCR compared to current CSR reporting

practices. Some of the features that the TBL borrows from financial

reporting (e.g., valuation, aggregation) increase the several

determining factors of significance and fidelity to higher levels than

the ones enabled by the GRI and IIRC reporting modes.


151

The motivations for this chapter are fourfold. First, as we

pointed out above, a new type of report that effectively communicate

CSR information is needed to increase TCR. According to the

Federation of European Accountants (FEE), this is really important

as stakeholders are demanding firms to be more accountable for their

CSR impacts and to provide transparent information to completely

assess them (FEE, 2015). By using the format of financial statements

to communicate CSR information, the TBL differs from the other

CSR reporting practices (Norman & MacDonald, 2004). Therefore, it

should be explored to assess whether the TBL enhanced TCR.

Second, by making a reporting proposal, we also seek to respond to

the call of Jones (2010) of developing new forms of accounting to

disclose CSR impacts. Third, firms and stakeholders also require

reporting tools that help them to properly integrate information on

financial and CSR impacts in their decision-making processes (Bewley

& Schneider, 2013; FEE, 2015). The TBL could also be useful in this

regard. Finally, there is a need to clearly define what the TBL means,

given the myriad of approaches towards the term (Sridhar & Jones,

2013). Providing a comprehensive definition of the TBL will

contribute to address the lack of research in developing frameworks

and methodologies to produce it (Tullberg, 2012).

The structure of the chapter is as follows. After this

introduction, we describe the different conceptualisations of the TBL.

Section 5.3 reviews previous literature that regards the TBL as a

report that discloses CSR information using a format akin to financial

statements. Afterwards, section 5.4 describes how we envision the

TBL and presents our response to the methodological challenges that

its elaboration poses. Section 5.5 assesses the significance and fidelity

of our reporting proposal. To determine whether our proposed TBL

enables higher TCR than the GRI and IIRC reporting models,

Section 5.6 compares the issues that constrain communication in each

of the three alternatives. Finally, section 5.7 presents our concluding

remarks, the limitations and suggests lines for future research.


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5.2. Conceptualising the triple bottom line

The idea of TBL dates back to 1997, when Elkington presented it in

his book Cannibal with forks: the triple bottom line of the 21st century. It

rapidly gained worldwide recognition and was quickly introduced in

business jargon. The global context of the late 1990s (e.g., market

deregulation, firm privatisations, environmental scandals) increased

society’s concerns on sustainability and TBL offered a business-

language expression that helped to make firms aware of that reality

(Adams, Frost & Webber, 2004; Brown, Marshall & Dillard, 2006).

The profuse acceptance of the term TBL is demonstrated by its

inclusion in CSR and sustainable frameworks, its adoption by many

large corporations, as well as its acknowledgement by accounting and

consulting firms and NGOs (Elkington, 2004; Leszczynska, 2012;

Norman & MacDonald, 2004; Rambaud & Richard, 2015; Sridhar &

Jones, 2013)

Despite its extensive use, TBL is still a vaguely defined concept

(Tullberg, 2012). The term is being used with several purposes and

may be interpreted differently depending on the context and users

(Brown et al., 2006). Even Elkington (1999) himself distinguishes two

different approaches to it. Under the broadest approach, TBL

represents a strategic concept. It is considered as a group of values,

issues and processes within firms to minimise their negative and

maximise their positive CSR impacts. Under the narrowest approach,

the TBL is considered as a framework for measuring and reporting

firms’ performance taking into account their CSR impacts. We

consider these two approaches to analyse the diverse

conceptualisations of the TBL (Table 5.1).

Two conceptualizations can be distinguished within the

broadest approach. On the one hand, TBL may be regarded as a

specific corporate strategy that relies on a firm’s accountability for

their CSR impacts. In this sense, some authors use TBL as synonym

to CSR (Henriques, 2004; Vanclay, 2004), a concept that is widely

accepted and used, and which already existed before the appearance

of the TBL. On the other hand, some authors consider the TBL as a

misleading metaphor (Norman & MacDonald, 2004; Milne & Gray,

2013; Tullberg, 2012). They argue that the TBL attempts to highlight


153

the importance of firms in achieving economic prosperity, social

justice and environmental protection, but it is not properly established

to fulfilling that goal.

Table 5.1. TBL conceptualisations

Approach Perspective Conceptualisation Literature

Broadest approach

Strategic concept

As CSR Henriques (2004), Vanclay (2004)

As a metaphor Norman & MacDonald (2004), Milne & Gray (2013), Tullberg (2012)

Narrowest approach

Management tool

As managerial aid

Adams et al. (2004), Bewley & Schneider, (2013), Hubbard (2009), Isaksson, et al. (2015), McElroy & Thomas (2015)

Reporting tool

As a sustainability report

Archel et al. (2008), Deegan, Cooper, & Shelly (2006)

As an integrated report

Gray & Milne (2004)

As an analogy to financial information

Bewley & Schneider (2013), Brown et al. (2006), Norman & MacDonald, (2004), Tullberg (2012), Rambaud & Richard (2015), Robins (2006)

The narrowest approach regards the TBL as a tool that collects

and discloses information to evaluate a firm’s CSR impacts. When

Elkington introduced the TBL (1997), he acknowledged that new

ways of accounting, auditing, reporting and benchmarking were

required. The state of social and environmental metrics at that time

needed to be developed to effectively account for those issues. The

lack of a generally agreed methodology resulted in a myriad of

reporting models, all referred as TBL (Charities Evaluation Services,

2009). Within the narrowest approach, Adams et al. (2004) classified

TBL practices into two perspectives: as a management tool and as a

reporting tool. The first group consists of those reporting practices

that aim to help managers in monitoring, establishing and assessing

CSR policies, such as full cost accounting, environmental


154

management accounting or balanced scorecards (Adams et al., 2004;

Bewley & Schneider, 2013; Hubbard, 2009; Isaksson, Garvare &

Johnson, 2015; McElroy & Thomas, 2015).

The second group consists of those reporting practices that

seek to provide external stakeholders with information to appreciate

the firm’s CSR impacts. Within this group, three conceptualisations

may be distinguished. First, some authors use the TBL to refer to the

SR (Archel et al., 2008; Deegan, Cooper & Shelly, 2006). This

reporting model is the most common CSR reporting model

nowadays, and it is characterised by disclosing non-integrated

qualitative information along with some quantified indicators. Second,

Gray and Milne (2004) go further and suggest that the TBL should

integrate financial and CSR information. They posit that “the result of

a real TBL would be an annual report comprising equal sections on

financial, social and environmental accountability – giving the social

and environmental interactions equal billing with the financial” (Gray

& Milne, 2004, p. 74). However, the authors claim that the most that

could be expected is the TBL to disclose a summary of the financial

statements along with social and environmental information. Thus,

Gray and Milne’s understanding of the TBL could be regarded as a

hunch of current IRs.

Finally, the TBL could be understood as a report that discloses

CSR information by following the format of financial statements.

Some authors state that TBL’s promoters consider it as a report that

provides CSR information in a format akin to that of the profit and

loss statement by disclosing a bottom line (Bewley & Schneider, 2013;

Brown et al., 2006; Norman & MacDonald, 2004; Tullberg, 2012).

They claim that the TBL should be capable of disclosing a net figure

that summarises the firm’s overall impacts on the three CSR

dimensions during a period. Within this conceptualisation, other

authors extend the analogy and argue that the TBL should not only

consist in adjusting the profit and loss statement to account for CSR

impacts, but also other elements of financial statements, such as the

balance sheet (Rambaud & Richard, 2015; Robins, 2006).

For the purpose of this dissertation, we follow the latter

conceptualisation and understand the TBL as a report that follows the

format of financial reporting. As it was already mentioned, the use of


155

the structure of financial statements is the characteristic that

differentiate the TBL from other CSR reporting practices (Norman &

MacDonald, 2004). Therefore, it represents and alternative that

should be considered to improve TCR. An important implication of

this conceptualisation is the need to monetarise CSR impacts

(Richardson, 2004).

5.3. Literature review

Research on the TBL as a report that follows the structure of

financial statements may be categorised into two mainstreams. While

some academics focus on criticising the TBL and emphasising the

difficulties that its development may imply, others try to overcome

those issues and suggest proposals to elaborate it.

5.3.1. Criticisms on the TBL

Several studies have criticised the TBL because of the problems that it

could bring (Tullberg, 2012). Their criticisms may be gathered into

two groups. The first group focuses on the methodological challenges

to elaborate the TBL. The second group highlights the behavioural

and moral implications of producing the TBL.

Within the first group, the aggregation of impacts is the main

criticism. Aggregation is a key requirement to produce the TBL.

However, some authors claim that this is an unattainable because

there is no accepted methodology that enables adding and subtracting

data on CSR impacts, neither within CSR dimensions (Brown et al.,

2006; Norman & MacDonald, 2004; Robins, 2006), nor across them

(Isaksson et al., 2015; Robins, 2006; Sridhar & Jones, 2013). The

aggregation issue is partly driven by other methodological problems.

The TBL should be capable of integrating CSR impacts and

accounting for their trade-offs to provide a holistic representation of

firms (Sridhar & Jones, 2013). Yet, some papers argue that the TBL

does not allow to do this because it proposes three distinct bottom

lines with different objectives, nature and measurement systems


156

(Richardson, 2004; Sridhar & Jones, 2013). Additionally, the TBL

requires assessing CSR impacts in a common scale, which implies that

great effort should be made to develop adequate measurement

methods (Brown et al., 2006; Norman & MacDonald, 2004;

Richardson, 2004; Robins, 2006). The monetarisation of CSR impacts

could be a possible solution, but it may also pose methodological

problems related to development of appropriate valuation techniques

(Slaper & Hall, 2011).

Regarding the second group of criticisms, the TBL is

considered to have a “disruptive” effect because it may distract firms

from their main aim by establishing multiple objectives (Tullberg,

2012). In this regard, some authors claim that the TBL could become

into a compliance tool and keep truly committed firms from fostering

broader and more effective approaches to CSR reporting (Brown et

al., 2006; Sridhar & Jones, 2013; Tullberg, 2012). Another issue is a

consequence of trading-off CSR impacts. If this were possible, it

would raise philosophical concerns because most impacts are not

comparable due to their different nature (Norman & MacDonald,

2004; Robins, 2006; Sherman, 2012; Slaper & Hall, 2011). Firms could

also use the TBL to provide a biased representation of their

performance by compensating positive and negative impacts within

and across CSR dimensions, as well as between these dimensions and

the financial one (Richardson, 2004). Finally, monetary valuation, as a

solution to the common scale problem, could be ethically

troublesome because it implies monetarising elements that could be

considered as priceless (Slaper & Hall, 2011). Additionally, valuation

may reduce the complexity and nature of social and environmental

impacts (Richardson, 2004).

5.3.2. Prior TBL proposals

According to Tullberg (2012), prior research focused excessively on

criticising the TBL, which led academics to neglect the development

of methodologies to this type of report. As a result, little progress has

been made to suggest accounting techniques for producing TBLs

(Bewley & Schneider, 2013; Tullberg, 2012). We reviewed the few


157

existing proposals to provide a state of art on the issue. In our

revision, we also included papers that develop ways to disclose

information on particular aspects of CSR using characteristics of

financial reporting and accounting. The outcomes of these proposals

are not specifically referred as TBL but they may offer insight on the

matter. We classified the proposals into two groups, based on the

elements of financial statements in which they rely on. Proposals in

the first group are based on the format of the profit and loss

statement (Table 5.2), while the second group follows a broader

approach and considers both, the profit and loss statement and the

balance sheet (Table 5.3).

The underlying idea in the first group of proposals is the

comparison between benefits and costs derived from the firm’s CSR

impacts. Gray (1992) envisioned this form of accounting, particularly

for environmental impacts, before Elkington introduced the TBL

(1997). Gray suggested that it could be possible to analyse whether a

firm is sustainable or not by deducting what he called sustainable cost

from the accounting bottom line. The sustainable cost, periodically

calculated, is the cost in which firms incur to mitigate their negative

environmental impacts so that the level of natural capital at the end of

the accounting period is the same as it was at the beginning. Gray

pointed out ways to value some environmental impacts to encourage

researchers to overcome the challenges that this approach may pose.

Since Gray (1992)’s paper, other authors have developed

methodologies with similar foundations. For instance, Figge and

Hahn (2004) proposed the sustainable value added (SVA). The SVA

considers opportunity costs. It compares the economic value

generated by a firm and the costs of its social and environmental

impacts with those of a benchmark. It evaluates the value created (or

destroyed) by a firm because it is more (or less) efficient than the

benchmark. The SVA was later redefined by Straková (2015), who

suggested weighting the impacts included in the SVA as they are not

equally relevant.

Bewley and Schneider (2013) developed a TBL that monetarises

CSR impacts to compare the financial, environmental and social

benefits and costs of an investment. Although the authors originally


158

developed it for investment decision-making, they suggest that it

could be used as a means of reporting to external stakeholders.

The concept of competitive profits was developed by Strebel,

Cording and Shan (2016). Their proposal integrate social and

environmental costs with the financial net profit in a consolidated

bottom line, by subtracting the value extraction (the value that firms

capture from their stakeholders) from the financial net income.

Some firms have also followed the format of the profit and loss

statement to communicate their CSR impacts. For instance, Puma

(2011) issued its first environmental profit and loss account for the year

2010. This company analysed its supply chain to identify the main

environmental impacts of manufacturing its products in each tier.

Puma valued the changes in welfare generated by those impacts to

infer their estimated cost to society. To do that, the firm measures the

impacts in physical units and they converted them into monetary

terms, by defining a currency based on an environmental valuation

methodology developed by PwC (2015). Since 2013, Puma’s parent

company, Kering, publish its report using the same methodology.

The Dutch railway company NS discloses a monetary

estimation of its overall CSR impacts in their annual report since

2014. The firm uses the KPMG’s True Value methodology (KPMG,

2014), which calculates the net value of a firm’s CSR impacts by

monetarising and subtracting positive and negative externalities.

Although KPMG developed this methodology as an internal

management tool, it can also be used for external reporting purposes

(KPMG, 2015b).

The sustainability assessment model (SAM) is the most relevant full

cost accounting method, as it has been applied by several companies,

including British Petroleum (Baxter, Bebbington & Cutteridge, 2004;

Bebbington, Brown & Frame, 2007). The SAM uses a four step

procedure to value positive and negative impacts of firms in four

dimensions: economy, society, environment and use of resources. The

outcome is the SAM signature, which consists of a graphic

representing the overall impacts on each dimension.

Table 5.2 summarises the proposals that are based on the profit

and loss statement.


159

Tab

le 5

.2. P

rio

r at

tem

pts

to

rep

ort

CSR

im

pac

ts b

ased

on

th

e fo

rmat

of

the

pro

fit

and

lo

ss s

tate

men

t

Pro

po

sal

Au

tho

rs

Basi

c i

dea

Dim

en

sio

ns

Su

stai

nab

le c

ost

G

ray

(1992)

Dis

coun

tin

g th

e su

stai

nab

le c

ost

(co

st o

f re

sto

rin

g n

atura

l ca

pit

al)

fro

m t

he

acco

un

tin

g n

et

inco

me

Fin

anci

al

En

vir

on

men

tal

Su

stai

nab

le v

alu

e ad

ded

F

igge

& H

ahn

(2004),

Str

ako

vá

(2015)

Co

mp

arin

g th

e ec

on

om

ic v

alue

and

th

e co

sts

of

envir

on

men

tal

and

so

cial

im

pac

ts o

f a

firm

wit

h

tho

se o

f a

ben

chm

ark

Fin

anci

al

En

vir

on

men

tal

So

cial

TB

L

Bew

ley

& S

chn

eid

er

(2013)

Co

mp

arin

g th

e fi

nan

cial

, en

vir

on

men

tal

and

so

cial

ben

efit

s an

d c

ost

s o

f an

in

ves

tmen

t

Fin

anci

al

En

vir

on

men

tal

So

cial

Co

mp

etit

ive

pro

fits

Str

ebel

et

al. (2

016)

Dis

coun

tin

g val

ue

extr

acti

on

fro

m t

he

acco

un

tin

g n

et in

com

e. V

alue

extr

acti

on

is

the

val

ue

cap

ture

d b

y fi

rms

fro

m t

hei

r st

akeh

old

ers

Fin

anci

al

En

vir

on

men

tal

So

cial

En

viro

nm

enta

l p

rofi

t an

d l

oss

acc

ou

nt

Ker

ing

(2013, 2014),

P

um

a (2

011),

Pw

C (

2015)

Val

uin

g th

e ch

ange

s in

w

elfa

re

cause

d

by

the

firm

’s e

nvir

on

men

tal

imp

acts

to

ass

ess

its

cost

to

so

ciet

y E

nvir

on

men

tal

Tru

e V

alu

e

KP

MG

(2014)

NS (

2014,

2015)

Cal

cula

tin

g th

e n

et v

alue

of

imp

acts

on

eac

h t

he

eco

no

my,

so

ciet

y an

d

the

envir

on

men

t b

y su

btr

acti

ng

and

mo

net

aris

ing

exte

rnal

itie

s

Eco

no

mic

E

nvir

on

men

tal

So

cial

Su

stai

nab

ilit

y as

sess

men

t m

od

el

(SA

M)

Bax

ter

et a

l. (2

004),

B

ebb

ingt

on

et

al. (2

007)

Val

uin

g p

osi

tive

and

neg

ativ

e im

pac

ts o

f fi

rms

in

four

dim

ensi

on

s: e

con

om

y, s

oci

ety,

en

vir

on

men

t an

d u

se o

f re

sourc

es

Eco

no

mic

E

nvir

on

men

tal

So

cial

U

se o

f re

sourc

es


160

The second group of papers follows the structure of both, the

profit and loss statement and the balance sheet, to account for CSR

impacts. Most of the few proposals based on this approach are related

to particular areas of CSR dimensions. Rubenstein (1992) proposed

green accounting to record environmental impacts. He suggested creating

asset accounts for the natural resources that a firm uses. The

counterbalance is a natural capital registered in the right side of the

balance sheet. When the natural assets are degraded due to the

impacts generated by corporate activities, the firm should record a

natural expense against an accumulated depreciation account that

reduces the value of the natural assets.

Focused on a specific part of the social dimension, human

resource costing and accounting (HRCA) suggests a method to include

information on intellectual capital in financial statements (Johanson &

Nilson, 1996). For instance, the Swedish communication company,

Telia, published several statements of human resources in the 1990s

(Telia, 1996). Telia’s report includes a balance sheet and a profit and

loss account in which the firm monetarises the intangible assets

related to its workforce and its contribution to the bottom line.

Similarly, Dobija (1998) proposed a method to value human capital

and proposed a double-entry bookkeeping system to account for it in

the balance sheet.

Rambaud & Richard (2015) developed a triple depreciation line. It

considers the social and environmental CSR dimensions CSR and

extends the traditional balance sheet to account for human and

natural capitals. According to these authors, these capitals cannot be

improved by incomes on a regular basis, as is the case of equities.

Therefore, they registered human and natural capitals as liabilities.

Their counterparts are the resources that capitals provide to firms,

which are recorded as assets. According to these authors, the use of

resources systematically deteriorates the capitals that provide them.

To account for this effect, the authors apply the accounting

depreciation method to human and natural resources. Yet, they also

established a de-depreciation procedure given that capitals should be

maintained because firms need to continue using them. Rambaud &

Richard’s proposal also adapts the profit and loss statement, but only


161

to incorporate the depreciations of human and natural capitals as

expenses.

Table 5.3 summarises the proposals that follow the format of

the balance sheet and profit and loss statement.

5.4. Our TBL reporting proposal

Even within those scholars that regard TBL as a report that discloses

CSR information using the format of financial statements, there is no

consensus on a generally accepted conceptualisation of TBL.

Therefore, we should describe how we particularly envision the TBL

and how it should be elaborated to evaluate its capacity to effectively

communicate transparent information on CSR impacts.

We consider the TBL as a report that extends and adapts

financial statements to account for firms’ financial and CSR impacts

in an integrated way. We argue that several elements of financial

statements need to be adjusted to elaborate the TBL. Pava (2007) and

Tullberg (2012) noted that accountants and investors cannot assess a

firm’s financial position and performance by analysing the

information presented in one single document of financial statements

(e.g., the bottom line of the profit and loss account). Instead, they

need to analyse financial statements as a whole. Analogously, we

cannot expect stakeholders to be capable of assessing the overall

firm’s performance, including its CSR impacts, by assessing only one

document. Therefore, we advocate that the TBL implies the extension

and adjustment of three documents of financial statements: the

balance sheet, the profit and loss statement and the notes. Our

proposal agrees with that of Ferguson (founder of Sustainable

Ventures, an organisation that focuses on the integration of CSR and

financial information), who suggests that a proper way to integrate

financial and CSR information is to disclose them jointly in the

balance sheet and profit and loss statement (Sherman, 2012).

Additionally, we suggest that the notes must also be adapted to

provide additional information that helps users to understand the

other two documents.


162

Tab

le 5

.3. P

rio

r p

rop

osa

ls t

o r

epo

rt C

SR

im

pac

ts b

ased

on

th

e fo

rmat

of

the

bal

ance

sh

eet

and

pro

fit

and

lo

ss s

tate

men

t

Pro

po

sal

A

uth

ors

B

asi

c i

dea

Dim

en

sio

ns

Gre

en a

cco

un

tin

g

Rub

enst

ein

(1992)

Rec

ord

ing

envir

on

men

tal

imp

acts

in

a

bal

ance

sh

eet

and

p

rofi

t an

d

loss

st

atem

ent

usi

ng

a d

oub

le-e

ntr

y b

oo

kkee

pin

g sy

stem

E

nvir

on

men

tal

Hu

man

res

ou

rces

co

stin

g &

acc

ou

nti

ng

(H

RC

A)

Do

bija

(1998),

Jo

han

son

&

Nils

on

(1996),

Tel

ia

(1996)

Val

uin

g h

um

an

cap

ital

an

d

reco

rded

it

in

a

bal

ance

sh

eet

and

pro

fit

and

lo

ss s

tate

men

t usi

ng

a d

oub

le-e

ntr

y b

oo

kkee

pin

g sy

stem

So

cial

Tri

ple

dep

reci

atio

n

lin

e R

amb

aud

& R

ich

ard

(2

015)

Ap

ply

ing

a sy

stem

atic

d

epre

ciat

ion

m

eth

od

to

ac

coun

t fo

r th

e d

eter

iora

tio

n

of

hum

an

and

n

atura

l ca

pit

als

Fin

anci

al

En

vir

on

men

tal

So

cial


163

Therefore, our proposal of TBL consists of three specific

elements: the extended balance sheet, the extended profit and loss

statement and the extended notes. The period that the extended

statement cover is the same as the one of financial statements

(normally a year), given that they are built based on the latter.

The extended balance sheet accounts for the firm’s financial

position and its accumulated impacts on CSR dimensions for the

accounting period. It adds three additional and partial balance sheets

for the economic, environmental and social dimensions of CSR,

which are presented below the financial balance sheet. We

differentiate between the economic and financial dimensions.

Following Jennings (2004), we consider that they represent different

things. On the one hand, the financial dimension is related to

corporate activities that affect a firm’s financial position and

performance. On the other hand, the economic dimension of CSR is

related to the economic impacts beyond the firm’s value that affect

the economic conditions of stakeholders and economies at local,

national and global levels (e.g., workforce hired, indirect jobs

generated, spending on suppliers) (GRI, 2013).

The extended profit and loss statement accounts for the

impacts generated during the reporting period. In the same way as the

extended balance sheet, this document adds three additional

statements about the economic, environmental and social dimensions

to the financial profit and loss statement. The extended profit and

loss statement explains the variation of the net impact on each CSR

dimension registered from the previous balance sheet to the current

one. The bottom line for each additional profit and loss statement

provides a net figure that indicates whether each CSR dimension was

overall improved or deteriorated during the period.

Finally, the extended notes offer additional information to

correctly interpret the information disclosed in the other two

statements. The extended notes explain the valuation methods

applied to describe how the figures reported were obtained. They also

disclose information that provides context and evidence on the

impacts recorded.

The development of our proposal implies some issues that

should be considered. The monetarisation of CSR impacts is an


164

essential condition to elaborate the TBL (Richardson, 2004). Besides

the balance sheet, profit and loss statement, and notes need to be

adjusted to accommodate information on CSR impacts. Finally, the

content of the extended balance and extended profit and loss

statement is interrelated. A recording procedure is needed to register

impacts and link both statements. We address these issues in the

following sub-sections. Henceforth, we use the term TBL to refer to

our specific reporting proposal.

5.4.1. The monetarisation of CSR impacts

Developing the TBL as an analogy to financial statements implies that

CSR impacts should be monetarised (Richardson, 2004). However,

the valuation of these impacts, especially social and environmental

ones, has led to an important debate on the difficulty of developing

appropriate valuation methods (Jones, 2010; Slaper & Hall, 2011); and

on the moral, philosophical and ethical implications of such

monetarisation (Norman & MacDonald, 2004; Slaper & Hall, 2011).

Monetarisation could reduce the complexity and nature of social and

environmental dimensions (Richardson, 2004), and it could eventually

lead to a “commodification” of the environment (Spence, Chabrak &

Pucci, 2013). Additionally, the expected value of impacts might be

different for firms and stakeholders (Herbohn, 2005). Monetarisation

requires subjective assessments and assumptions, which, if they are

not adequate, could hinder the legitimacy of values (Robins, 2006).

However, the valuation of CSR impacts also brings important

benefits. According to Azqueta and Sotelsek (2007), it must be

regarded from a utilitarian approach. It allows firms to measure all

impacts in the same unit (KPMG, 2014; Tullberg, 2012). The amount

of money attached to impacts should be considered as a proxy that

allows representing the relationships among them (Rambaud &

Richard, 2015) and helps to promote their inclusion in decision-

making processes (KPMG, 2014).

Firms that engage in initiatives to monetarise their CSR

impacts highlight the advantages that it provides. According to Puma

(2011) and Kering (2013, 2014), monetarisation improves their


165

decision-making process by allowing them to compare different

impacts, redesigning the key elements of their business models to

generate competitive advantages and allocating resources more

effectively to minimise their impacts. Both firms also emphasise that

valuation enhances the communication of their impacts. It helps them

to better explain the implications of their impacts and their policies to

mitigate them because monetarised impacts are easier to understand

for a wider audience. Additionally, the valuation might also be useful

for policy-making decisions by governments and institutions

(Botelho, Pinto, Lourenço-Gomes, Valente & Sousa, 2016). Finally, it

also fosters the debate between firms and their stakeholders

(Bebbington et al., 2007; KPMG, 2014)

When Elkington (1997) suggested the TBL, he acknowledged

that the stage of measurement systems and valuation techniques were

not appropriate. Nowadays, there are different methods that allow

firms to value many CSR impacts (KPMG, 2014). The monetarisation

of impacts on the environment has been more studied than on the

other CSR dimensions (Richardson, 2004). Although social and

economic are less developed, they have recently been subject to

growing attention as well. Several approaches can be used to estimate

values: the damage costs of impacts, the abatement costs of impacts,

the restoration cost of impacts, the costs of changes in wellbeing

caused by impacts, or the valuation of assets related to the impacts

(Herbohn, 2005; Jones, 2010; Puma, 2013). Different economic

techniques could be used to calculate these elements, such as hedonic

prices, travel costs techniques, contingent valuation methods, benefit

transfers or choice-modelling, among others (Azqueta & Sotelsek,

2007; Dierkes & Preston, 1977; Herbohn, 2005; Loureiro & Ojea,

2008). The combination of approach and technique depends on the

particular impact to be monetarised.

Both practitioners and academics have proposed valuation

methods. Within the first group, PwC (2015) developed a complete

methodology to monetarise the effect on wellbeing caused by six

types of environmental impacts: air pollution, greenhouse gasses,

waste, land use, water consumption and water pollution. This

methodology is the outcome PwC’s collaboration with Puma (2011)

and Kering (2013, 2014) in producing their environmental profit and


166

loss accounts. The approach consists of a three-step procedure: 1)

quantifying the physical units of the impact, 2) estimating how

wellbeing changes due to the impact, and 3) monetarising that impact.

The assumptions and methods used in steps 2 and 3 depend on each

impact. As the assumptions and parameters differ among firms, PwC

does not offer a “conversion rate” to translate the physical units of an

impact into its monetary value. Instead, it provides guidelines and

functions that firms should apply to their particular situation to get

the most accurate value. PwC considers different elements within

each impact, such as types of pollutants, waste disposal, landfill, type

of eco-region, country, etcetera, as well as how impacts affect several

aspects, such as, human health, visibility, agriculture, biodiversity,

economy, or culture. As an example, Table 5.4 presents the

“conversion rates” applied by Puma (2011) in its first environmental

profit and loss statement, which were calculated based on PwC’s

methodology.

Table 5.4. Puma’s conversion rates for environmental impacts

Impact Conversion rate

Air pollution: Particulates Ammonia Sulphur dioxide Nitrogen oxides Volatile organic compounds

€14,983/tonne €1,673/tonne €2,077/tonne €1,186/tonne

€836/tonne

GHG emissions €66/tonne

Water use €0,81/m3

Land use €347/hectare

Solid waste: Landfill Incineration

€73/tonne €51/tonne

Source: Puma (2011)

KPMG (2014) also proposed a methodology to monetarily

assess CSR impacts, known as True Value. This methodology

comprises three steps: assess the value of impacts, understand the risk

of future earnings, and develop suggestions to increase corporate and

social value. In the first step, KPMG identifies the firm’s economic,

environmental and social externalities and monetarises them by using


167

different techniques and by gathering date from different sources that

offer prices for several impacts. The monetary value of the total

impact can be calculated by multiplying the prices for the volume of

each impact. This method may be applied to the whole company or

to business units. It can consider the firm’s direct operations or

extend the scope to include the entire supply chain. KPMG’s

methodology has been used by the Dutch train company NS. For

instance, in its 2015 annual report, NS disclosed a positive impact for

allowing customers to travel from one place to another of €7,033M; a

negative impact for time delays and reduced comfort of €5,455M; and

a total negative environmental impact about €107M, among others.

The British Housing Association Charitable Trust (HACT)

developed an initiative that monetarises the impact on wellbeing of

several social activities (HACT, 2014). Using data from large national

surveys, the organisation estimates the change in wellbeing caused by

a range of social actions (e.g., volunteering programmes, secure job,

or training). Then, HACT translates this change into monetary units

using statistical techniques by calculating the money that would be

necessary to increase an individual’s wellbeing to that level. The

organisation provides a table that includes several monetarised social

impacts (HACT, 2014, p. 14-15). Using these figures, the valuation of

an impact can be obtained by multiplying the number of people

involved in or affected by an impact times the value reported in the

tables. Academics have also developed valuation techniques. Regarding

environmental impacts, there are different methods to monetarily

quantify their effect on wellbeing (Azqueta & Sotelsek, 2007). Tol

(2009) differentiates two approaches to monetarise the effects of

climate change: 1) computing the total economic value of climate

change at a global level, and 2) estimating the social cost of emitting

an additional ton of CO2 (SCC). Given that we are discussing the

valuation of environmental impacts at the firm level, the second

stream of literature provides more insight in how the emission of

greenhouse gases could be valued. The most common methods to

calculate the SCC are the Integrated Assessment Models, mainly the

DICE, FUND and PAGE methods (Rose et al., 2014). These

methods estimate the cost of the damages caused by carbon


168

emissions during a period of time (between 100-200 years), and

discounted them to their present value using a social discount rate

(van der Bergh & Botzen, 2015). The SCC considers issues related to

agriculture, forest, water, coastal zones, human health, air quality,

extreme weather or migration (Tol, 2009; Van den Bergh & Botzen,

2015). Tol (2013)’s survey of previous studies on SCC shows that

more than 500 estimations of SCC exist. Overall, the mean SCC

estimated is $196/tCO2, but the reported values vary. The variability

of the SCC estimated is caused by the method, the chosen

assumptions, and the discounted rate applied (Tol, 2009, 2013).

Taking into account these limitations, van der Bergh and Botzen

(2015) concluded that, to be realistic, the minimum value of the SCC

must be $125/tCO2. For instance, several countries use the SCC for

policy-making (Rose et al., 2014). Additionally, organisations may

apply it in decision-making. For example, Bewley and Schneider

(2015) used the SCC to monetarise the CO2 emissions of a potential

investment to assess the overall environmental impact of the project.

Some firms have also used the SCC to monetarise their

environmental impacts and report it to their stakeholders.

Jeopardising natural species is other potential environmental

impact generated by firms (e.g., leakages, facility locations). To

determine the value of endangered species, contingent valuation is

used. This technique estimates the willingness to pay (WTP) per

household to protect and restore endangered species (see Mitchell &

Carson (1989) for a further review on the method). It uses

questionnaires asking participants how much they were willing to

spend for establishing policies or projects for that purpose.

Participants take into account different values related to the species

when expressing their WTP: use value (e.g., viewing the species),

option value (e.g., preserving genetic information that could be useful

for medical applications), existence value (e.g., guaranteeing the

sustainability of the species), and bequest value (e.g., preserving the

species for future generations) (Loomis & White, 1996). The value

attached to the species is computed by multiplying the WTP times the

number of households in the area of analysis. Recent papers have

used this technique for valuing species in different regions, such as

the possum in Victoria (Australia), with a WTP between $29.20 and


169

$75.60 (Jakobsson & Dragun, 2001); the Steller sea lion in Alaska

(USA), with a WTP of $61.13 (Giraud, Turcin, Loomis & Cooper,

2002); the gray wolf in Minnesota (USA), with a WTP between $4.77

and $21.49, depending on the city (Chambers & Whitehead, 2003); or

the guillemot in Galicia (Spain), with a WTP between 18.17€ and

19.34€ (Loureiro & Ojea, 2008).

With respect to social impacts, some authors have studied the

effect of injuries caused by some products on wellbeing. For example,

Winston et al. (2002) monetarise the impact of handlebar related

injuries in children. Using a sample of 1,147 individuals from 19 US

states in 1996, they valued the impact of these injuries at $535M.

Other studies have analysed the effect of noise transportation on

wellbeing. Dekkers & van der Straaten (2001) estimated that the social

cost of increasing one decibel of aircraft noise near the Amsterdam

airport was €1,459. Similarly, other methods monetarise the impacts

of traffic road noise (see Bateman, Day, Lake & Lovett (2001) for a

review).

As it is aforementioned, at the time Elkington (1997) coined the

term, valuing impacts was not possible because measuring techniques

needed to evolve in order to do so appropriately. Our review shows

that this is not the case anymore. We enumerate several methods that

could be used to monetarise many CSR impacts, by considering how

they affect wellbeing. Most of them follow a similar process: 1)

quantifying the physical units of the impact, 2) estimating how

wellbeing changes due to the impact, and 3) monetarising the impact.

We note that it is beyond the aim of our analysis to provide a

comprehensive list of valuation methods for each type of impacts.

What we argue is that monetarisation is possible and seems adequate

to cover CSR impacts. Additionally, more impacts could be subject to

valuation as more methods are being developed.

5.4.2. The extended financial statements

As have already mentioned, our proposed TBL consists of an

extension and adjustment of the balance sheet, profit and loss

statement, and notes of financial statements. To develop our


170

accounting procedure to build the TBL, we need first to explain in

more detail each extended statement.

The extended balance sheet accounts for the firm’s financial

position and its accumulated impacts on CSR dimensions over time.

Our proposal adds three additional and partial balance sheets related

to CSR dimensions below the financial balance sheet (Figure 5.1). The

additional balance sheets follow the same structure and organisation

of the financial one. The accumulated positive CSR impacts are

registered similarly to asset accounts; whereas the accumulated

negative impacts are recorded in the same manner as liabilities. The

net accumulated impacts on each CSR dimension are registered as

capitals in the equities of the additional balance sheets. Hereafter, we

will use CSR capitals and CSR dimensions as synonyms when

discussing the TBL. According to McElroy and Thomas (2015, p.

427), a capital is “a stock of anything that yields a flow of valuable

goods or services important for human well-being”. This definition of

capital as a stock contributes to pool accounting and CSR together, as

it is a key concept for both disciplines (Rambaud & Richard, 2015).

As the equity in the financial balance, CSR capitals are calculated as a

residual element by subtracting the total accumulated negative

impacts from the total accumulated positive impacts on each CSR

dimension. An important implication of this calculation is that

capitals, particularly social and environmental ones, should be

negative for most firms because current practices are unsustainable in

most corporations (Gray, 2006a; Jones, 2010; Milne & Gray, 2013).

Our approach towards CSR capitals differs from the one

suggested by Rambaud and Richard (2015). These authors claimed

that CSR capitals can only deteriorate and cannot be increased on a

regular basis, should be the case with equity. Therefore, they

registered CSR capitals as liabilities. However, firms can make not

only negative, but also positive impacts on CSR dimensions (Figge &

Hahn, 2004). For example, some firms recognise that they can

generate positive environmental impacts by implementing actions to

restore and improve the natural capital (Kering, 2014). Furthermore,

some negative impacts are unavoidable because they are intrinsic to

the activities of corporations. Thus, CSR capitals may improve when

a firm causes less negative impacts than what could be expected based


171

on a benchmark or on its industry (Tullberg, 2012). A less negative

impact first implies the reduction of its accumulated negative account,

due to improved firm performance. Once the accumulated negative

impact is completely written off, it leads to the recognition of a

positive accumulated impact. Therefore, given that CSR capitals can

improve as a consequence of positive or less negative impacts, they

should be recorded as equity.

The capitals used and affected by firms can be categorised in

several classifications (IIRC, 2013; Isaksson et al., 2015; McElroy &

Thomas, 2015). We may further group the elements of these

classifications into three main capitals related to the CSR dimension

of each additional and partial balance sheet (economy, society and

environment). As abovementioned, we distinguish between the

financial and economic dimensions, and we account for them in

different balance sheets. The concept of capitals that we support is in

line with the one advocated by International Integrated Reporting

Council (IIRC), the organisation that issues the reporting model that

guides firms in producing IRs. However, CSR capitals in our TBL

proposal should be understood more broadly than in IRs. The IIRC

considers capitals only to the extent to which they affect the capacity

of the firm to generate value for itself and its providers of financial

capitals. By contrast, CSR capitals in our proposal should account for

comprehensive CSR impacts regardless of their effect on the firm’s or

investors’ value. As we shown above, valuation methods monetarise

CSR impacts by taking into account a broad range of consequences of

corporate activities on CSR dimensions.

Regarding structure, the financial balance sheet differentiates

between fixed and current assets/liabilities based on the period that

they are expected to be controlled or settled by firms. We avoid this

distinction in the additional balance sheets because it is practically

impossible to estimate the period to which CSR impacts affect

capitals, particularly as most of them have a long-term effect. Instead,

we suggest classifying CSR impacts as aggregates based on the types

of impacts that firms may cause on each CSR dimension. We suggest

the list of aspects defined in GRI’s G4 Guidelines (GRI, 2013a) to

organise impacts in the extended statements. Following GRI’s list, for

the environmental balance sheet, we distinguish material, energy,


172

water, biodiversity, emissions, effluents and waste, and so on. Both,

the accumulated positive and negative impacts, are classified

following the same structure. If adequately compiled, GRI indicators

could be useful for monetarising impacts. Most valuations methods

follow a three-step process: 1) quantifying the physical units of the

impact, 2) estimating how wellbeing changes due to the impact, and

3) monetarising that impact. Therefore, firms that follow GRI may

already have the information required in step 1. As previously

discussed, the availability of adequate valuation methods for CSR

impacts also plays an important role in determining what impacts the

company would eventually report. As valuation methods develop,

more impacts could be registered in the TBL.

The extended profit and loss statement accounts for the firm’s

financial performance and the overall CSR impacts generated during

the reporting period. This statement provides relevant information

for the stakeholders because it allows them to understand, compare

and analyse the variation of the net accumulated CSR impacts.

Similarly to the extended balance sheet, this document adds three

additional profit and loss statements for each CSR dimension, which

are presented below the financial one (Figure 5.2). Following the

clean surplus assumption of financial accounting (Feltham & Ohlson,

1995; Heinrichs, Hess, Homburg, Lorenz & Sievers, 2013), we argue

that each additional profit and loss statement explains all the changes

in its CSR capital from the previous TBL to the current one.

The conclusion of the extended profit and loss statement

consists of a net figure (a bottom line) that indicates whether CSR

capitals were improved or deteriorated during the period. This

number offers a first glimpse to evaluate the firm’s CSR impacts.

However, and similarly to the financial bottom line, stakeholders

could evaluate its components to adequately understand and assess

the firm’s performance and CSR impacts. Impacts recorded in the

extended profit and loss statement are organised based on the

different types of impacts that the firm could cause within each

dimension, as we explained above for the balance sheet. For each

type, positive and negative impacts are distinguished. Using this

structure, stakeholders are able to trace how companies arrived to the

net figure and assess the specific impacts generated in the period.


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Figure 5.1. Extended balance sheet

EXTENDED BALANCE SHEET

ECONOMIC BALANCE SHEET

Acc. positive economic impacts

(≈Assets)

- Economic perform. - Market presence - …

Economic capital

Acc. negative economic impacts

(≈Liabilities)

- Economic perform. - Market presence - …

ENVIRONMENTAL BALANCE SHEET

Acc. positive environmental impacts

(≈Assets)

- Materials - Energy - …

Environmental capital

Acc. negative environmental impacts

(≈Liabilities)

- Materials - Energy - …

SOCIAL BALANCE SHEET

Acc. positive social impacts

(≈Assets)

- Employment - Occupational H&S - …

Social capital

Acc. negative social impacts

(≈Liabilities)

- Employment - Occupational H&S - …

FINANCIAL BALANCE SHEET

Assets

Equity

Liabilities


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Figure 5.2. Extended profit and loss statement

ENVIRONMENTAL PROFIT AND LOSS STATEMENT

Total positive impacts Material Energy … Total negative impacts Material Energy … Environmental bottom line……………..…..…………XXX

ECONOMIC PROFIT AND LOSS STATEMENT

Total positive impacts Economic performance Market presence … Total negative impacts Economic performance Market presence … Economic bottom line…………………..…..…………XXX

SOCIAL PROFIT AND LOSS STATEMENT

Total positive impacts Employment Occupational H&S … Total negative impacts Employment Occupational H&S … Social bottom line………………………..…..…………XXX

FINANCIAL PROFIT AND LOSS STATEMENT

Sales Cost of sales Gross profit (…) Income from continuous operations before taxes (…) Net income earnings Financial bottom line……………..…..……….………XXX

EXTENDED PROFIT AND LOSS STATEMENT


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The extended balance sheet and extended profit and loss

statement can be regarded as a comprehensive accounting system for

CSR issues, as suggested by Ullman (1976). This author stated that the

applied system should impede the trade-off between negative impacts

on a CSR dimension and positive impacts on another, or vice versa.

Our proposal records the impacts on each CSR dimension in

different and independent balance sheets and profit and loss

statements. It also differentiates between positive and negative

impacts for each type of CSR issues. Therefore, our TBL proposal

avoids compensating negative and positive impacts among and within

CSR dimensions. For comparison purposes, the extended balance

sheet and extended profit and loss statement should also include a

column that discloses the value of each impact for the prior year.

The extended notes provide additional information to facilitate

the understanding and interpretation of the content of the other two

extended statements. This document is presented after the financial

notes. The different types of impacts recorded in the extended

balance sheet and profit and loss statement should have a reference

that links then to their specific note. Notes should disclose

information about the context in which impacts were caused and the

accounting policies, judgements and estimation techniques applied

(FEE, 2015). In this regard, they must briefly explain the valuation

methods and the boundaries that were considered to monetarise CSR

impacts so that stakeholders can analyse the appropriateness and

accurateness of figures. If the firm changes a valuation method from

one period to another, the extended notes should indicate this change

and its effect, to enable comparability. Additionally, qualitative

information is necessary to properly assess CSR impacts (Norman &

MacDonald, 2004; Richardson, 2004). The extended notes provide

this information. Particularly, they should provide evidence on the

impacts recorded in the other two extended statements. All this

information might be helpful for those stakeholders interested in

making a thorough assessment of companies and their CSR impacts.

To avoid overwhelming readers, the extended notes should only

report the required information to appropriately assess impacts.

Finally, we note that we consider unnecessary to extend and

adapt the statement of changes in equity and the statement of cash


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flows. Regarding the first statement, the proposed TBL relies on the

clean surplus assumption (Heinrichs et al., 2013; Feltham & Ohlson,

1995). Thus, all the changes in the equities of the additional balance

sheet from one period to the next one are explained by the extended

profit and loss statement. In relation to the second statement, CSR

impacts do not imply cash movements.

5.4.3. The recording procedure and production of the TBL

Once we have defined how financial statements are extended and

adjusted, we need to establish an accounting procedure to record CSR

impacts and a produce the TBL at the end of the reporting period. To

develop an appropriate accounting recording process to register CSR

impacts and produce the TBL, two elements are essential: the double-

entry bookkeeping system and the use of off-balance accounts.

The double-entry bookkeeping system is the key mechanism

that enables the functioning of financial accounting. This recording

system has been used to register firms’ financial transactions since

Luca Pacioli provided the first comprehensive description of its

application in 1494. Our TBL proposal follows the format of financial

statements to account for CSR impacts. Therefore, the double-entry

bookkeeping system presents a straightforward method to record

those impacts. Jones (2010) and Gray (2013) asserted that debits and

credits could be used to account for CSR issues, but they pointed out

that it is not the only way, and could neither be the most suitable one.

For instance, some authors claimed that the double-entry

bookkeeping simplifies a complex phenomenon (e.g., environmental

impacts) to a binary structure that excludes many of its characteristics

(Cooper 1992, Deegan 2013, Gray 2013). Spence et al. (2013) argued

that this accounting procedure leads to a “commodification” of

environmental elements. Sveiby (1997) suggests that accounting for

new things (such as social impacts) by using traditional accounting

mechanisms would not allow us to properly see what is new. In this

regard, Gray (2013) argued that financial accounting has led to current

unsustainability and hence, we should avoid it to account for CSR

issues.


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We agree that, similarly to the monetarisation of CSR impacts,

the use of the double-entry bookkeeping mechanism to account for

CSR issues might pose ethical and moral concerns. Nonetheless, it

also provides benefits that make it appropriate to record CSR

impacts. First, the double-entry bookkeeping system is the basic

element to produce financial statements. Given that our proposal

extends and adjusts financial statements, it is reasonable to use the

double-entry bookkeeping system to elaborate the TBL. Second, it

allows the integration of financial and CSR information in a single

report. It also contributes to link the impacts recorded in the

extended balance sheet and in the extended profit and loss statement

to build the TBL at the end of the reporting period. We explain this

point in more detail below. Third, although the simplification of CSR

impacts may be regarded as an inconvenient (Cooper 1992, Deegan

2013, Gray 2013), it helps to represent them in a direct and easy way

(PwC, 2015). Some characteristics related to certain impacts could

remain unconsidered as a consequence of valuation, identification or

methodological issues, but at least those impacts would be recorded.

Thus, firms and stakeholders would be aware of them and may have a

way to analyse them. Finally, and in contrast to those authors that

argued about the unsuitability of the double-entry bookkeeping

system, other academics suggested the use of this accounting

procedure to record social and environmental impacts (Rambaud &

Richard 2015; Rubbenstein 1992; Thornton 1993, 2013).

To apply the double-entry bookkeeping system, CSR impacts

need to be recorded in accounts. The TBL annexes additional balance

sheets and profit and loss statements to financial ones. Therefore,

CSR impacts must be registered in specific accounts that are

presented outside the traditional financial balance sheet and profit and

loss statement. We suggest off-using balance accounts to record CSR

impacts. These accounts are used in financial accounting to register

potential effects on firms’ financial equity (Ágreda Moreno, 2004;

Rivero, 1974). Off-balance accounts are extensively used by banks

and financial institutions to record account for elements that affect

their financial position but that cannot be included in the financial

balance sheet (Angbazo, 1997; Boot & Thakor, 1991).


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Rivero (1974) enumerates several characteristics of off-balance

accounts that differentiate them from traditional financial accounts

and make them suitable to record CSR impacts. First, Rivero (1974)

defined off-balance accounts as elements of financial accounting that

represent facts and transactions that do not have an effect on the

firm’s equity, at least not immediately. In so doing, they complement

traditional financial accounts presented in the balance sheet to jointly

provide an integral representation of the firm’s position. Nowadays, it

is widely acknowledged that the scope to which firms should be

accountable have broaden to include CSR issues. Therefore, the range

of issues that could be recorded in off-balance accounts should be

extended to consider CSR impacts to provide a more complete and

holistic representation of firms.

Second, recording off-balance accounts implies that two

elements should at least be modified, one debited and another

credited. Yet, in contrast to financial accounts, they do not

differentiate between assets and liabilities. As CSR impacts are one-

side transaction that does not consume resources of the company and

do not lead to incur or assume liabilities (Deegan, 2013), off-balance

accounts are suitable to record them.

Third, off-balance accounts are presented below (not included

in) the financial balance sheet. The proposed TBL adds additional

balance sheets and profit and loss statement for each CSR dimension

to financial statements. Therefore, these accounts are adequate to be

used in the TBL. Off-balance accounts were originally proposed to be

annexed below the balance sheet. Nonetheless, we suggest widening

their use to the profit and loss statement.

Finally, off-balance accounts should be removed when the

situation that motivated their recording disappears, or when that

situation actually affects financial equity. Currently, it is not possible

to estimate the effect that CSR issues could have on firms’ financial

performance and position. An important line of research has tried to

disentangle that relationship without yielding consistent and agreed

results (Orlitzky et al., 2003). Nonetheless, if we could ever be able to

appropriately estimate the effect of CSR on the financial dimension,

off-balance accounts could be a useful tool to account for that

relationship.


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By using these two elements, the double-entry bookkeeping

system and off-balance accounts, it is possible to register CSR impacts

in our proposed TBL. The positive and negative impacts generated

during the reporting period are recorded in off-balance accounts

included in the extended profit and loss statement, similarly to

incomes and expenses in financial reporting. When a negative

(positive) impact is generated, the firm should debit (credit) the

specific off-balance account on that specific type of impact in the

extended profit and loss statement. The counterpart of this entry

should be a credit (debit) of the account about the accumulated

impact in the balance sheet of its dimension. As for earnings in

financial statement, at the end of the reporting period, the negative

and positive impacts generated during the period are incorporated to

the CSR capital recorded in the equity section of each balance sheet

to register its variation.

Similarly to financial accounting, the firm should register the

opening entry at the beginning of the reporting period. The firm

debits all the accumulated positive impacts and credits the capitals (if

positive) as well as the accumulated negative impacts in each CSR

dimension. The first time that a firm elaborates a TBL, this entry

requires estimating the accumulated CSR impacts since the company

began to operate. This is obviously an impossible task. Therefore,

firms could estimate the overall impact on each dimension, without

differentiating which types of impact caused it. A second and simpler

possibility could be to regard the initiative to produce the TBL as a

“fresh start” and do not record any accumulated impact at that point.

Annex I provides a brief and fictional example to explain the

production of the TBL through the suggested accounting recording

procedure.

5.5. Significance and fidelity of the TBL

To assess the capacity of the TBL to effectively communicate

transparent information on CSR impacts, we follow a similar

approach to the one used in Chapter 4. Based on our suggested


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methodology to produce the TBL, we study the significance and

fidelity that our reporting proposal could provide.


In relation to the first factor of relevance, materiality, our reporting

proposal does not address how it should be determined. The TBL is

embryonic and we could not be ambitious in this matter. The

availability of adequate valuation methods plays a key role in

establishing which CSR impacts could be covered. Therefore, our

proposal does not prescribe what impacts should be reported or the

process to decide which ones include in the report. The list of aspects

of GRI is suggested to organise the content of the extended balance

sheet and profit and loss statement. We are aware that it could

exclude material impacts that do not fall within this classification.

However, companies that want to publish a TBL must

comprehensively analyse their activities to identify the main impacts

they cause and adequately monetarise them. Although the purpose of

this process is not to determine materiality per se, it could contribute

to foster the disclosure of material impacts. Firms that are starting to

monetarise their CSR impacts highlight that it helps them to get more

insight in what they are doing and critically understand their business

model (Kering, 2013; Puma, 2011). As valuation methods develop,

more impacts could be recorded. In addition, valuation could be

useful to determine materiality as it allows establishing a threshold to

appraise which impacts are more material for companies and society

(KPMG, 2014). It could also enrich the debate among stakeholders as

each group may judge the value attached to impacts in a different way

(Bebbington et al., 2007).

Our reporting proposal considers all stakeholders when

deciding which material impacts to record. The TBL uses a broad

definition of capitals to register the impacts that affect them, despite

whether they have or not an effect on the firm’s value for its

investors. The TBL also accounts for the financial and economic

capitals in the additional balance sheets and profit and loss

statements. In so doing, it differentiates between those impacts that


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affect the firm’s financial position and performance and those that

have and economic impacts beyond the company. Finally, the TBL

represents the impacts generated during the reporting period and the

accumulated ones. According to Rambaud and Richard (2015),

information on the variation in capitals from one period to another is

relevant for stakeholders.

Regarding measurement uncertainty, the firm must be

transparent in explaining the accounting policies, assumptions,

judgements, estimations and methods applied to monetarise impacts

(Bebbington et al., 2007; FEE, 2015). The extended notes explain all

this issues. Impacts recorded in the extended balance sheet and

profits and loss statement must have a reference that directly links

them to the respective note that describes how their value was

calculated. However, we acknowledge that our proposal does not

establish a list of specific methods to monetarise impacts, due to the

current evolutionary process of valuation techniques. We enumerate

several valuation methods as a reference for firms to look for their

most appropriate methods.

Table 5.5. Relevance of the TBL reporting proposal

Factor TBL reporting proposal

Element Effect

Materiality Our proposal does not propose a process to determine materiality.

Negative

Our proposal organises content based on GRI’s list of aspects, which could exclude other material impacts.

Negative

The valuation of CSR impacts contributes to identify which of them are materials.

Positive

The valuation of CSR impacts promotes the inclusion of stakeholders in determining materiality.

Positive

Materiality is related to all stakeholders. Positive

Capitals in the TBL independently account for the financial and economic dimensions.

Positive

Measurement Uncertainty

The extended notes explain the methods, estimations, assumptions, judgements and boundaries applied to monetarise CSR impacts.

Positive

Our proposal does not provide a list of specific valuation methods for CSR impacts.

Negative


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To sum up, our reporting proposal does not guarantee the

required levels of materiality and measurement uncertainty as of yet

(Table 5.5). Although monetarisation of impacts could help firms in

identifying material impacts and promote the inclusion of

stakeholders in that process, the TBL fails to explain how materiality

should be determined. This problem might be addressed once the

TBL evolves from this initial stage. Concerning measurement

uncertainty, our proposal suggests disclosing methods to compile

information, but fails to prescribe specific techniques to do so.


Our reporting proposal enables appropriate completeness.

Monetarisation allows accounting for a broad coverage of a CSR

impact. Valuation methods consider the consequences of corporate

activities on wellbeing, human health, economy, agriculture, visibility,

or culture, beyond the firm’s boundaries based on the inputs that

generate the impact. Thus, valuation helps firms to better explain

their impacts and their policies to mitigate them (Puma, 2011; Kering

2013). In this regard, some indexes that assess the quality of CSR

reporting attach higher weights to monetary disclosures than to the

rest of information because they provided more extensive details

about issues (Cormier, Magnan & Van Velthoven, 2005; Michelon et

al., 2015). Our proposal also extends the coverage of impacts by

accounting for the interrelationships among impacts. Trough

valuation and the double-bookkeeping system, the TBL has the

capacity to account for the share zones between CSR dimensions

(Elkington, 1997), as we could debit and/or credit several accounts at

a time. Similarly, the TBL could also represent the link between

financial and CSR performances if they could be adequately

estimated. Finally, most of the valuation methods that were described

above cover a broad scope. They consider the time and the

boundaries beyond firms to estimate the value of impacts.

Concerning neutrality, our proposal does not set particular

requirements on what impacts should be covered. Yet, by means of

valuation and aggregation of impacts, the TBL could encourage firms


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to report negative events. Most business practices are currently

unsustainable (Gray, 2006a; Jones, 2010; Milne & Gray, 2013). This

implies that most firms should report a negative capital for the

environmental and social dimensions. If a company chooses to report

only positive impacts on a CSR dimension, the value of its capital

would be very high. Stakeholders could easily identify the figure as

abnormal and they could raise doubts about the reliability of the

information. This situation could harm the firm’s legitimacy and its

social licence to operate (Deegan, 2002). Thus, companies could have

incentives to disclose information on negative impacts to provide a

more unbiased representation of their performance to avoid

jeopardising their legitimacy. Indeed, firms that are monetarising their

CSR impacts acknowledge that the value of their negative

environmental impacts represent a significant percentage of their

revenues. For instance, Puma (2011) reported a total environmental

impact of €145 million in 2010 (around 5% of its revenue). Kering

(2014) reported a total environmental impact of €793 million (around

8% of its revenue). High levels of aggregation could be dangerously

opaque because negative impacts could be hidden at the expense of

positive ones (Bebbington et al., 2007). Although our proposal allows

aggregation, it also requires a certain level of disaggregation that helps

to avoid that effect. The extended balance sheet and profit and loss

statement differentiate between positive and negative impacts in their

structures depending on their type and dimension (Figure 5.1).

Finally, the notes provide qualitative information. Firms could use

this information to provide narratives that influence the perception of

stakeholders. Nonetheless, the notes are not the most visual and

relevant part in which impacts are disclosed in the TBL. Only the

stakeholders that want to perform a thorough analysis would read this

section. Therefore, firms will have few incentives to provide

compelling narratives in the extended notes to create positively

perceptions.

The information presented in the TBL also achieves freedom

from error. Our reporting proposal clearly defines the period that

should be covered. This period must be the same as the one to which

financial statements are related, given that the TBL extends and

adjusts them. Additionally, the notes indicate the boundary for each


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type of impact, so that stakeholders know its coverage, and they

should provide evidence that supports the recorded impacts.

Monetarisation also contributes to freedom from error because

monetary disclosures could be subject to assurance by an independent

third party. Particularly, as the TBL consists of an annex to financial

statements, CSR impacts are more likely to be assured.

To recapitulate, our TBL reporting proposal allows appropriate

levels of faithful representation through its three factors (Table 5.6).

The TBL could enable a complete and neutral representation of CSR

impacts and guarantees that they are accounted within reasonable

margins of error.

Table 5.6. Faithful representation of the TBL reporting proposal


Element Effect

Completeness Valuation methods for CSR impacts consider their consequences.

Positive

The TBL allows accounting for the interrelationships among CSR impacts and capitals.

Positive

Valuation methods for CSR impacts consider a broad scope (inside and outside firms).

Positive

Neutrality The valuation and aggregation of CSR impacts promote the disclosure of negative impacts.

Positive

The TBL distinguishes between positive and negative effects for each type of impacts.

Positive

Firms have few incentives in using the extended notes to disclose narratives that create positive perceptions of their impacts.

Positive

Freedom from error

The period to be covered is prescribed (the same as financial statements)

Positive

The extended notes indicate the boundaries for each type of impacts.

Positive

The extended notes should provide evidences. Positive

Monetary disclosures are more easily subject to be assured.

Positive


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Our proposed TBL allows comparability. The TBL consists of a set

of documents (extended balance sheet, extended profit and loss

statement and extended notes) that follow a predefined format and

structure akin to those of financial statements. All firms that might

publish this report have to organise content in the same way. This

requirement helps stakeholders to compare the information disclosed

on TBLs among firms and over time. The valuation of CSR impacts

also improves comparability (Howes, 2004). Through valuation, CSR

impacts are measured in a common unit (Tullberg, 2012). We

recognise that our proposal does not prescribe specific disclosures;

hence, firms may not disclose the same impacts. However, all of them

have, at least, a net aggregation for each type of impact and CSR

dimensions in the extended balance sheet and profit and loss

statement. Thus, stakeholder could at least compare overall impacts

on these aggregates. To facilitate comparability over time, the

extended statements should include a column that provides the value

for each impact in the prior reporting. Additionally, the extended

notes explain changes in valuation methods and indicate their effect

from one period to another. Finally, we acknowledge that the failure

to suggest specific valuation method to monetarise each type of

impact reduces comparability. Firms may use different methods to

value the same impact. If this happens, stakeholders could be aware

of that issue because the extended notes indicate the method that was

applied to monetarise impacts.

In sum, our reporting proposal enables adequate comparability

of information among firms as well as over time (Table 5.7). This is a

key element allowing stakeholders to appreciate CSR impacts. As

discussed above, the TBL offers many benefits that promote

comparability. Its sole limitation could be overcome if valuation

methods are further developed to reach common consensus.


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Table 5.7. Comparability of the TBL reporting proposal


Element Effect

Among firms Our proposal prescribes a predetermined structure.

Positive

CSR impacts are measured in the same unit. Positive

All firms have at least a figure for type of impacts and CSR dimensions.

Positive

Two firms may use different valuation methods to monetarise the same CSR impact.

Negative

Over time Our proposal prescribes a predetermined structure.

Positive

The extended balance sheet and profit and loss statement include a column with the value of impacts for the prior period.

Positive

The extended notes indicate if there were changes in valuation method and their effect.

Positive


The TBL presents several elements that improve clearness. First, our

proposal follows the format and structure of financial statements.

According to Tschopp and Huefner (2015), it is easy to understand

the meaning of the components of financial statements is. Our

reporting proposal adapts these components to cover CSR impacts,

but the main idea behind them remains the same. While the extended

balance sheet provides a static representation of (accumulated) CSR

impacts, the extended profit and loss statement provides a dynamic

representation of them (impacts generated during a period).

Therefore, the suggested structure facilitates reading the TBL of

different companies, given that stakeholder know a priori the pattern

in which the information is organised. Second, the organisation of the

extended statements is very visual, which allows stakeholders to

appreciate, at a glance, the overall impacts on each CSR dimension.

Third, the way in which capitals are calculated also facilitates

clearness. Given that it represents the net capital generated or

destroyed by firms in each CSR dimension, the TBL makes apparent

how corporate actions contribute to creating or destroying value


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(broadly understood and not just for shareholders). Fourth, valuation

also enhances clearness. It improves the communication of impacts as

it makes it understandable to a wider audience (Puma, 2011; Kering,

2013). As Tullberg (2012) posits, we all compare different alternatives

in our everyday life by converting them into the same unit of

measure, which is either time consumption or cost. As an example, it

is reasonable to expect that the cost incurred (or avoided) by firms,

when they pollute more (or less) than expected by a benchmark,

would be easier to appreciate than the emissions of carbon dioxide.

Therefore, although the simplification of CSR impacts through

monetarisation and double-entry bookkeeping system is regarded by

some authors as an inconvenient (Cooper 1992, Deegan 2013, Gray

2013), it helps to represent impacts in a straightforward and

comprehensive way (PwC, 2015). Fifth, the extended notes contribute

to clearly interpret the information of the TBL. The value attached to

an impact depends on the valuation method used, which may affect

the reader’s interpretation (Cavanagh, Frame & Lennox, 2006). To

avoid this type of misinterpretations, the impacts recorded in the

extended statements should have a reference that links them to the

note about how they were valued.

In relation to conciseness, the TBL discloses the most relevant

information to appreciate CSR impacts in two summarised

statements: the extended balance sheet and profit and loss statement.

The aggregation of monetarised impacts simplifies the complex

representation of the data used to assess CSR (Tullberg, 2012). Yet,

the TBL distinguishes the main types of impacts and whether they are

positive or negative. Additionally, as we mentioned above, its

structure is visual. Thus, although our reporting proposal does not

explicitly suggest the disclosure of pictures or tables, the way in which

it is organised guarantees that content is briefly and plainly presented.

The extended notes provide qualitative information to complement

the disclosures presented in the other two statements. In Chapter 4,

we pointed out that qualitative information could end up in

producing an overwhelming report. Yet, our proposal explicitly

indicates that notes should be concise and only the require

information to assess valuation methods and explain context should

be provided. For the reasons that we explain when discussing


188

neutrality, firms will have no incentive in providing compelling

narratives in these sections. Finally, the TBL presents financial and

CSR information in a single report, which could help to appreciate

the overall firm’s performance. This avoids overlapping content that

may be disclosed in different reports (FEE, 2015). Therefore, our

proposal contributes to increase the conciseness of CSR reporting,

but also of corporate reporting in general.

To recapitulate, our reporting proposal makes several positive

suggestions that enable appropriate understandability of the

information (Table 5.8). Both, the valuation of impacts and the

structure in which the content is presented, increase the clearness and

conciseness of the report. This could help stakeholders understand

the information on CSR impacts. Table 5.8. Understandability of the TBL reporting proposal


Element Effect

Clearness The structure and format of the TBL increase the understanding of its content.

Positive

The TBL presents the information on impacts in a visual way.

Positive

The calculation of capitals facilitates stakeholder to appreciate accumulated CSR impacts.

Positive.

Monetarised CSR impacts are easier to understand than the amount of inputs that caused them.

Positive

The extended notes provide information that helps to interpret the other two statements.

Positive

Clear references link the impacts reported in the extended balance sheet and profit and loss account to their respective notes.

Positive

Conciseness The extended balance sheet and profit and loss statement summarise the main information to appreciate CSR impacts.

Positive

Aggregation of impacts simplifies the presentation of data.

Positive

The TBL presents the information on impacts in a visual way.

Positive

Qualitative information in the extended notes is not likely to become overwhelming and narrative disclosures.

Positive


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5.6. Discussion

To analyse whether our proposed TBL enables more effective and

transparent communication on CSR impacts than current CSR

reporting practices, we compare the problematic topics that hinder

significance and fidelity in the three options to disclose CSR

information: the GRI and IIRC reporting models (Chapter 4), and

our reporting proposal (Section 5.5). Table 5.9 lists the problematic

topics. In this table, a cross indicates that the option suffers from an

issue, while a tick indicates that the option addresses it.

GRI, IIRC and TBL fail to achieve appropriate relevance

through materiality and measurement uncertainty. The three options

do not define neither explain a process that could be practically

implemented to define materiality. Additionally, they could end up in

excluding material impacts for firms. On the one hand, the GRI

reporting model suggests a closed list of aspects to identify material

impacts, which our proposal uses to organise the content of the

extended balance sheet and profit and loss statement. On the other

hand, the IIRC’s classification of capitals does not consider the

economic dimension of CSR. Furthermore, this reporting model

enables even lower materiality given that it focuses on those impacts

that are material only for providers of financial capitals. Thus, impacts

that could be relevant for the rest of stakeholders will not necesserally

be reported in IRs if they do not meet that condition. By contrast, the

GRI and TBL advocates that materiality should be related to all

stakeholders. The problem on how to define materiality was pointd

out more than a decade ago (Adams, 2004), and it is still a yet-to-be-

solved issue. Due to the nature of CSR reporting, it might be

impossible to address and balance the interests of the many different

stakeholders of a firm to determine which impacts should be

reported. Despite this question, we highlight that valuation of

impacts, if properly done, could contribute to the process of defining

materiality because it could foster the involvement of stakeholders

and it could be useful to define materiality thresholds. In relation to

measurement uncertainty, the three options lack a list of specific and

clearly defined methods to measure or monetarise impacts.


190

Tab

le 5

.9. C

om

par

iso

n o

f th

e p

rob

lem

atic

to

pic

s in

GR

I an

d I

RC

rep

ort

ing

mo

del

s w

ith

our

rep

ort

ing

pro

po

sal fo

r th

e T

BL

Ch

ara

cte

rist

ic:

su

b-c

hara

cte

rist

ic

Facto

r P

rob

lem

ati

c t

op

ic

GR

I re

po

rtin

g

mo

del

IIR

C

rep

ort

ing

m

od

el

TB

L

rep

ort

ing

p

rop

osa

l

Sig

nif

ican

ce:

Rel

evan

ce

Mat

eria

lity

Exp

lan

atio

ns

to d

efin

e m

ater

ialit

y an

d e

stab

lish

st

akeh

old

er e

nga

gem

ent

×

×

×

Incl

usi

on

of

mat

eria

l im

pac

ts

×

×

×

Co

nsi

der

atio

n o

f al

l st

akeh

old

ers

×

M

easu

rem

ent

un

cert

ain

ty

Cle

ar e

xpla

nat

ion

s an

d s

ugg

esti

on

of

met

ho

ds

to

mea

sure

/m

on

etar

ise

imp

acts

×

×

×

Sig

nif

ican

ce:

Fai

thfu

l r

epre

sen

tati

on

Co

mp

lete

nes

s R

epre

sen

tati

on

of

con

sequen

ces

and

in

terr

elat

ion

ship

s am

on

g im

pac

ts

×

×

Sco

pe

of

the

cover

age

of

imp

acts

×

N

eutr

alit

y D

iscl

osu

res

incl

ined

to

pro

vid

e a

bal

ance

d

rep

rese

nta

tio

n o

f im

pac

ts

×

N.A

.

Eff

ect

of

qual

itat

ive

dis

clo

sure

s o

n t

he

read

er’s

p

erce

pti

on

×

×

B

ench

mar

k u

sed

to

def

ine

mat

eria

lity

×

Eff

ect

of

the

aggr

egat

ion

of

imp

acts

on

neu

tral

ity

×

×

F

reed

om

fro

m

erro

r Sugg

esti

on

of

pro

vid

ing

evid

ence

×

Incl

usi

on

of

stak

eho

lder

s in

ass

uri

ng

info

rmat

ion

×

N.A

. N

.A.

N.A

.: N

ot

po

ssib

le t

o a

sses

s


191

Tab

le 5

.9 (

con

tin

ued

)

Fid

elit

y:

Co

mp

arab

ilit

y

Am

on

g fi

rms

Pre

det

erm

ined

str

uct

ure

an

d f

orm

at

×

×

Dis

clo

sure

of

qual

itat

ive

info

rmat

ion

×

×

C

om

mo

n in

form

atio

n a

mo

ng

firm

s o

n im

pac

ts

×

Use

of

refe

ren

ces

to o

ther

do

cum

ents

×

×

N

.A.

Use

of

dif

fere

nt

mea

sure

men

t/val

uat

ion

met

ho

d

for

the

sam

e im

pac

t.

×

×

×

O

ver

tim

e P

red

eter

min

ed s

truct

ure

an

d f

orm

at

×

×

Dis

clo

sure

of

qual

itat

ive

info

rmat

ion

×

×

In

dic

atio

n o

f th

e p

erio

d t

o b

e co

ver

ed

×

Fid

elit

y:

Un

der

stan

dab

ilit

y C

lear

nes

s P

red

eter

min

ed s

truct

ure

an

d f

orm

at

×

×

U

se o

f re

fere

nce

s to

oth

er d

ocu

men

ts

×

×

N.A

.

Dis

sem

inat

ion

of

info

rmat

ion

on

an

im

pac

t th

rough

out

the

rep

ort

×

Sugg

esti

on

to

dis

clo

se v

isual

co

nte

nt

×

Am

ou

nt

of

info

rmat

ion

to

be

dis

clo

sed

×

×

Co

nci

sen

ess

Sugg

esti

on

to

dis

clo

se v

isual

co

nte

nt

×

Am

ou

nt

of

info

rmat

ion

to

be

dis

clo

sed

×

×

N

.A.:

No

t p

oss

ible

to

ass

ess


192

Concerning faithful representation, our reporting proposal

addresses most of the problems presented in the GRI and IIRC

reporting models. The TBL enables a more complete representation

of impacts. In contrast to the GRI and IIRC, it could completely

account for CSR impacts and their interrelationships. Additionally,

and similarly to the GRI, it considers impacts regarding their effect on

all stakeholders and its scope is not limited to how they affect

corporate value, as in the IIRC. Our proposal also promotes a more

neutral representation. The aggregation of impacts and the disclosure

of qualitative information hinder neutrality in the GRI and IIRC

reporting models. These issues are also present in the TBL. However,

due to the own characteristics of our proposal, they do not represent

a limitation. As we argued above, monetarisation and aggregation

could foster the disclosure of negative impacts in the TBL.

Additionally, qualitative disclosures presented in the extended notes

are less likely to be used with the purpose of affecting the readers’

perceptions. Another issue presented in GRI is that some of their

indicators are inclined to provide a positively or negatively biased

image. As the TBL proposes to monetarise the impacts, the result of

the process should not be biased. The IIRC does not suggest or

require information on specific topics, hence we cannot assess

whether the content of IRs could be biased. In relation to freedom

from error, the TBL and GRI remark that firms should provide

evidence on the reported impacts. The IIRC fails to make that

suggestion. Finally, GRI notes that stakeholders should be involved in

the process of assuring information but fails to indicate how it should

be done. The IIRC and TBL do not make any claims on this regard.

However, it is likely that, if they were done, similar problem to that of

GRI would be present.

The TBL allows higher comparability than do the GRI and

IIRC reporting models. In contrast to them, it has a predetermined

structure, which facilitates the comparison of content among firms

and over time. Additionally, the disclosure of qualitative information

in the TBL does not reduce comparability. The extended notes

present this information as a complement to the extended balance

sheet and profit and loss statement, where impacts are monetarily


193

quantified. By contrast, in the GRI and IIRC reporting model,

qualitative disclosures are used to provide key information on CSR

impacts, making them more difficult to compare. The IIRC suffers

from an additional problem in relation to comparability. It suggests

the content to be reported as questions that firms should try to

respond, rather than prescribing specific disclosures. Therefore,

companies may respond to then differently. GRI addresses this issue

by providing a list of indicators. Our reporting proposal does not

prescribe specific disclosures, but all firms should have at least a

monetary figure that assess each type of impact and CSR dimensions.

Another limitation of IIRC is that it does not indicate the period that

IRs should cover. GRI and TBL make suggestions on the period to

be covered. Finally, two other problems affect comparability. First,

the GRI and IIRC reporting models allow firms to provide

information in other documents by referring to them. The TBL

makes no mention on the use of references to other reports. Second,

the three options do not indicate measurement and valuation

methods. Thus, firms may assess the same impact differently.

Regarding understandability, our reporting proposal also

enables higher clearness and conciseness than the GRI and IIRC

reporting models. The abovementioned comments on the

prescription of a predetermined structure and on the use of

references are applicable for clearness. Following the structure of

financial statements represents an important advancements respect to

the other alternatives because stakeholders could know a priori how

information is presented. Additionally, the GRI and TBL address the

IIRC’s limitations related to the disclosure of visual content and the

possibility of providing information about an impact in several parts

of an IR. We note that the TBL makes no specific suggestion on

reporting figures or consolidated data, but its structure is visual and

tabulated per se. The TBL also guarantees that stakeholders would not

be overwhelmed with excessive and unnecessary information. CSR

impacts are monetarised and summarised in the extended balance

sheet and profit and loss statement. This feature helps to address the

problem of excessive disclosures that reduces the clearness and

conciseness of GRI and IIRC.


194

To sum up, our reporting proposal for the TBL enables more

effective communication than the GRI and IIRC reporting models. It

might not be completely effective as of yet, but it represents an

important advancement compared to current CSR reporting practices.

As Table 5.9 indicates, the TBL solves most of the issues related to

faithful representation, comparability and understandability presented

in the other two alternatives. Regarding materiality, our proposal

suffers from similar limitations to those of GRI and IIRC reporting

models. Nonetheless, it is questionable whether any of the three

alternatives will eventually address the problems of materiality given

the broad range of CSR impacts and stakeholders.


Due to the important limitations of current CSR reporting practices,

Chapter 3 concludes with a call to develop a new type of report that

tries to increase the transparency of CSR reporting. This chapter

suggests the TBL as an alternative reporting proposal that enables

more effective and transparent communication on CSR impacts. We

regard the TBL as a report that extends and adjusts financial

statements to disclose CSR information. There are three critical issues

to develop the TBL as we envision it: the valuation of impacts, the

adjustment of financial statements and the recording process for

impacts. We found that our reporting proposal has the capacity to

achieve higher significance and fidelity that SRs produced based on

the GRI reporting model and IRs produced based on the IIRC

reporting model.

The valuation of impacts and the use of the double-entry

bookkeeping were criticised for being inappropriate to account for

CSR impacts. However, these two elements, along with the use of a

predetermined structure, are the key determinants that foster the

capacity of our reporting proposal to provide transparent information

on CSR impacts. The TBL shares some limitations in defining

materiality with the GRI and IIRC reporting models, but it improves

the rest of characteristics of effective CSR communication. In fact,

the elements that promote the factors of significance (e.g.,


195

completeness, impartiality, timeliness) and fidelity in our proposal

(e.g., clarity, comparability, comprehensibility), are also drivers for the

transparency of CSR reporting, as stated by Dubbink et al. (2008).

This chapter addresses the need to clarify what the TBL means

(Sridhar & Jones, 2013) and develop methodologies to elaborate it

(Tullberg, 2012). To date, there have been few attempts to report

CSR impacts using the format and structures of financial statements.

These proposals consider that the TBL should adjust either the profit

and loss statement or both, the balance sheet and the profit and loss

statement (Tables 5.2 and 5.3). Our conception of the TBL is aligned

with the second group of proposals, although we aim to go a step

further. We envision the TBL as an extension of financial statements

to properly represent overall corporate performance and impacts by

extending three of their documents: the balance sheet, the profit and

loss statement and the notes. Rambaud & Richard (2015) suggested

adapting the balance sheet and the profit and loss statement, to

account for financial, social and environmental impacts. Our proposal

takes a broader and more holistic approach by extending the financial

statements to account for corporate impacts on the capitals of the

three CSR dimensions (economy, environment and society), along

with the financial one. In contrast to these authors, we suggest

recording these capitals as equity, rather than liabilities, as companies

could generate negative and also positive impacts. Additionally, we

argue that the impacts should not be recorded in a systematic way, as

Rambaud & Richard (2015) proposed. Instead, the actual impacts

generated need to be valued and recorded.

Our reporting proposal is in line with the suggestion of the

FEE. This organisation suggests that a useful way of reporting

information to stakeholders should be a single report that follows a

CORE and MORE approach (FEE, 2015). The CORE report should

disclose the key information to get an overall understanding of the

firm situation. The MORE reports should disclose additional layers of

information related to the issues communicated in the CORE report.

This additional information should focus on particular topics that

could be of interested for specific stakeholders, but not to others.

Our way of envisioning the TBL follows this approach. The main

information is reported in the extended balance sheet and profit and


196

loss statement. These two statements could be considered as a CORE

report. On the other hand, the notes disclose additional information

that could be of interest for certain stakeholders to get a deeper

understanding of the firm performance and impacts. Thus, the notes

could be regarded as a MORE report.

The TBL brings other advantages besides those related to the

communication of CSR issues. Companies taking up the challenge of

disclosing CSR information by means of this reporting model must

make a great effort to critically understand their activities and impacts

so they can provide a suitable and appropriate valuation. Companies

that have started to value their CSR impacts, such as Puma or Kering,

assert that this way of reporting helps them to improve their

procedures and to develop their decision-making processes (Puma,

2011; Kering, 2014).

This chapter has also implication for practitioners. According to

Bewley and Schneider (2013, p. 107), “in a ‘perfect’ world it might

become routine for accountants to address the social and

environmental, as well as the financial, aspects of asset allocation

decision”. Additionally, the FEE highlights the need to develop

reporting models that allows stakeholders to incorporate CSR

information in their decision-making process. We consider that our

proposed TBL could be useful to integrate CSR issues in decision-

making processes of both, firms and stakeholders.

Our reporting proposal has also implication for policy-makers,

especially in Europe. From 2017, the European Union require large

firms to disclose CSR information that could help in measuring,

monitoring and managing firm performance and impacts (European

Union, 2014). However, it does not mandate the use of any particular

framework or type of report to be used. The TBL represents a

reporting model that could be taken into account for this aim given

that it enables more transparency on CSR impacts than current CSR

reporting models.

We recognise that elaborating the TBL, as suggested in this

chapter, may pose some concerns and limitations. First, the

monetarisation of CSR impacts may raise ethical and philosophical

concerns (KPMG, 2014; Slaper & Hall, 2011). Nonetheless, these

concerns could be mitigated by the advantages brought about by the


197

TBL in terms of reporting techniques, increase of transparency and

integration of CSR policies within companies. Valuation should be

considered as a proxy to measure CSR impacts in a common unit

(Rambaud & Richard, 2015). Second, the suggested accounting

procedure should be further developed to address several issues, such

as when to record impacts and the establishment of prescribed

reporting boundaries, among others. All these limitations represent

suggestions for future research. Future studies should also try to apply

the reporting proposal for the TBL in a company. This opportunity

would be very beneficial for assessing the potential of the proposal

and identifying the practical issues to be improved.

199

CONCLUSIONS

The general objective of this PhD dissertation is to critically study the

transparency of CSR reporting (TCR) and make suggestions to

improve it. We split this general objective into two key objectives that

analyse TCR from two different perspectives. On the one hand, we

seek to analyse its relationship with corporate governance

mechanisms. On the other, we aim to develop a reporting proposal

that improves TCR. Each key objective is further divided into two

specific objectives that focus on a particular issue. Therefore, the

main body of this PhD dissertation is structured in four chapters that

respectively address the specific objectives. Given that each specific

objective focuses on a different topic, we developed the chapters as

independent studies to achieve the objectives using the most

appropriate approach.

This chapter presents the conclusions of the PhD dissertation

and grouped them based on the specific objectives. Within each of

them, we differentiate those conclusions that are particularly related

to TCR, from those that are drawn in relation to collateral topics.


boards of directors and the transparency of CSR reporting. We

addressed this objective in Chapter 2. We analysed whether effective

boards in protecting shareholder interests also satisfy the information

interests of the rest of stakeholders by providing them with

transparent CSR information. We measure board effectiveness by

gathering several board characteristics, and we tested its relationship

with TCR in an international sample of 2,366 companies between

Conclusions

200

2009 and 2012. As we were dealing with latent variables, we defined a

structural equation model that was estimated through a partial least

squares regression. Based on our analysis, we draw two main

conclusions related to TCR:

Boards that are effective in guaranteeing shareholder

interests provide more transparent CSR information. As a

consequence of the broadening of corporate governance towards a

stakeholder perspective, its mechanisms, including boards of

directors, should be aimed at protecting the interests of all the firm’s

stakeholders (Letza et al., 2004). In the current social and economic

situation, society is demanding more transparent information about

how companies manage their economic, environmental and social

impacts (Abeysekera, 2013; FEE, 2015; Gray, 2006a). However,

boards of directors still are responsible of the protection of the

interests of shareholders, as suggested by the shareholder perspective

of corporate governance. Our analysis shows that firms with effective

boards under this latter perspective are trying to satisfy the

information interest of stakeholders on this topic by disclosing

transparent CSR information. Their motivation for doing so could be

to discharge accountability due to a truly sense of duty towards

stakeholders. Yet, effective boards could also foster TCR as a way to

legitimise their behaviour and be granted a social licence to operate

(Deegan, 2002).

Corporate governance codes foster the disclosure of

transparent CSR information. Although recommendations that

refer to stakeholders are become common in corporate governance

codes, specific suggestions related to transparency are anecdotal

(Szabó & Sørensen, 2013). In contrast to this, corporate governance

codes do make suggestions on the characteristics that we gather to

measure board effectiveness. (e.g., promotion of board independence,

separation of CEO and chairperson, presence of female directors),

given that they influence how boards develop their monitoring and

advisory tasks towards shareholders. Our results show that our

measure of board effectiveness has a positive and significant

relationship to TCR. This implies that those characteristics are also


201

related to more transparent disclosures. Therefore, corporate

governance codes are indirectly promoting TCR, despite no making

specific recommendations about it. Corporate governance codes

contribute then to the protection of the interests of both,

shareholders and stakeholders.

Additionally, we draw several conclusions that contribute to

research on corporate governance and on CSR:

There is no conflict between the shareholder and the

stakeholder perspectives of corporate governance. While the

shareholder perspective argues that corporate governance should

focus on the protection of shareholder interests, the stakeholder

perspectives considers that corporate governance should be aimed at

satisfying the interests of all stakeholders (Letza et al., 2004). This

distinction of objectives may suggest that there is a conflict between

the two perspectives because satisfying the interests of the rest of the

stakeholders could imply that less attention is given to shareholder

interests, or vice versa. If we consider TCR as a proxy for the

stakeholder perspective, our findings indicate that the perspectives are

complementary, as we found that effective boards in protecting

shareholder interest also address the information interests of the rest

of stakeholders. Thus, it can be considered that the stakeholder

perspective broadens the shareholder perspective by regarding

shareholders as a group of stakeholders, with equal rights to those

held by others.

The effectiveness of boards of directors can be assessed.

To measure board effectiveness, we established a formative model

that uses a set of demographic characteristics of boards as indicators.

As it was aforementioned, these characteristics are related to how

boards perform their monitoring and advisory roles. To the best of

our knowledge, this is the first attempt to capture board effectiveness

in a single variable. Our measure facilitates the assessment and

comparability of board effectiveness among companies. Thus, it

could be useful to study whether firm or institutional-level factors

influence board effectiveness. In so doing, we expect to respond to

Conclusions

202

“the need for a better understanding of all elements that determine

board effectiveness” (Van den Berghe & Levrau, 2004, p. 461).

CSR represents a strategy that may benefit the interests of

shareholders or that, at least, it does not harm them. To

corroborate the suitability of our measurement model for board

effectiveness, we tested its effect on financial performance. As

expected, board effectiveness is positively related to financial

performance. Our findings also show that effective boards focus on

satisfying the interests of shareholders and stakeholders. Particularly,

effective boards promote TCR, which is a basic pillar of CSR strategy

(Chen & Wongsurawat, 2011). Thus, financial performance and CSR

can be promoted at the same time, without hindering one another.

Our finding is in line with some studies reporting that financial

markets value the disclosure of transparent sustainability reports

(Reverte, 2012; Carnevale et al., 2012). CSR is a key element of

corporate strategy that can lead to competitive advantages, innovation

and opportunities (McWilliams et al., 2006; Porter and Kramer, 2006;

Smith, 2003). Therefore, the premise that CSR represents a cost to be

avoided seems not to be the case anymore. This conclusion is in line

with Money and Schepers (2007, p. 8), who claimed that: “there is an

increasing awareness that there cannot be shareholder value without

stakeholder value.”


ownership structure and the transparency of CSR reporting. We

addressed this objective in Chapter 3. We analysed the influence of

ownership structure on TCR in a sample of 128 Spanish listed

companies between 2009 and 2011. Specifically, we studied the effect

of two types of significant shareholders, depending on whether or not

they are directors. This chapter allows us to draw the following

conclusions about TCR:

The type of significant shareholders (whether or not they

are directors) is relevant in understanding the relationship

between ownership concentration and the transparency of CSR


203

reporting. Our findings indicate that significant shareholders who are

not members of the board are positively related to TCR. By contrast,

the effect of significant shareholders that are directors hinges on the

stake that they collectively own. Companies in which these

shareholders hold more than 25% of the voting rights provide lower

levels of TCR than those firms in which they own below that

threshold. Significant shareholders of Spanish companies are keen to

promote CSR strategies (Godos Díez et al., 2012; Godos-Díez et al.,

2014). Consequently, they may need information to assess whether

their companies are actually doing that. To satisfy this need,

significant shareholders that are not present in the board may use

their power to compel firms to report transparent CSR information.

By contrast, shareholders that are directors have access to all the

information required to monitor managers. Therefore, they may

consider the disclosure of transparent sustainability reports adds no

value for them. However, if they do not have a very strong position,

above 25%, they still promote TCR as a response to the requirement

of those shareholders that are not represented on the board, as well as

to provide signals to the market. We maintain that this finding may

help to explain the mixed results reported by those papers that

analysed the effect of ownership on CSR reporting (Prado-Lorenzo et

al., 2009; Reverte, 2009).

The disclosure of transparent CSR information works as a

mechanism to reduce information asymmetries. As it was

aforementioned, significant shareholders in Spain may reasonably be

expected to require information on CSR actions and impacts to

evaluate whether the management is considering their interests in

establishing CSR policies (Godos Díez et al., 2012; Godos-Díez et al.,

2014). Our results on the relationship between the type of significant

shareholders and TCR are explained by the accessibility of directors

to the firm’s information to perform their monitoring role. This

finding indicates that there are information asymmetries among

significant shareholders. In this regard, the disclosure of transparent

CSR information may work as a tool that helps to reduce those

asymmetries. This conclusion is in line with some studies that

postulate that CSR reporting complements financial reporting to

Conclusions

204

monitor how firms are being managed (Carnevale & Mazzuca, 2014;

Herda et al., 2014; Lu et al., 2016). Our conclusion aligns with the

stakeholder perspective of corporate governance, which argues that

corporate governance mechanism should be aimed at guaranteeing

the interests of stakeholders (Letza et al., 2004). In this regard, the

publication of transparent reports on CSR issues could be considered

as one of those mechanisms.

The Spanish corporate governance code could include

recommendations to promote the transparency of CSR

reporting. Given that the disclosure of transparent CSR information

works as a mechanism that reduces the information asymmetries

among shareholders, the Spanish corporate governance code could

provide recommendations that promote TCR. Based on the results of

Chapter 2, we conclude that corporate governance codes, among

them the Spanish one, indirectly foster TCR by mean of some of their

recommendations. Nonetheless, a specific recommendation on CSR

reporting could be relevant for companies in which significant

shareholders on boards own an important stake. In these firms,

shareholders that are not represented on the board could suffer from

a lack of appropriate information about the company and,

particularly, about CSR policies. These shareholders could benefit

from that specific recommendation. As our results are obtained from

a Spanish sample, we establish this conclusion only for the corporate

governance code that is applicable for listed firms in this country.

Based on the results of Chapter 3, we also draw other

conclusion related to corporate governance:

There is great gender inequality in Spanish boards. On

average, women represented only 9.29% of the directors in the

analysed period, ranging from 8.58% in 2009 to 9.29% in 2011. One

of the recommendations of the recently issued Spanish corporate

governance code (CNMV, 2015) suggests that at least 30% of the

directors should be women in 2020. Based on the growth of female

representation from 2009 to 2011 (less than 1% in absolute terms), it

seems unlikely that the 30% quota would be achieved. Spanish


205

regulation on this issue is not-mandatory. Firms are only subject to a

“comply or explain” principle. However, to foster female

representation, companies that lack gender diversity will have more

difficulties in obtaining public contracts (Terjesen, Aguilera & Lorenz,

2015). Our analysis reinforces the conclusions of some studies that

highlight the failure of this kind of regulation in promoting the

inclusion of women on boards (Carrasco & Laffarga, 2013; Palá-

Laguna & Esteban-Salvador, 2016). However, we note that gender

inequality is not a specific problem of Spanish boards. The

representation of female directors is also law in other European

countries, such as Germany (Joecks et al. 2013).

Specific objective 2.1: To understand the problems that explain

why current CSR reporting practices fail to be transparent. We

addressed this objective in Chapter 4. We studied whether the low

TCR in communicating CSR impacts is driven by the reporting

models that guide firms in elaborating reports or by the firms’

application of those models. We relied on communication theory to

identify the characteristics that determine the effective

communication of transparent information on CSR impacts. We

applied interpretive textual analysis to assess whether these features

are provided by the most relevant reporting models nowadays (GRI

and IIRC) and by how they are applied by a firm considered as a

“best reporter”. The analysis allows us to identify the main constraints

of reporting models and their applications to enable transparency.

The main conclusions that we draw from this chapter in relation to

TCR are the following:

Significance and fidelity determine the capacity of CSR

reporting to enable effective and transparent communication on

CSR impacts. Based on communication theory and following

Bedford and Baladouni’s paper (1962), we identified significance and

fidelity as the key features of CSR reporting to enable transparency.

Significance is the capacity of the CSR reporting model to facilitate

the elaboration of a report that discloses information that is relevant

and provides a faithful representation of firms’ CSR impacts. Fidelity

Conclusions

206

is the capacity of the CSR reporting model to facilitate the elaboration

of a report that discloses information that is comparable and

understandable to avoid misinterpretations. We collectively assessed

the provision of these characteristics by the reporting models and by

the produced reports, to consistently and coherently study the failure

of reporting practices to provide transparent information.

The low level of transparency of CSR reporting is mainly

driven by reporting models. Our findings indicate that the GRI and

IIRC reporting models suffer from severe defects that limit their

capacity to produce a report that communicates transparent CSR

information. GRI and IIRC make some suggestions that promote

significance and fidelity. Nonetheless, these suggestions are overcome

by the problems of reporting models. Our conclusion contrasts with

those of several authors that regard the firms’ application of reporting

models as the key explanation for the low levels of TCR (Boiral 2013;

Bouten et al., 2011; Haji & Hossain, 2016; Knebel & Seele, 2015;

Leszsczynska, 2012). Although we found that the analysed firms

failed to apply some of the positive suggestions of GRI and IIRC,

most of the elements that constrain the transparency of the produced

reports are driven by the problems identified in reporting models.

The mandatory application of reporting models would not

contribute to increase transparency. Reporting models allows

companies to decide the extent to which the latter apply the former

(Chen & Bouvain, 2008; Flower, 2015). Thus, the misapplication of

CSR reporting can be regarded as a results of the freedom they allow

(Knebel & Seele, 2015). Consequently, the compulsory application of

reporting models for those firms that decide to follow them is

suggested as a solution to increase the quality of reports (Bouten et

al., 2011). Our results question that this proposition would actually

enhance TCR. As we have shown, the GRI and the IIRC reporting

models present inherent limitations that hamper their capacity to

produce reports that effectively communicate transparent information

on CSR impacts, even if they were correctly and completely applied.

Therefore, the compulsory application of reporting models would not

guarantee that CSR information would improve. Furthermore, it


207

could inhibit firms to follow the standards (Tschopp & Nastanski,

2014).

A different reporting proposal to current practices is

needed to improve the transparency of CSR reporting. As the

mandatory application of reporting models would not improve TCR,

a possible solution could be that they should evolve to overcome

these issues and foster their voluntary and complete application.

Reporting models should provide more concrete and practical

descriptions on how to compile information and produce reports,

while allowing some level of flexibility. We argue that these changes

are unlikely to happen. Firms and accounting companies are the most

relevant stakeholders represented in the GRI and IIRC, the

organisations that publish the most widely used reporting models for

sustainability reports and integrated reports. These groups may not be

successful in trying to adapt model to effectively show CSR impacts.

Therefore, we suggest that the most suitable option to improve TCR

is to develop a different type of report that tries to solve the

limitations presented in the GRI and IIRC reporting models.

Additionally, based on Chapter 4, we draw a conclusion that

could be relevant for research on CSR reporting.

Communication theory contributes to improve knowledge

on CSR reporting. CSR reporting is a communication process

through which stakeholders should be provided with transparent

information to appreciate CSR impacts. Thus, we used

communication theory to study CSR reporting. In so doing, we aim to

address the need to move from the theories commonly applied in

CSR reporting research to enrich the debate (Bebbington & Thomson

2013). Specifically, we relied on Shannon’s communication system

(Shannon & Weaver, 1949), which is a cornerstone, within the

cybernetic perspective of communication theory (Craig, 1999).

Despite being overlooked by mainstream research on reporting in the

last decades, this approach could be helpful in understanding

reporting processes (Hussey & Ong, 2005; Hutchinson, 2013).

Conclusions

208

Communication theory and Shannon’s system allows us to define

significance and fidelity, the key characteristics that determine the

capacity of CSR reporting to effectively communicate transparent

information. By studying these characteristics we were able to identify

and understand the main problems of current CSR reporting practices

to enable TCR.

Specific objective 2.2: To develop a reporting proposal that

overcomes the problems of current CSR reporting practices to

enable transparency. We addressed this objective in Chapter 5. We

suggest the TBL as a reporting proposal that allows higher TCR. We

regard the TBL as a type of report that extends and adjusts financial

statements to jointly disclose financial and CSR information. We

addressed the basic requirements to produce TBL: to monetarise

impacts, to reformulate financial statements, and to develop a

recording procedure for CSR impacts. After developing our proposal,

we study the significance and fidelity that our proposed TBL could

provide. Chapter 5 allows us to draw the following conclusions in

relation to TCR:

The TBL, as we envision it, represents an alternative to

current CSR reporting practices that could be explored to

increase transparency. Among its different conceptualisations, we

understand the TBL as type of report that relies on the format and

structure of financial statements to communicate CSR information.

Particularly, we conceive the TBL as an extension and adjustment of

three elements of financial statements, to jointly disclose financial and

CSR information: the balance sheet, the profit and loss statement and

the notes. While the extended balance sheet represents the firm’s

financial position and its accumulated impacts on CSR dimensions,

the extended profit and loss statement accounts for the impacts

generated during the reporting period. The extended notes provide

information that helps readers to understand and interpret the

information disclosed in the other two statements. In line with other

authors (Norman & MacDonald, 2004), we argue that our envisioning

of the TBL suggests a way of disclosing CSR information that greatly

differs from current CSR reporting practices. Therefore, it represents


209

an alternative that should be further studied to assess whether it could

improve TCR.

The double-entry bookkeeping system and off-balance

accounts are the key elements of our accounting proposed

methodology to produce the TBL. We develop an accounting

procedure to elaborate our envisioning of the TBL. We suggest using

the double-entry bookkeeping system and off-balance accounts to

record CSR impacts. Despite the ethical concerns that could be raised

as a consequence of applying the double-entry bookkeeping system to

CSR impacts (Cooper 1992, Deegan 2013, Gray 2013), we argue that

it is an appropriate method to produce the TBL. As our proposal

relies on the structure of financial statements, it should use the same

system of financial reporting to account for financial events. The

double-entry bookkeeping system also allows firms to represent CSR

impacts in a straightforward way, while linking the content of the

extended financial statements. To apply the double-entry

bookkeeping system, we suggest recording CSR impacts in off-

balance accounts. These accounts are used in financial reporting, and

they are different from traditional financial accounts (Rivero, 1974).

They have particular characteristic that make them appropriate to

register CSR impacts. Our reporting proposal requires CSR impacts

to be monetarised. Current valuation methods allow companies to

measure many CSR impacts in monetary units.

Our proposed TBL increase the transparency of CSR

reporting. We assessed the key issues that drives and reduces the

significance and fidelity of our proposed TBL. Afterwards, we

compare the problematic topics that constrain the capacity to enable

effective and transparent CSR communication in our reporting

proposal with those of the GRI and IIRC reporting models. We

conclude that our proposed TBL could provide higher TCR than the

other two alternatives. It may not be completely effective as of yet,

particular in regard to the definition of materiality. However, it

overcomes most of the problems related to faithful representation,

comparability and understandability presented in GRI and IIRC.

Particularly, the TBL improves several factors of significance (e.g.,

Conclusions

210

completeness, impartiality, timeliness) and fidelity (e.g., clarity,

comparability, comprehensibility) that are determinants of TCR, as

stated by Dubbink et al. (2008).

We note that when we study the influence of corporate

governance mechanisms, we measure transparency based on the GRI

Guidelines. Although GRI does not provide effective and transparent

communication, we argue that the way in which we measure it

represent the highest level of transparency that could be achieve by

current reporting practices.

We acknowledge that our conclusions are subject to some

limitations related to the methodologies that we used. Given that the

methodologies are specific for each specific objective, we enumerate

their particular limitations in the last section of each chapter.

Finally, this PhD dissertation suggests ideas for future research.

Although these ideas are more clearly described in each chapter, we

briefly summarise them in this paragraph. We divide them based on

the two main parts of the dissertation. In relation to corporate

governance mechanisms, future studies could use different samples,

such as non-listed firms of companies from other countries. These

analyses could test whether our findings hold in other settings and

identify it there are other country or institutional factors that affect

the relationship between corporate governance mechanisms and

TCR. Regarding the critical analysis of current CSR reporting

practices, it could be interesting to apply our reporting proposal in a

firm to study its viability and detect flaws to further improve it.

213

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ANNEX I

BRIEF AND FICTIONAL

EXAMPLE OF THE RECORDING

PROCEDURE TO PRODUCE THE

TBL

ABC is a manufacturing company located in the Netherlands. To

communicate its CSR impacts, the firm has decided to start producing

a TBL based our reporting proposal. The first TBL covers the year

2015. For the sake of simplicity, we have skipped the financial

accounting entries about transactions related to CSR impacts. We also

indicate that we applied the currency rate for the last day of the

reporting to convert the value of those impacts that were calculated in

a currency different to the euro due to the valuation method used

(figures were rounded to the nearest unit).

During this year, the firm acknowledges the CSR impacts,

which are described below. At the beginning of January 2015 the

company completed the enlargement of its main factory to satisfy the

growing demand for its products. The firm hired new employees and

increased the purchases to its suppliers. As a consequence, the staff of

some of its suppliers has also grown. The indirect jobs generated and

their effect on the local economy for 2015 is estimated at €1,000

thousand. This event implies the recording of a positive economic

impact in both, the extended balance-sheet and profit and loss

statement.

(€ thousand) Debit Credit

Accumulated indirect economic positive impact** 1,000

Indirect economic positive impact* 1,000

* Extended profit and loss statement account ** Extended balance sheet account

Annex I

252

The firm emitted 730 thousand tonnes of CO2 during 2015.

The average amount of emissions for its industry, weighted based on

the firm’s level of activity, is 720 thousand tonnes of CO2. To

monetarise their CO2 emissions, the firm applies the social cost of

carbon SCC of 125$/tCO2 suggested by van der Bergh & Botzen

(2015). Although there are lower values of SCC, these authors

demonstrate that $125 is the minimum value of SCC to provide a

comprehensive value that considers most environmental impacts

caused by GHG emissions. Based on this currency rate, the firm

records a negative environmental impact of €1,150 thousand

[(730,000 tCO2 - 720,000 tCO2) x 125$/tCO2 x 0.92/€].


Emissions negative impact* 1,150

Accumulated emissions negative impact** 1,150


Due to its activity, the firm uses important amounts of water in

its production process. ABC’s total water consumption in 2015 was

600 thousand tonnes of litres. The average consumption for its

industry, weighted based on the firm’s level of activity, is 450

thousand. Following the PwC methodology, the impact of consuming

a tonne of litres of waters is valued at $0.81/t (Based on Puma, 2011).

Therefore, the firm records a negative environmental impact of €112

thousand [(600,000t - 450,000t) x 0.81$/t x 0.92/€].


Water negative impact* 112

Accumulated water negative impact** 112


The company has an employee volunteering programme that

organises activities to promote social inclusion in the neighbourhood

where the main factory of the firm is located. Employees are free to

decide whether they want or not to join the programme. In 2015, 60


253

employees participated in the programme. To monetarise this positive

social impact, the firm applies the value per person that regularly

engage in volunteering activities (£2,357/person), calculated by

HACT (2014). Although this value is computed based on UK data,

the firm assumes that it could be similar for the Netherlands.

Therefore, the positive social impact is estimated at €192 thousand

[60 people x £2,357/person x 1.36£/€].


Accumulated local communities positive impact** 192

Local communities positive impact* 192


To produce the TBL at the end of the reporting period, the

firm calculates the net impact generated on each dimension in 2015.

To do that, ABC transfers the impacts recorded in the extended

profit and loss statement accounts to their respective capitals.


Indirect economic positive impact* 1,000

Economic capital** 1,000

Emissions negative impact* 1,150.0


Environmental capital** 1,262


Social capital** 192


Finally, as in financial accounting, the firm should record the

closing entry. It debits (credits) all the positive (negative) capitals and

accumulated negative (positive) impact accounts. After this entry, the

firm is ready to produce the extended profit and loss statement and

balance sheet. As this is the first year in which the firm publishes our

proposed TBL, both statements does not include the column that

reports the value of impacts in prior period. Given that this is an

Annex I

254

example to explain the recording procedure of CSR impacts, we

exclude the notes.


(€ thousand)


2015

Incomes xxxx

Expenses xxxx

Net income xxxx


2015

Total positive impacts 1,000

Indirect economic positive impact 1,000

Variation of economic capital 1,000


2015

Total negative impacts (1,262)

Emissions negative impacts (1,150)

Water negative impacts (112)

Variation of environmental capital (1,262)


2015

Total positive impacts 192

Local communities positive impact 192

Variation of social capital 192


255

EXTENDED BALANCE SHEET (€ thousand)

FINANCIAL BALANCE SHEET

31/12/2015 31/12/2015

Non-current Assets xxxx Stockholders’ equity xxxx

Current Assets xxxx Non-current liabilities xxxx

Current liabilities xxxx

Total assets xxxx Total equity + labilities xxxx

ECONOMIC BALANCE SHEET

31/12/2016 31/12/2016

Acc. indirect economic positive impacts

1,000 Economic capital 1,000

Total positive impacts

1,000 Total capital + negative impacts

1,000

ENVIRONMENTAL BALANCE SHEET

31/12/2015 31/12/2015

Environmental capital (1,262)

Acc. emission negative impacts

1,150

Acc. water negative impacts

112


- Total capital + negative impacts

0.0

SOCIAL BALANCE SHEET

31/12/2015 31/12/2015

Acc. local communities positive impacts

192 Social capital 192


192 Total capital + negative impacts

192

At the beginning of the following year, ABC registers the

opening entry. As in financial accounting, the firm debits (credits) all

positive (negative) accumulated impacts and the negative (positive)

CSR capitals recorded at the end of 2015.

Annex I

256

During 2016, ABC generated the following impacts.

The value of the indirect jobs generated and their effect on the

local economy due to the enlargement of the factory completed in

2015 is estimated at €500 thousand for the current year.


Accumulated indirect economic positive impact** 500

Indirect economic positive impact* 500


ABC firm installed a mechanism to reduce the emission of CO2

at the beginning of January. As a consequence, the firm emitted 715

thousand tonnes of CO2 in 2016. The average amount of emissions

for its industry, weighted based on the firm’s level of activity, is 720

thousand tonnes of CO2 (the same as in 2015). The company uses

the same method to monetarise this impact. However, in this year it

emitted less than the industry’s benchmark, which leads to a

recognition of a positive environmental impact of €594 thousand

[(715,000 tCO2 - 720,000 tCO2) x 125$/tCO2 x 0.95$/€]. Given that

ABC has €1,150 thousand recorded as accumulated emission negative

impacts in its extended balance sheet, the firm should first reduce this

account before registering an accumulated positive impact.


Accumulated emissions negative impact** 594

Emissions positive impact* 594


ABC used 570 thousand tonnes of water in 2016. Considering

the same average consumption for its industry and using the same

method as in 2015, the firm recognises a negative impact of €92

thousand [(570,000t - 450,000t) x 0.81$/t x 0.95$/€].


257



Accumulated water negative impact** 92


Finally, 80 employees participated in the volunteering

programme in 2016. Following the same valuation method as in 2015,

the firm registers a positive social impact of approximately €221

thousand [80 employees x £2,357/person x 1.17£/€].].


Accumulated local communities positive impact** 221



After these entries, the firm transfer the impacts generated

during 2016 to their respective capitals.


Indirect economic positive impact* 500

Economic capital** 500

Emissions positive impact* 594


Environmental capital** 502


Social capital** 221


Finally, the makes the closing entry, as in 2015, and presents the

extended profit and loss statement and balance sheet. This year, both

statements include the column that reports the value of impacts in

2015 for comparison purposes.

Annex I

258


(€ thousand)


2016 2015

Incomes xxxx xxxx

Expenses xxxx xxxx

Net income xxxx xxxx


2016 2015

Total positive impacts 500 1,000

Indirect economic positive impact 500 1,000

Variation of economic capital 500 1,000


2016 2015

Total positive impacts 594 -

Emissions positive impacts 594 -

Total negative impacts (92) (1,262)

Emissions negative impacts - (1,150)

Water negative impacts (92) (112)

Variation of environmental capital 502 (1,371.5)


2016 2015

Total positive impacts 221 192

Local communities positive impact 221 192

Variation of social capital 221 192


259

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263

RESUMEN

La comunicación de la responsabilidad social corporativa (RSC) es un

proceso mediante el cual las empresas proporcionan información

sobre sus impactos económicos, medioambientales y sociales a sus

grupos de interés. A pesar de su relativamente reciente desarrollo, la

publicación de información sobre RSC se ha convertido en una parte

fundamental de la comunicación empresarial (Tschopp & Huefner,

2015). El número de empresas que publican información de RSC

aumentó de manera notable en la última década. Por ejemplo, el 92%

y el 73% de las empresas pertenecientes al G250 y al N100 publicaron

información sobre su RSC en 2015 (KPMG, 2015), en comparación

con el 52% y el 33% que lo hicieron en 2005 (KPMG, 2005).

El contenido y formato de los informes empleados para

comunicar la RSC ha ido evolucionando, siendo posible diferenciar

tres períodos (Etzion & Ferraro, 2010; Marlin & Marlin, 2003;

Tschopp & Huefner, 2015). En la década de 1970, se empezó a

publicar información sobre temas sociales dentro de los informes

anuales (Mathews, 1997). Como consecuencia de los desastres

naturales de la década de 1980, las empresas pasaron a proporcionar

una mayor cantidad de información medioambiental, y comenzaron a

publicar informes específicos sobre dichos temas (Gray et al., 1995;

Mathews, 1997; Wheeler & Elkingon, 2001). Durante estas dos

etapas, la comunicación de RSC se empleaba como estrategia de

marketing con el objetivo de crear una percepción positiva de las

empresa (Marlin & Marlin, 2003; Tschopp & Huefner, 2015). Desde

la década de 1990, la cobertura temática se ha ampliado y en la

actualidad, las empresas proporcionan información sobre sus

impactos económicos, medioambientales y sociales (impactos de

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264

RSC) (Fifka, 2013; Marlin & Marlin, 2003; Tschopp & Huefner,

2015).

Varias razones explican el auge de la comunicación de RSC.

Tradicionalmente, se consideraba que las empresas debían rendir

cuentas, principalmente, a sus accionistas. Como consecuencia, los

estados financieros eran el principal tipo de informe para dicho

objetivo. Sin embargo, durante las últimas décadas, las compañías han

visto ampliadas sus responsabilidades debido a la creciente

concienciación social por los efectos de sus actividades. Este hecho

ha dado lugar a una mayor demanda de información y transparencia

sobre los impactos de RSC (Abeysekera, 2013; Gray, 2006). A través

de la comunicación de RSC, las empresas han tratado de responder a

esta demanda.

No obstante, las compañías también pueden tener intereses

menos altruistas para publicar información de sostenibilidad. Por

ejemplo, las empresas pueden hacerlo con el fin de ser consideradas

como candidatas para una potencial inversión por parte de fondos de

inversión socialmente responsables (Tschopp & Huefner, 2015).

Además, algunas compañías publican información sobre RSC para

influir en la percepción que la sociedad tiene de ellas (Cho et al.,

2016). En este sentido, la comunicación de la RSC puede entenderse

como un herramienta de green-wash (Laufer, 2003) y gestión de daños

(Tschopp & Huefner, 2015).

Desde el ámbito académico, se han propuesto diversas teorías

que tratan de explicar las motivaciones de las empresas para

comunicar su RSC (Gray et al., 2009). Cuatro teorías destacan por

encima del resto: la teoría de la legitimidad, la teoría de la señal, la

teoría de los stakeholders y la teoría institucional (Hahn & Kühnen,

2013). Existe actualmente una nueva línea de investigación que señala

la necesidad de utilizar teorías diferentes para enriquecer este debate

(Bebbington & Thomson 2013).

Independientemente de las explicaciones prácticas o teóricas

que motivan su publicación, la información de RSC debería estar

encaminada, idealmente, hacia la transparencia. La transparencia de la

comunicación de la RSC se define como “la presentación completa de

información sobre asuntos e Indicadores necesarios para reflejar los


265

impactos y los procesos, procedimientos e hipótesis utilizados para

elaborar dicha información y para permitir que los grupos de interés

tomen decisiones” (GRI, 2011, p. 6). La transparencia permite a las

empresas rendir cuentas a la sociedad y mostrar sus impactos de RSC

(Gray, 1992). Según Tschopp & Nastanski (2014), la comunicación de

la RSC debería proporcionar a los stakeholders información útil para

la toma de decisiones. Para ello, la información les debe permitir

apreciar apropiadamente los impactos de RSC de las firmas (Bouten

et al., 2011; European Union, 2014; Michelon et al., 2015; O’Dwyer et

al., 2005). Por tanto, la transparencia es una característica fundamental

de la comunicación de la RSC (Kaptein & Van Tulder, 2003).

En el presente contexto económico y social, la transparencia en

materia de RSC es todavía más relevante. Actualmente, existe una

mayor demanda social de información transparente como

consecuencia de los escándalos financieros, la crisis económica y la

mala gestión de las empresas (Fernández Sánchez et al., 2011; GRI,

2010; Kolk, 2008). De hecho, el Parlamento Europeo apunta a la falta

de transparencia como una de las principales causas de la crisis actual

(Parlamento Europeo, 2013).

A pesar de la reciente regulación en materia de información de

RSC, sobre todo en Europa, la comunicación de esta información es

principalmente una práctica voluntaria (Tschopp & Huefner, 2015).

Las empresas son libres de decidir la información que publican y

cómo lo hacen. Por tanto, existe una gran diversidad de tipos de

informe que son empleados para comunicar información sobre RSC

(Sherman, 2012). Las empresas utilizan un amplio abanico de

informes, por ejemplo, memorias de sostenibilidad (MS), informes

sociales y/o medioambientales, informes integrados (II), o secciones

del informe anual (Archel et al., 2008; Fifka, 2013; Frias-Aceituno et

al., 2013; Roca & Searcy, 2012).

Con el fin de fomentar la estandarización de las prácticas de

información de RSC, han aparecido varios instrumentos de

comunicación, cuyo fin es guiar a las empresas en la elaboración de

informes sobre RSC. De esta manera, estas iniciativas tratan de

incrementar la calidad y la transparencia de dicha información. A

modo de ejemplo de estos instrumentos, se pueden citar las Guías de

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266

la Global Reporting Initiative (GRI), la serie AA1000 de

Accountability, la Comunicación del Progreso del Pacto Mundial de

las Naciones Unidas, o estándares a nivel nacional (Tschopp &

Huefner, 2015). Estos instrumentos presentan diferentes grados de

especificidad y detalle en cuanto a sus sugerencias y requisitos (Eztion

& Ferraro, 2010; Tschopp & Huefner, 2015). La escasa coordinación

entre ellos ha tenido un efecto adverso en la comunicación de la RSC,

habiendo incrementado las diferentes alternativas que las compañías

pueden emplear para informar sobre su RSC (Federación de

Contables Europeos [FEE], 2015). Además, estos instrumentos son

voluntarios y las empresas pueden determinar el grado en que los

aplican (Chen & Bouvain, 2008; Flower, 2015). Ante este panorama,

parece poco probable que la comunicación de la RSC se puede

armonizar en el corto plazo (Tschopp & Nastanski, 2014).

Entre los diferentes formatos y estándares, destacan dos tipos

de informes con sus respectivos instrumentos: la MS y las Guías de

GRI, y el II y el Marco propuesto por el International Integrated

Reporting Council (IIRC). La MS es el tipo de informe más utilizado

a nivel mundial para comunicar la RSC (KPMG, 2015). Las MSs

“contienen información sobre la incidencia de las organizaciones, ya

sea esta positiva o negativa, en el medio ambiente, la sociedad y la

economía.” (GRI, 2013, p. 3). Desde su aparición a principios de

1990 (Gray, 2006), las MSs han evolucionado en cuanto a su

contenido y formato, y se han convertido en una práctica habitual

entre las empresas (Boiral, 2013; Leszczynska, 2012). La GRI ha

tenido un papel fundamental en el desarrollo de las MSs. Esta

organización publica las guías más empleadas en todo el mundo para

la elaboración de MSs (Brown et al., 2009; Roca & Searcy, 2012). Para

GRI, la transparencia es un valor subyacente de las MSs que

determina el resto de sus características (GRI, 2011; Vigneau et al.,

2015). La G4, publicada en 2013, es la versión más actualizada de las

Guías de GRI.

El II es un tipo de informe de aparición más reciente, que

pretende proporcionar una representación holística de la empresa y de

su proceso de creación de valor (Alexander & Blum, 2016). El IIRC

es la principal organización que promueve la publicación de IIs. El


267

primer II se publicó en 2002 (Eccles & Serafeim, 2011). Sin embargo,

la divulgación de estos informes no creció de forma significativa hasta

que el IIRC lanzó, en 2013, el International <IR> Framework, el

único instrumento para elaborar IIs que existe actualmente. El

número de empresas que publicaban este informe se duplicó entre ese

año y 2015 (KPMG, 2015). Aunque la audiencia principal de los IIs

son los proveedores de capitales financieros (IIRC, 2013), se

considera como una práctica de información de RSC (Frias-Aceituno

et al., 2013).

A pesar de las mejoras promovidas por estos instrumentos,

existe un claro consenso en que las prácticas actuales de

comunicación de RSC no son transparentes, puesto que no permiten

a los grupos de interés evaluar de forma efectiva los impactos (Bouten

et al., 2011; Cho et al., 2016; FEE, 2015; Haji & Hossain, 2016; Milne

& Gray, 2013). En este sentido, varios estudios destacan que muchas

empresas publican información de RSC como medio para satisfacer

sus propios intereses, en vez de como un mecanismo de rendición de

cuentas y transparencia (Boiral, 2013; Laufer, 2003; Gray, 2006).

Es en este contexto en el que definimos el objetivo general de

esta tesis en los siguientes términos:

Objetivo general: Estudio crítico de la transparencia de la

comunicación de la RSC y propuesta de sugerencias para

mejorarla

Tres razones motivan nuestro interés en este tema. Por un lado,

la sociedad está demandando una mayor transparencia en relación a

los impactos de RSC, que no está siendo satisfecha por las prácticas

actuales de información de las empresas (Abeysekera, 2013; FEE,

2015; Gray, 2006). Además, debido a su escasa transparencia, la

información de RSC no es útil para la toma de decisiones de los

grupos de interés (Tschopp & Nastanski, 2014). Finalmente, la

regulación europea sobre información de RSC destaca la necesidad de

incrementar la transparencia (Parlamento Europeo, 2014).

Entre el abanico de temas que cubre la investigación sobre la

comunicación de la RSC, esta tesis doctoral desarrolla dos líneas

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268

concretas, las cuales creemos que son las más adecuadas de cara a

proponer sugerencias para mejorar la transparencia. Por un lado,

abordamos el estudio de la relación entre gobierno corporativo y

transparencia. Por otro, nos centramos en el análisis crítico de las

prácticas de comunicación de la RSC.

En función de estas dos líneas de investigación, desagregamos

el objetivo general en dos objetivos clave.

Objetivo clave 1: Análisis del efecto de los mecanismos internos

de gobierno corporativo en la transparencia de la información

de RSC

Objetivo clave 2: Desarrollo de una propuesta de informe que

incremente la transparencia proporcionada por las prácticas de

comunicación de la RSC

La definición del objetivo clave 1 se base en el papel

fundamental que tienen los mecanismos de gobierno corporativo en

el establecimiento de las políticas de RSC, incluida su comunicación

(Frias-Aceituno et al., 2013, Money & Schepers, 2007). En las últimas

décadas, la concepción del gobierno corporativo se ha ampliado,

considerando que éste debe estar encaminado a la protección de los

intereses de todos los grupos de interés, y no sólo de los de los

accionistas (Fernández & Gómez, 1999; Letza et al., 2004). Esta

cambio se hace patente en la reciente inclusión de recomendaciones

sobre los grupos de interés en los códigos de gobierno corporativo en

varios países europeos (Szabó & Sørensen, 2013). Por tanto, el

enfoque de los grupos de interés del gobierno corporativo conecta de

forma directa con la RSC (Jamali et al., 2008). Además, uno de los

principios fundamentales del gobierno corporativo es el de

transparencia, la cual se consigue proporcionando información a los

grupos de interés (Gaa, 2009).

Dos mecanismos de gobierno corporativo son determinantes

en el establecimiento de las prácticas de comunicación de RSC: el

consejo de administración y la estructura de propiedad (Arena et al.,

2015; Frias-Aceituno et al., 2013; Khan et al., 2013; Prado-Lorenzo et


269

al., 2009). Esta tesis estudia cómo estos mecanismos afectan la

transparencia, una característica fundamental de la comunicación de la

RSC. Con este análisis se pueden realizar recomendaciones que

permitan mejorar dicha transparencia.

Por tanto, dividimos el objetivo clave 1 en dos objetivos

específicos:

Objetivo específico 1.1: Análisis de la relación entre los

consejos de administración y la transparencia de la


Objetivo específico 1.2: Análisis de la relación entre la

estructura de propiedad y la transparencia de la comunicación

de la RSC

Nuestra principal motivación para definir el objetivo clave 2 es

la necesidad de desarrollar propuestas de informes que incrementen la

transparencia actual de la información de RSC (FEE, 2015; GRI,

2010; Jones, 2010). Este objetivo puede tener implicaciones para los

organismos reguladores europeos. La Directiva de la Unión Europea

2014/95, señala que es necesario incrementar la transparencia de la

información de RSC, y establece que las grandes empresas deben

informar sobre su RSC, o explicar por qué no lo hacen, a partir de

2017. No obstante, la Directiva no propone un modelo de informe

para publicar dicha información y sugiere emplear alguno de los (no

transparentes) instrumentos que existen. Nuestra propuesta de

informe puede ser interesante para la regulación europea, dado que

incrementaría los niveles de transparencia.

Para alcanzar el objetivo clave 2, debemos identificar, en primer

lugar, los problemas que limitan la capacidad de las prácticas actuales

de comunicación para ser transparentes. Según Flower (2015), dos

elementos son necesarios para ello: un instrumento claro que guíe

correctamente a las empresas en la elaboración de los informes, y que

las compañías apliquen correctamente dicho instrumento. No

obstante, la mayoría de los trabajos consideran que únicamente la

aplicación es la causa de los bajos niveles de transparencia (Boiral

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270

2013; Bouten et al., 2011; Haji & Hossain, 2016; Knebel & Seele,

2015; Leszsczynska, 2012). Con el fin de desarrollar un exhaustivo

análisis de los problemas que limitan la transparencia, esta tesis

estudia este hecho desde una perspectiva más amplia, analizando

ambos elementos.

Por tanto, dividimos el objetivo clave 2 en dos objetivos

específicos:

Objetivo específico 2.1: Identificación de las causas que

explican la escasa transparencia en las prácticas de


Objetivo específico 2.2: Propuesta de informe que aborde los

problemas de las prácticas actuales de la comunicación de la

RSC para ser transparentes

La jerarquía de objetivos define la estructura de esta tesis

doctoral. Los objetivos clave dividen la tesis en dos partes, que a su

vez se desagregan en dos capítulos, uno por cada objetivo específico.

Así, la tesis cuenta con seis capítulos. El capítulo 1 presenta la

introducción de la tesis. Los capítulos 2 al 5 se centran en cada

objetivo específico. Finalmente, el capítulo 6, sintetiza y enumera las

principales conclusiones alcanzadas en los capítulos anteriores (Figura

1).

Los objetivos específicos abordan el objetivo general de una

forma diferente. Por tanto, cada capítulo se ha desarrollado como un

estudio independiente, con el fin de alcanzar cada objetivo específico

aplicando el enfoque (teórico y metodológico) más adecuado.


271

Figura 1. Estructura de la tesis

El Capítulo 2 desarrolla el objetivo específico 1.1. En él,

estudiamos la relación entre los consejos de administración y la

transparencia de la comunicación de la RSC. En concreto, analizamos

si aquellos consejos que son efectivos a la hora de garantizar los

intereses de los accionistas, también satisfacen los intereses

informativos del resto de grupos de interés, proveyéndoles con

información transparente. Medimos la efectividad agrupando varias

características de los consejos, y testamos su relación con la

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Parte 2

Objetivo clave 2:

Desarrollo de una

propuesta de informe

que incremente la

transparencia

proporcionada por las

prácticas actuales de


Capítulo 4

Objetivo específico 2.1:

Identificación de las causas que

explican la escasa transparencia

en las prácticas de comunicación

de la RSC

Capítulo 5

Objetivo específico 2.2

Propuesta de informe que

aborde los problemas de las

prácticas de la comunicación de

la RSC para ser transparentes

Parte 1

Objetivo clave 1:

Análisis del efecto de los

mecanismos internos de

gobierno corporativo en

la transparencia de la

información de RSC

Capítulo 2


Análisis de la relación entre los

consejos de administración y la

transparencia de la


Capítulo 3


Análisis de la relación entre la

estructura de propiedad y la

transparencia de la


Capítulo 1. Introducción

Capítulo 6. Conclusiones

Resumen

272

transparencia en una muestra internacional de 2.366 empresas entre

2009-2012. Dado que la efectividad y la transparencia son dos

variables latentes, definimos un modelo de ecuaciones estructurales,

estimado mediante una regresión de mínimos cuadrados parciales. En

base a este análisis, obtenemos dos conclusiones sobre la

transparencia:

1. Las empresas cuyos consejos son efectivos para proteger de los intereses de los accionistas, proporcionan información de RSC más transparente. Estos consejos tienen en

consideración la creciente demanda social por un mayor transparencia

sobre los impactos de RSC (Abeysekera, 2013; FEE, 2015; Gray,

2006). Esto puede ser motivado por un compromiso por rendir

cuentas a la sociedad. No obstante, también puede entenderse como

una forman de incrementar la legitimidad de la empresas para

continuar sus operaciones (Deegan, 2002).

2. Los códigos de buen gobierno corporativo fomentan la transparencia de la comunicación de la RSC. A pesar de que estos

códigos no incluyen recomendaciones específicas sobre transparencia,

(Szabó & Sørensen, 2013), sí que incorporan recomendaciones sobre

varias de las características de los consejos que están relacionadas con

su efectividad. A través de estas recomendaciones, los códigos de

buen gobierno corporativo incentivan indirectamente la transparencia

de la información de RSC, al estar ésta relacionada con la efectividad

de los consejos.

Además, el Capítulo 2 también contribuye a la investigación

sobre gobierno corporativo y sobre RSC. En relación al primer

campo, sus resultados muestran que las perspectivas de gobierno

corporativo de los accionistas y de los grupos de interés no están en

conflicto. Asimismo, la propuesta de medición de la efectividad de los

consejos contribuye al análisis de los determinantes de este concepto.

En relación al segundo campo, nuestro análisis indica que la RSC es

una estrategia que puede beneficiar a los accionistas, o que, al menos,

no les perjudica.


273

El Capítulo 3 se centra en el objetivo específico 1.2. En él,

analizamos la relación entre la estructura de propiedad y la

transparencia de la comunicación de la RSC. En particular,

estudiamos esta relación en una muestra de 128 empresas cotizadas

españolas entre 2009-2011, diferenciando entre los accionistas

significativos que son miembros del consejo de administración y

aquéllos que no lo son. Las conclusiones principales de este capítulo

en cuanto a la transparencia de la información de RSC son las

siguientes:

1. El tipo de accionista significativo, en función de su pertenencia o no al consejo de administración, es relevante para entender la relación entre la concentración de propiedad y la transparencia de la información de RSC. Los resultados indican

que los accionistas que no son consejeros influyen positivamente en la

transparencia. Por el contrario, las empresas en las que los accionistas

significativos que son consejeros poseen más del 25% de la

propiedad, son menos transparentes que el resto. No obstante, si esto

accionistas tiene una posición no tan fuerte, por debajo del 25%,

todavía fomentan la transparencia, como una señal al mercado de que

la empresa está considerando los intereses de aquellos accionistas que

no están en el consejo.

2. La publicación de información de RSC transparente funciona como un mecanismo para reducir las asimetrías de información. Los accionistas significativos de las empresas españoles

son partidarios de establecer políticas de RSC en sus empresas

(Godos Díez et al., 2012; Godos-Díez et al., 2014). Por tanto, cabe

esperar que deseen recibir información sobre cómo las empresas

están gestionando su RSC para evaluar si se están considerados sus

intereses al respecto. Los accionistas que son consejeros disponen de

toda la información necesaria para controlar a los directivos. Sin

embargo, aquellos que no los son, dependen parcialmente en la

información que publican las empresas. En este sentido, la

información de RSC puede entenderse como un mecanismo para

mitigar las asimetrías de información entre los dos tipos de

accionistas.

Resumen

274

3. El código de buen gobierno corporativo de España podría incluir recomendaciones centradas en la transparencia de la información de RSC. El Capítulo 3 concluye que los códigos

de buen gobierno fomentaban indirectamente la transparencia. No

obstante, recomendaciones concretas sobre la comunicación de la

RSC podrían ser de interés para aquellas empresas en las que los

accionistas significativos tienen mucho poder, como propietarios y

miembros del consejo, con el fin de fomentar la protección de los

accionistas que no están representados en el consejo.

El Capítulo 3 también pone de manifiesto la existencia de una

gran desigualdad de género en los consejos españoles. Esta

conclusión indica la escasa efectividad de la reciente regulación que

trata de fomentar la presencia de mujeres en los consejos.

El Capítulo 4 aborda el objetivo específico 2.1. En él,

identificamos los principales problemas que explican la escasa

transparencia proporcionada por las prácticas actuales de

comunicación de la RSC. Asimismo, estudiamos si estos problemas se

deben a los instrumentos para la elaboración de informes o a la

aplicación de los mismos por las empresas. Para ello, aplicamos la

teoría de la comunicación al proceso de comunicación de la RSC, lo

que nos permite identificar las características que determinan la

efectividad de dicho proceso para comunicar información

transparente. Utilizando la técnica del análisis textual interpretativo,

analizamos la presencia de elementos que mejoran o empeoran dichas

características en el instrumento y en la aplicación. En concreto,

estudiamos los dos instrumentos más utilizados actualmente, las

Guías de GRI y el Marco del IIRC. Para evaluar su aplicación,

seleccionamos un estudio de caso centrado en una empresa

considerada como “mejores prácticas” en la aplicación de dichos

instrumentos. Las principales conclusiones de este capítulo son las

siguientes.

1. Significance y fidelity son las principales características que determinan la capacidad de la comunicación de la RSC para producir información transparente (se ha optado por no

traducir los términos al castellano, al poder verse modificado su


275

significado). Significance es la capacidad del instrumento para facilitar la

elaboración de un informe que publique información relevante y que

represente fielmente los impactos de RSC. Fidelity es la capacidad del

instrumento para facilitar la elaboración de un informe que sea

comparable y fácilmente entendible para evitar interpretaciones

equívocas.

2. El bajo nivel de transparencia de la comunicación de la RSC es consecuencia de los instrumentos. Tanto los instrumentos

propuestos por la GRI, como por el IIRC presentan una serie de

limitaciones importantes que reducen su capacidad para producir

informes que contengan información transparente sobre RSC. Esta

conclusión contrasta con la de trabajos anteriores que apuntan a la

inadecuada aplicación de los instrumentos por parte de las empresas

como principal causa de la escasa transparencia de la información

sobre impactos de RSC (Boiral 2013; Bouten et al., 2011; Haji &

Hossain, 2016; Knebel & Seele, 2015; Leszsczynska, 2012). Nuestro

análisis muestra que la aplicación empeora la transparencia, pero los

principales problemas que presentan los informes vienen derivados de

los instrumentos.

3. La aplicación obligatoria de los instrumentos no sería útil para mejorar la transparencia. La obligatoriedad de la

aplicación de los instrumentos es sugerida por algunos trabajos para

mejorar la calidad de la información de RSC (Bouten et al., 2011). No

obstante, debido a las importantes limitaciones de los instrumentos,

su aplicación no garantiza que la transparencia se fuese a incrementar.

4. Un nuevo modelo de informe es necesario para mejorar los niveles de transparencia de la información de RSC. Como

consecuencia de los importantes problemas que presentan los

instrumentos para la elaboración de los informes más utilizados, la

MS y el II, es lógicos esperar que estos documentos no logren

proporcionar niveles adecuadas de transparencia, sin una gran

revisión y adaptación de sus respectivos instrumentos.

Además, otra conclusión alcanzada en el Capítulo 4 es que la

teoría de la comunicación es un marco teórico útil y relevante para el

estudio de la comunicación de la información de RSC.

Resumen

276

Finalmente, el Capítulo 5 desarrolla el objetivo específico 2.2.

En él, desarrollamos un tipo de informe que mejora la transparencia

proporcionada por las prácticas de comunicación de la RSC que

existen hoy en día. En concreto, proponemos la triple cuenta de

resultados, generalmente conocida como triple bottom line (TBL), a

modo de informe alternativo a los modelos actuales. La TBL extiende

y adapta los estados financieros para comunicar, conjuntamente, la

información financiera y de RSC. Para desarrollar la propuesta, nos

centramos en los tres principales retos para poder elaborar la TBL: la

valoración de impactos de RSC, la reformulación de los estados

financieros y el desarrollo de un procedimiento contable para registrar

los impactos. Una vez desarrollada la propuesta, evaluamos su

capacidad para proporcionar significance y fidelity, de forma que se

puedan identificar sus ventajas con respecto a los modelos de GRI y

del IIRC. En este capítulo, alcanzamos las siguientes conclusiones:

1. Nuestra propuesta de TBL representa una alternativa de informe que difiere de las prácticas actuales de comunicación de la RSC, que debe ser estudiada. Entre las diferentes

conceptualizaciones de la TBL, nos basamos en la que concibe este

concepto como un informe que utiliza la estructura de los estados

financieros para informar sobre los impactos de RSC. En línea con

otros autores, como Norman y Macdonald (2004), consideramos que

la aplicación de un formato similar al de los estados financieros es una

característica fundamental que diferencia la TBL del resto de modelos

de comunicación de la RSC. En concreto, definimos la TBL como

una extensión de tres elementos de los estados financieros: el balance,

la cuenta de pérdidas y ganancias, y la memoria. El balance extendido

anexa tres balances parciales sobre cada dimensión de la RSC al

balance financiero. Estos balances adicionales representan los

impactos acumulados en cada una de las dimensiones de la RSC

generados por la empresa. De forma análoga, la cuenta de pérdidas y

ganancias extendida anexa tres cuentas de pérdidas y ganancias

parciales a su versión financiera, las cuales registran los impactos

generados durante el período analizado. Finalmente, la memoria

extendida proporciona información adicional para entender los otros

dos estados.


277

2. La partida doble y las cuentas de orden son los principales elementos del procedimiento contable para elabora la TBL. Estos dos elementos son clave para poder registrar los

impactos de RSC y producir la TBL al final del período. Nuestra

propuesta se basa en la estructura y formato de los estados

financieros. Por tanto, es razonable que siga el mismo principio que

rige el funcionamiento de la contabilidad financiera. Además, la

partida doble permite registrar los impactos de RSC de una forma

directa, que conecta la información registrada en las versiones

extendidas del balance y la cuenta de resultados. Para aplicar la partida

doble, el capítulo sugiera el uso de las cuentas de orden. Estas cuentas

se emplean en la contabilidad financiera, pero su registro posee unas

características que lo diferencian del de las cuentas financieras

habituales (Rivero, 1974). Estas características las hacen apropiadas

para registrar los impactos de RSC. Finalmente, para poder emplear la

partida doble y las cuentas de orden, es necesario que los impactos

estén valorados. Actualmente, existen diversos método que permiten

valoran un amplio abanico de impactos de RSC.

3. Nuestra propuesta de TBL incrementa la transparencia que se proporciona actualmente. El análisis y comparación de los

niveles de significance y fidelity de nuestro modelo de TBL con los de los

modelos de GRI y del IIRC, indican que nuestra propuesta es más

efectiva para alcanzar dichas características. Por tanto, la TBL que

sugerimos permite comunicar información más transparente sobre los

impactos de RSC. La propuesta posee una serie de elementos

(estructura predefinida, valoración, cobertura, etc.) que resuelven

muchas de las limitaciones de los modelos de GRI y del IIRC.

Debemos indicar que existen una serie de limitaciones

inherentes a las distintas metodologías usadas, las cuales enumeramos

en la última sección de los Capitules 2 al 5.

Esta tesis doctoral sugiere diversas ideas para investigaciones

futuras. Por ejemplo, en relación a la primera parte de la misma,

centrada en el estudio de la relación entre mecanismos de gobierno

corporativo y la transparencia, futuros trabajos podrían emplear

muestras diferentes de otros países, o incluir empresas no cotizadas.

Resumen

278

En cuanto a la segunda parte, el estudio crítico de las prácticas

actuales de comunicación de la RSC, sería interesante aplicar nuestra

propuesta en una empresa, para estudiar su viabilidad y mejorarla.

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