Green Articles

Stakeholder Dialogue for Social and Environmental Accountability: A Critique

Sustainability AccountingEditorial Comments: Business organizations have adopted sustainability principles in various hues and shades. But what appears to the eye as a big shift in business approach to sustainability from the erstwhile traditional approach is perhaps just the tip of the iceberg. A deeper understanding of what needs to be achieved is a must to make a real transition. Anubhuti Sharma surfs through the dynamics of social and environmental accountability (SEA) to find out what’s missing in the approach.

Let us presume a world without any form of communication in society; between any of its actors; between any of its institutions! And then let us dwell on what benefits this might have, if any.

To me, this brings one basic thought to mind and that is of having no shared experiences! In fact, without communication, there would be no critical awareness of the world in which we exist, no social values and norms, and no sustainable social order. Thus, the question is, in face of rapid globalization and decreasing regulatory space of governments, can increased communication lead to rational perspective and empowered participation towards sustainable development on part of actors and institutions, largely, stakeholders?

To put communication in context of social and environmental accountability [Hereafter SEA], it becomes imperative to define what the latter means. SEA, interchangeably, sustainability accounting ‘is a process through which information flows are organized and provided for management decision making, and also a product or service to be obtained by internal and external parties with an interest in corporate sustainability information’ (Schalteggar and Buritt, 2010). This entails the following:

  • Clarity in perspective to ‘who the organization is accountable to’ or providing the service or product to, i.e., employees, shareholders or external stakeholders, and with what motive
  • Benchmarking of social and environmental performance indicators to be able to clearly ‘communicate corporate practices internally and externally’ (Hooper and Lever, 2005)
  • To monitor compliance with policies and regulations and continually improve systems and processes

The above can be seen as a significant shift from reporting in 1970s, when much of it catered to projecting an organization’s reputation as that of being responsive to societal concerns principally as a competitive marketing strategy (Schalteggar and Buritt, 2010). However, many environmental disasters during this time led to significant public chorus of disapproval towards activities of various industries. There was also a growing emphasis on social investment markets (Roberts, 1990). Thus, the trend of sustainability reporting has been on the rise since 1990s with widening meaning and a significant shift from ‘green gloss’ reporting to ‘stand alone’ environmental and social reports.

Today, with reporting guidelines from Global Reporting Initiative [GRI] and Institute for Social and Ethical Accountability [ISEA], Eco-Management and Audit Scheme [EMAS], and many other such guidelines established by supranational bodies, a view of increasing transparency about organization’s impact on society and on those impacted most is no longer peripheral (Owen, 2003).For instance, the KPMG triennial survey indicated that more than 71% of FTSE hundred companies produced sustainability reports in 2005 (Cooper and Owen, 2007).

The focus of current sustainability accounting is on ‘fulfilling stakeholder expectations and serving information requirements by external parties’ (Schalteggar and Buritt, 2010). Though a wider dialogue with stakeholders is advocated for this, there still remain gaps in current practices and those required for effective environmental and social performance benchmarking (Hooper and Lever, 2005).

For instance, in a study conducted on the airline industry, it was concluded that the ‘practice of environmental reporting is most wide-spread in the European Region (11 airlines) with only three airlines reporting from North America and three from the Asia Pacific region’ (Kolk, 2000).This clearly signifies that despite growth in trend, there are a very small proportion of companies, even in other industries, that indulge in any kind of information disclosure. For most of those who do engage at best involves ‘an exercise at stakeholder management’ by targeting those elected by corporate management and not actual representatives of any group (Cooper and Owen, 2007).  It remains a corporate spin on ‘how to organize information flows’. The Global Accountability Report, 2008, assessed that out of the 12 organizations studied for stakeholder engagement, only BHP Billiton, Carrefour and EDB had mechanisms involving advisory groups and stakeholder panels having ‘representation capacity’ (Kolk, 2000).

An analysis of fifteen reports short-listed for the Social and Sustainability categories of the 2003 ACCA UK Sustainability Reporting Awards Scheme demonstrates that dialogue with stakeholders alone does not result in their influencing decision making. There still remains difference in power exercised by stakeholders and shareholders where the latter take precedence in matters of significant interest to the organization (Unerman, 2007).

This fact replicates itself in the response of business lobby to the Company Law Review Working Group’s consultation document. It was more of an outcry, calling the document an ‘insidious creep in the direction of the stakeholder model’. The business lobby professed that ‘there is ambiguity over whether the board should regard the interests of shareholders as paramount or have equal regard for other stakeholders’ (Owen, 2003). The sway of view in favour of the former, in fact led to the withdrawal of Operating and Financial Review’s White Paper in 2005 (Owen, 2003). Thus, resistance to regulatory compliance to provide legitimacy to stakeholders at par with shareholders is still evident in the business lobby. It can be accepted that stakeholder dialogic may be an uncomfortable situation for an organization at times, but in certain cases, engagement with legitimate stakeholders might lead to ostensible circumstances as well. Thus, a balance of power on both sides of company becomes imperative as does prioritizing stakeholder needs for specific disclosure (Brown and Fraser, 2006).

Thus, what is yet to be answered is whether transformation in reporting initiatives alone through increasing the ‘scope’ of these reports herald greater social and environmental accountability. Enhancing inclusivity of stakeholders, specifically non-financial stakeholders, through a defined dialogic alone may not necessarily have any impact on accountability of an organization. World Bank and IMF, for instance, have implemented a range of ‘technical accountability reforms since the 1980s, including policies and spaces for civil society to interact with staff’ (Lloyd, Warren and Hammer, 2008). But little change has been brought in composition of board of directors and, thus, real decision making power still lies with those who hold financial power (Lloyd, Warren and Hammer, 2008).

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