Corporate Social Responsibility in Corporations and Governance - Essay Example

Corporate Social Responsibility and Governance Introduction Corporate Social Reporting (CSR) refers to the process of sharing of facts on social and environmental impacts of an organization’s financial undertakings to a certain interest groups within the social order or the society in general. Corporate social responsibility report or simply CSR Report has been numerously titled by syndicates globally as part of the World’s corporate reporting practice. In this regard, community, sustainability, environmental and citizenship reports are often incorporated in description of the report. Although Corporate Social Reporting (CSR) has been researched substantially by early scholars, comparative analyses of CSR’s have rarely been expounded. This paper shall focus on the similarities and differences of Corporate Social Responsibility Reports in three corporations which are: the Royal Bank of Scotland, Virgin Atlantic and Chiquita Brand International. To achieve the desired objectives, the researcher shall review the existing literature on Corporate Social Responsibility Reports with a view of exposing what is generally known concerning the subject. Background The world’s leading economies are on the verge of compelling multinational corporations to report information concerning social and environmental performance following the standards provided by Global Reporting Initiative (Castka et al., 2004). A rising concern in the field of reporting is that there is a danger that social disclosure may not work well towards achievement of sustainable development because it may hamper implementation of other reporting mechanisms and stricter regulation (Akerstrom, 2009). In this regard, social reporting may allow organizations to escape strict regulations in the long run (Fisher, 2010). Over the years the quality and effectiveness of social and environmental reporting has gone a notch higher. Quaddus & Siddique (2011) asserts that the major problem in reporting is the inability of companies to report the required information. Some report high volumes of data because of the difficulties in identifying vital information for the shareholders. However, some report meagre information due to failure of commitment on matters related to sustainability (Idowu & Louche, 2011). A rising wave on criticism has been centered on the increasing number of corporate social responsibility and inadequate quantity of disclosures (Ihlen et al., 2011). The other wave of criticism is on the rising concern where organizations that allege to be champions of corporate social reporting on paper are worst perpetrators of sustainability in practice (Brockett & Rezaee, 2012). On a similar note, some organizations that often has excellent plans on sustainability end up failing to do so in real practice. The research considers social reporting an important tool of communication which promotes transparency and better interaction with the stakeholders (Rittenberg et al., 2012). Literature Review In the past, Corporate Social Responsibility reporting had recognized itself as a major factor in movement for making organizations socially responsible on matters of environmental conservation (Aras & Crowther, 2010). However, CSR is neither mandated through commerce laws or stock exchange rules. It is in essence a voluntary exercise. There has been extensive research by scholars in regards to general opinion about the effectiveness of corporate social responsibility across companies. Some have openly advocated discrediting the disadvantages of voluntary reporting schemes but instead advocating for formulation of mandatory disclosure requirement by all companies. Gottschalk, (2011) asserts that the Triple Bottom Line reporting risks tokenism unless regulatory authorities are willing to formulate laws mandating the practice. The mandatory requirements should also be in a position to state where and when the reporting must be piloted and what precise matters should be included in the disclosure. It has been widely accepted that social reporting goes a long way into enhancing corporate accountability, democracy among all stakeholders and general corporate practices that promote developmental sustainability (Mullerat & Brennan, 2011). Acceptable guidelines on social reports are enshrined in the Global Reporting Initiative (GRI) standards for corporate reporting (Gottschalk, 2011). Organizations are obliged to report their corporate social responsibility based on the guidelines provided by the Global Reporting Initiative (GRI) (Simpson & Taylor, 2013). Corporate Social Responsibility issues continue to create concerns all over the world with scholars seeking a better understanding about the subject. Banks in particular have been categorized as active participants in Corporate Social Responsibility affairs attracting immense attention from academicians. As earlier mentioned, one major concern in CSR is on the content of disclosure. In an attempt to address this concern, numerous theories have been formulated on corporate social responsibility practices which include; legitimacy and accountability theories. Legitimacy Theory Aras and Crowther (2009) explains legitimacy as a practice through which companies seek legitimacy from important publics. This is achieved by making sure that company’s value structure line up with the tenets of the firm under which the company operates. There are four basic strategies that have been designed and which can be applied by firms in the improvement of image and legitimacy. Legitimacy theory proposes that companies should use disclosures in the management of their image in the face of legitimacy crises or whenever the public’s opinion about the company is doubtful. For instance, Aras and Crowther (2009) alleges that in an effort to explore the variations in annual reporting by firms in reaction to escalating environmental concerns discovered statistically substantial upsweep in the mean environmental and social disclosures from the preceding year. With the rising concerns about corporate social responsibility (CSR) regulatory concerns continue to heat up on the aspect of the need for legislative overhaul (Aras & Crowther, 2009). This has been occasioned by corporate social responsibility’s activity and the stock market index which has continued to gain popularity (Solomon, 2013). To overcome this problem, scholars have proposed the use of Legitimacy theory in the examination of disclosures (ZU, 2009). It is interesting to know that there is never a single acceptable theory that can be used to explain disclosures (Aras & Crowther, 2010). In light of this and contemporary research in the field of corporate social responsibility has revealed that legitimacy theory can be relied upon in explaining CSR. The theory has some advantages over other theories because it outlines strategies for undertaking the disclosures (Habisch, 2005). In addition, the strategies that legitimacy theory offers can be used by organizations to authenticate their existence which is empirically testable. Accountability theory The idea of accountability theory presents a practical option to legitimacy theory. The theory trusts that companies are genuinely accountable towards the shareholders and therefore demonstrate their willingness to CSR through voluntary reporting to tell the shareholders that they are no doubt responsible to them. Accountability as defined by Habisch (2005) is an intrinsic duty to give an account of schedules for which the company is responsible. It centres on the idea of dialoguing and inclusiveness as dictated by reporting principles developed in the previous years. GRI and AA1000 frameworks are the two most famous reporting frameworks use to gather the views of the shareholders by ensuring and encouraging companies to look into the needs of shareholders as a way of dialoguing and inclusivity. Researchers owe to engage directly with firms in a view to getting insight into their feelings concerning corporate social reporting. Legitimacy theory concentrates on the notion that firms utilize disclosures to enhance their own companies and show off values that match those of the society. Royal Bank of Scotland RBS is banking company based in the UK headquartered at Edinburg. It has about 115000 employees working towards provision of products and services to the huge customer base. Corporate social responsibility affairs at Royal Bank of Scotland are aimed at building a strong economic base for the bank and the community at large. The bank endeavours to practice corporate social responsibility reporting to meet the obligation as a way of satisfying the needs of managing both direct and indirect operative influences towards sustainable growth. Sustainability at Royal Bank of Scotland lies under the responsibility of an established committee: Group Sustainability Committee (GSC) which is responsible for supervising issues of sustainability. The bank’s stakeholders take keen interest on who to conduct business with based on terms offered. Of all leading global banks in the world, RBS was the first bank to acquire the independent AA1000 Accountability Principles standard for transparency and disclosure. This has been the framework upon reporting principles are derived. The bank also follows Global Reporting Initiative (GRI) as a widely used report around the globe. Like other frameworks, GRI enables RBS to quantify and report social and environmental performance. In the previous year, RBS’ Sustainability Report rated 5 in the FTSE350 best practice reassurance by Carbon Smart consultancy. During the 2012-2013 fiscal years, the bank invested heavily towards the development of renewable energy in an effort to help transition from high carbon to a low carbon economy. The bank committed immense finances towards developing solutions to help customers fund efficient energy alternatives. For instance, the bank offers financial support to onshore wind, biomass and solar projects. In the year 2012 alone, the bank spent $200 million towards the promotion reliable and environmentally friendly source of energy to corporate and banking customers in a scheme titled the carbon reduction fund. The bank aims at being a leader as global institution in managing its own environmental impacts. It also aims at funding sustenance initiatives that will create immense positive impacts by 2015. In a view to realize its objectives, the bank’s GSC shall work towards supporting key sustenance areas as greener mainstream services in working towards transition to a sustainable low carbon economy. The bank also reported to support small scale projects through an investment of $ 50 million in a Small Scale Renewable Energy Fund. To ensure that more customers get access to the finances, agricultural customers were included in the SME’s. The bank set aside in 2012 an amount of $200 million dedicated towards sustainable energy projects. In summary the energy structured financing for RBS for year 2012 was as follows: Source Amount allocated in % Wind 53 % Combined Cycle Gas Turbine 15 % Oil 13% Solar 13% Short Term Operating Reserve 4% Fuel cell 2% Apart from funding real projects, the bank rolled out a plan in 2012 that would enable training on energy efficiency that would raise awareness on energy efficiency among SME consumers. The program I expected to continue in 2013. In 2012, RBS initiated and distributed $ 2.8 billion in the United States injected directly into the support of renewable energy. A good example is in the financing of the Topaz Solar Farm project in California. RBS reported that in 2012 they were able to achieve a reduction of 5.5 % in energy use. In regards to water conservation, the bank reported a reduction of 4.9% putting it on tract towards a targeted -12% by 2014. This was accomplished by use of a wide array of processes. For instance, use of dry urinals, water tap fitted with limiters just to mention a few. In regard to waste disposal, RBS reported a 69% reduction attributing the reduction to the collaboration they had with waste management contractors. Virgin Atlantic Virgin Atlantic corporate social responsibility report for the year 2012/2013 reveals that it saved 30 % in CO2 while undertaking most of the flights in the previous year. This is attributed to an investment amounting to $2 billion that worked towards upgrading of fleet programs. The report indicates that the airline moved away from the former four engine convoy of aircraft by purchasing 10 twin engine airbuses that were capable of working efficiently on a scale of 30% per trip as compared to the previous aircrafts. To save further, the report on air sustainability projects an introduction of a Boeing 787-9 before the end of 2014. In order to minimise CO2 releases during years to come, the Airline aims at introducing sixteen Boeing 787-9 in the next few years. Doing so will lead the company towards achieving a 30% savings target on CO2 release in every ton of itinerants and freight by the end of 2020 making it one of the finest carriers in the globe. Virgin Atlantic adjustment report entails its environmental and social programs aimed at enhancing fuel consumption and carbon reduction. Efficient savings will aid the airlines return to its rightful profit base a target set to achieve before the end of the year 2014. Introduction of more fuel efficient airlines by the end of 2013 is the company’s greatest target that will see it reduce carbon emissions. This coupled with the fuel efficient tool (OSyS) introduced in the year 2012 will enable the company save up to $20 million and around 100,000 tons of CO2 before the end of four years. The report tells of the company’s surpassed target in regards to waste management which it was able to divert from land fill 75% of its wastes. Chiquita Brand International Chiquita Brand International’s social responsibility report for the year 2012/2013 outlines four areas of priority. The first area is sustainability with a reduction on fresh water consumption by 15% and emission of carbon by 30% in reference to the data collected and reported in 2007. Secondly area concerns responsible sourcing whereas the third and the fourth areas are servant training programs and partnership with external investors. Through implementation of such programs Chiquita endeavours to construct positive transformation among communities in which they do business and improve the lives of its workforce. Chiquita believes that through investments in the community volunteerism builds up. In Latin America, the operation realized a decrease of 62% in healthiness and safety occurrence rates in 2012 as compared to the last four years. In North America, the operations achieved a 12 % decrease in health and safety occurrences in 2012 in comparison to 2008 and a cumulative reduction of 40% since 2002. The introduction of the Live Chiquita Creativity rolled out in 2011 with a helper time off suite that allows personnel to assign time each year to work on public projects, made many relate to sustainability. It was also reported that the creation of the main Females’ Group in banana industry way back in the year 2011 meant an increase in promotion of the efforts of international food workers and COLSIBA which had grew to top regional banana unions. In regards to environmental conservation, Chiquita reported that it had maintained a strong relationship with Rainforest Alliance. As a result of this corporation and others Chiquita has been able to source bananas from over 40,000 ha that was made up of Rainforest Alliance, Chiquita’ s owned land as well as other local farms. In addition to these collaborations, the firm also undertook a greenhouse gas emission analysis in collaboration Massachusetts institute of technology from every stage of banana production with a view of coming up with the best alternatives of reducing the emissions. In connection to water conservation measures, the report indicated that a detailed water risk assessment was carried out in conjunction with world wildlife fund. In regards to water conservation efforts, the firm helped come up with a GAIN tool that is capable of reducing use of irrigation water and nitrogen in lettuce production. The reduction in the use of water for irrigation dropped to 15% whereas the use of fertilizers dropped by 50%. Similarities and differences The sustainability reports by the Royal Bank of Scotland, Virgin Atlantic and Chiquita Brand International have been organized based on economic, environmental and social contexts otherwise referred to as the Triple Bottom Line. In addition, the trio believe in success arrived at when the environment and the society issues are taken into consideration. Virgin Atlantic and Chiquita Brand International focuses mainly in efforts directed towards minimization of CO2 levels and general carbon emissions to the atmosphere in the course of their operations. Whereas corporate social responsibility affairs at Royal Bank of Scotland are aimed at building a strong economic base for the bank and the community at large, Chiquita Brand International endeavours to construct positive transformation among communities in which they do business and improve the lives of its workforce. In this regard Chiquita Brand International appears to practice genuine CSR reporting as compared with Royal Bank of Scotland. Whereas Virgin Atlantic and Chiquita Brand International invest immensely in reducing the amounts of carbon emissions as a result of fuel burns by their planes, the Bank of Scotland focuses on empowering individuals to develop renewable sources of energy for the benefit of humanity and the entire surrounding they live in. On matters of sustainability, Royal Bank of Scotland lies under the responsibility of an established committee: Group Sustainability Committee (GSC) which is responsible for supervising issues of sustainability, Chiquita Brand International and Virgin Atlantic operate sustainability reporting aspects under their management. This means that what is reported is purely decided by the management and not an independent board. Chiquita believes that through direct investments and service to the community volunteerism builds up whereas Virgin Atlantic focuses on a better environment with limited levels of emission of carbon dioxide to the ionosphere. Generally, it appears that Virgin Atlantic is keen on improving its own business as a first priority then community but Royal Bank of Scotland and Chiquita Brand International appears to put emphasis on the social matters of the community before their own. All the companies in this study appears carefully choose those aspects of reporting that are not tantamount to negative reputation of their companies. Conclusion In the past years, Corporate Social Responsibility and Governance has witnessed immense changes where increased awareness on the need to report has been accepted as essentially needed as part of multinational corporate units in Western republics gain an appreciation of their moral indebtedness to give back to society. An entity or company that fails to contribute positively to the society will most likely be seen as socially unreliable. However, organizations have taken different courses of action. For instance, the corporate social responsibility (CSR) reports that currently become an yearly report in addition to the old-style annual fiscal reports becomes one of the channels being used to reveal the caring nature of organizations are to humanity and their immediate environment. The study compared the Corporate Social Responsibility reports of three different companies traversing diverse trades in the United Kingdom. The research reveals that companies across the divide adopt different approaches to reporting. References AKERSTROM, A. (2009). Corporate Governance and Social Responsibility Johnson & Johnson. Munched, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1- 2010091110782 ARAS, G., & CROWTHER, D. (2010). A handbook of corporate governance and social responsibility. 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