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Global CSR initiatives and their current trends

In document Empirical evidence from Sri Lanka (Page 41-48)

Literature Review

2.3. Global CSR initiatives and their current trends

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Regardless of how the CSR concept is perceived, many nations in both the developed and developing world accept this concept and keep practising it (Hopkins, 2003).

Since this thesis is mainly focused on CSR in the developing country context, it is considered useful to provide a CSR definition related to developing countries.

Visser et al. (2007) define CSR for developing countries as: “the formal and informal ways in which business makes a contribution to improving the governance, social, ethical, labour and environmental conditions of the developing countries in which they operate, while remaining sensitive to prevailing religious, historical and cultural contexts” (p. 149).

This definition highlights the fact that CSR is not unique and that it has to consider different contextual structures. However, for the purpose of this thesis, current CSR mainstream initiatives, such as Millennium Development Goals (MDGs), UN Global Compact (UNGC), Global Reporting Initiative (GRI) guidelines, AA1000, SA8000 etc., are considered as a kind of representation for CSR meaning, because these initiatives are increasingly trying to construct a generally accepted/ consistent understanding for CSR. However, the meaning of CSR is allowed to remain open throughout this research, while the researcher is trying to understand the meanings of the aforementioned definitions, and the global initiatives, which are briefly discussed in the next section.

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other diseases; 7. Ensure environmental sustainability; and, 8. Develop a global partnership for development (UNDP, 2011). The MDGs were derived from the UN Millennium Declaration, and were accepted by world leaders of 189 nations (UNDP, 2010). The vision of the MDGs is to have “a world with less poverty, hunger and disease, greater survival prospects for mothers and their infants, better educated children, equal opportunities for women, and a healthier environment”

(United Nations, 2006, p. 3). Achieving the MDGs is not easy for the governments of developing countries without adequate support from their corporate sector. At the same time the governments are encouraged to set up a suitable environment for the corporate sector in order to motivate companies to adopt CSR activities. The governments in developing countries and trans-governmental organisations such as the United Nations (UN) increasingly recognise the role of CSR in the business sector in achieving development targets.

2.3.2. CSR in the development process and the role of corporate entities

Since 1972, when the UN convened a world conference on the natural environment in Stockholm (United Nations, 1972), the UN has shown its commitment to embracing CSR. The UN Environmental Programme (UNEP) emerged from this world conference to deal with global environmental issues. In 1983, the “Bruntland Commission” was established by the UN and later the commission published a report entitled “Our Common Future” (United Nations, 1987). The sustainable development concept was introduced by this report and the report led to convening the UN’s next environmental conference, the “Earth Summit”, where heads of different countries signed four agreements including “Agenda 21” (United Nations, 1993). Agenda 21 focuses on environmental problems in the development process and it aims to prepare the world for the challenges of the twenty-first century.

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The Earth Summit in Rio de Janeiro duly recognised the role of corporate entities with respect to the overall management of the environment, and individual governments were encouraged to establish appropriate national strategies, plans, policies, and processes to protect the environment. Developing countries were also given much attention and support in achieving sustainable development goals (United Nations, 1993).

In 2002, the World Summit on Sustainable Development, held in Johannesburg, proposed some actions to enhance corporate environmental and social responsibility and accountability for business entities (United Nations, 2002). These proposed actions encourage: guidance and improvement of CSR reporting; business entities to improve the relationship with stakeholders towards societal and environmental development; financial institutions to promote sustainable investments; and, the involvement of employees in the sustainability programmes (United Nations, 2002).

2.3.3. Global influences on CSR standardisation

These actions taken by the UN can be considered as important in promoting CSR, especially CSR reporting and improvement of stakeholder relationships. In addition, CSR practice was encouraged by the establishment of the UN Global Compact (UNGC) in 1999 (Antal, Dierkes, MacMillan, & Marz, 2002; Carroll &

Shabana, 2010), the introduction of the Global Reporting Initiative (GRI) in 1997, and the introduction of several other local and international voluntary guidelines and standards such as the Coalition for Environmentally Responsible Economics (CERES) Principles1, the European Union Eco-Management and Audit Scheme (EMAS)2, Social Accountability 8000 (SA8000), and the AA1000 (Belal, 2008;

Gonella, Piling, & Zadek, 1998; Owen, Swift, Humphrey, & Bowerman, 2000).

1 In 1989 CERES introduced CERES Principles, a ten-point code of corporate environmental conduct to be publicly endorsed by companies as an environmental mission statement or ethic.

2 EMAS is a management tool for companies and other organisations to evaluate, report and improve their environmental performance and this was introduced in 1995.

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2.3.4. UNGC and its relevance to developing countries

The UN Global Compact (UNGC) encourages corporations, especially multinational companies operating in developing countries, to adhere to 10 principles covering human rights, labour, environment, and anticorruption (Prasad, 2004; Visser et al., 2007). The UNGC aims to combat the negative impacts of economic globalisation.

Visser et al. (2007) highlight that “many people nowadays are afraid that economic globalisation entails erosion of social, ecological and human right standards, but at the same time are aware that responsible business dealing can make a substantial contribution to the achievement of development policy and social goals” (p. 472).

Economic globalisation opens up ample opportunities for developing countries and these opportunities have to be utilised sensibly. According to the former UN Secretary General, Kofi Annan, the companies who join UNGC can make globalisation more humane and environmentally friendly and thus assemble forces, knowledge, and resources to accomplish the UN Millennium Development Goals in developing countries (Visser et al., 2007).

2.3.5. The role of GRI towards the standardisation of CSR disclosure

In 1997, the Global Reporting Initiative (GRI) was established by CERES in partnership with UNEP with the mission of developing globally applicable guidelines for CSR reporting of corporations, governments, and nongovernmental organisations. The GRI has become the voluntary international standard for sustainability reporting since issuing its first sustainability guideline in 2000.

Currently there are 20,000 GRI stakeholders from more than 80 countries (Eccles

& Krzus, 2010). Now the GRI’s Sustainability Reporting Guidelines are in their third generation (G3), which consists of broad principles, guidance, and standard disclosure with performance indicators that should be included in CSR reports (Global Reporting Initiative, 2011). In March 2011, GRI released G3.1, the updated and completed version of G3, that expands the guidance on human rights, gender, and community impacts (GRI, 2011). As part of GRI’s commitment to the continuous development of its guidelines, GRI’s fourth generation of Sustainability

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Reporting Guidelines (G4) is currently in progress. While basing them on the GRI, some countries maintain their own environmental reporting guidelines in order to cater for their local requirements (ACCA, 2005, 2010). According to KPMG (2011), GRI is preparing Generation 4 (G4) guidelines; these are expected to be launched in 2013. KPMG highlights that “the GRI is one of the initiators of the International Integrated Reporting Committee (IIRC) and firmly believes integrated reporting to be the next step in sustainability reporting” (KPMG, 2011, p. 21).

KPMG (2011) concludes that most of the large companies in the developed and developing countries adhere to the GRI sustainability reporting guidelines.

In the ASEAN countries, a significantly high majority of companies follow the GRI guidelines with very few companies using other standards such as internally developed standards or the AA1000AS. However, in the Sri Lankan context, out of 34 per cent of CSR reporting listed companies, only 5.2 per cent of companies report based on GRI G3 sustainability reporting guidelines (Fernando & Pandey, 2012). With regard to Bangladesh, Belal and Owen (2007) found that only one respondent company adopted GRI guidelines and AA 1000 standards for CSR disclosures, and none of the organisations expressed their desire to adopt these standards in the near future. On the basis of these results, Belal and Owens (2007) contend that strong doubts exist as to the efficacy of these international standards and guidelines.

2.3.6. SA8000 and its relevance to developing countries

Rising public concern about inhumane working conditions in developing countries led to the creation of the Council on Economic Priorities Accreditation Agency (CEPAA) which developed the SA8000 in 1998. The SA8000 was the result of motivation by the CEPAA to draw up a universal code of practice for labour conditions in the manufacturing industry, so that consumers in developed countries could be confident that the goods they were buying from developing countries – in

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particular garments, toys, cosmetics and electronic goods – had been produced in accordance with a recognised set of standards. Later in 2000, the CEPAA became known as the Social Accountability International (SAI), which now governs and certifies the companies who agreed to meet the requirements of SA8000.

2.3.7. ISEA and its CSR standards

In 2008, the Institute of Social and Ethical AccountAbility (ISEA) developed two standards for assurance and reporting for sustainable development and reporting:

AA1000 AccountAbility Principles Standard 2008 (AA1000PS 2008) and AA1000 AccountAbility Assurance Standard 2008 (AA1000AS 2008) (AccountAbility, 2008a, 2008b). The AA1000AS deals with verification of the reliability of CSR information (Visser et al., 2007). This assurance standard evaluates and delivers conclusions on: “The nature and extent of adherence to the AA1000 AccountAbility Principles, and where applicable the quality of publicly disclosed information on sustainability performance” (AccountAbility, 2008b, p. 8). According to KPMG’s (2011) recent survey, slow acceptance of assurance on CSR reporting is quite shocking, specially “in light of the recent ‘crisis of trust’ that many companies are currently experiencing” (p. 28). With regard to CSR report assurance in ASEAN countries, 44 per cent of responding companies indicated that they have their report assured and 22 per cent stated that they planned to implement this assurance in future (ACCA, 2010). The majority of the companies, whose report is being assured by a third party, mentioned that they do so mainly to give the report greater credibility (ACCA, 2010).

2.3.8. Current trends in CSR reporting

Within this given context, the current ongoing trend in CSR reporting is that of integrating financial reporting with nonfinancial reporting. Until recently, standalone reports were the most common way for companies to disclose CSR information to their stakeholders (KPMG, 2008); however, increasingly companies are integrating their financial reporting with nonfinancial reporting in order to

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provide all stakeholders with a complete picture of the organisation’s overall performance (Eccles & Krzus, 2010; Visser et al., 2007). It is claimed in KPMG (2011) that “today, only 20 per cent of G250 companies rely solely on a standalone report; far fewer (10 per cent) rely only on a web-enabled iteration or an annual report. This trend seems to indicate the birth of a new era of ‘sincere’ CR (Corporate Responsibility) reporting, where companies actively encourage readers to examine and segment corporate CR data to suit their unique needs and interests” (KPMG, 2011, p. 22).

The existing corporate reporting system has evolved with separate reports, disconnected elements, and unclear critical interdependencies between strategy, governance, business operations and CSR performance (IIRC, 2011). Corporate reporting requirements have developed separately and differently in various contexts (Eccles & Krzus, 2010). This situation has made it difficult to compare overall company performance across various contexts. Therefore, there is a growing demand for a framework that brings together “the diverse but currently disconnected strands of reporting into a coherent, integrated whole, and demonstrate an organization’s ability to create value now and in the future” (IIRC, 2011, p. 2).

Many believe that integrated reporting (or as some call it One Report) will be a solution for the present corporate reporting issues (Eccles & Krzus, 2010; IIRC, 2011). To make it a success, the International Integrated Reporting Committee (IIRC), which consists of world leaders from the corporate, academic, accounting, securities, regulatory, standard-setting bodies, and civil society, drafted a landmark discussion paper called “Towards integrated reporting: Communicating value in the 21st century” and invited comments for further development (IIRC, 2011).

According to KPMG (2011), “the concept of integrated reporting has exploded onto the CR (Corporate Responsibility) agenda over the past three years” (p. 23).

Thus, the current trend of corporate reporting is towards integrated reporting.

Classification of CSR literature related to developing countries

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2.3.9. Other developments and perspectives of CSR

Apart from the background presented above which influenced the development of CSR practice in developed as well as developing countries, several reasons can be identified for the increased interest in CSR reporting. During the past few years the context within which the global companies were reporting was shaped by several developments. These developments include: worldwide demand for transparency and accountability at an all-time high; expansion of corporate governance expectations and a renewed commitment to ethics; demand for a more complete picture of the health and stability of a company, where not only financial results are considered but also risk management practices and value creation in the environmental and social arena; and, significant discussions around regulation and mandatory transparency on governance, ethics, and other nonfinancial issues (KPMG, 2008, 2011). Within this given context, this chapter next reviews the prior CSR research studies with special reference to developing countries and identifies gaps in the CSR literature.

In document Empirical evidence from Sri Lanka (Page 41-48)