Inter-Firm Comparability of
GRI Sustainability Reporting
- A study of seven European Companies
in the Chemical Sector
BACHELOR’S DEGREE PROJECT
THESIS WITHIN: BUSINESS ADMINISTRATION NUMBER OF CREDITS: 15 HP
AUTHOR: Alexander Thoresson, Mikael Pehrsson & Yao Tang JÖNKÖPING December 2020
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Bachelor Thesis in Business Administration
Title: Inter-Firm Comparability of GRI Sustainability Reporting Authors: Alexander Thoresson, Mikael Pehrsson & Yao Tang Tutor: MaxMikael Wilde Björling
2020-12-15
Key terms: Sustainability reporting, GRI, Inter-firm comparability, GRI Standards
Abstract
Background: The perceived importance of sustainability has left its mark on organizations. The
demand for sustainability reports is growing. The question whether these sustainability reports provide an authentic, or alternatively, an embellished picture of how sustainable a company is, seems interesting. There is no clear definition of what good or bad sustainability would be, and as such, one could argue that companies are considered to be sustainable, or not, depending on other companies in the same industry. The importance of whether sustainability reports are inter-firm comparable rises in compliance with the importance of sustainability itself. This paper attempts to further investigate the inter-firm comparability aspect by using the latest standards from the GRI, namely the GRI Standards that launched in 2016.
Purpose: Comparability seems to be a natural way of determining whether a company is
sustainable or not. The quality of the sustainability reports therefore diminishes, if the inter-firm comparability between them, is lacking. Hence, the thesis has the purpose of determining whether sustainability reports are inter-firm comparable.
Method: This study utilized the GRI database in order to filter and select a population of
companies. Seven companies in the European chemical sector were chosen, and a content analysis, where the different firms' responses to 34 selected indicators were analysed and interpreted using the scope of the Stakeholder theory, the Functionalist perspective & the Critical perspective.
Conclusion: The inter-firm comparability of the seven companies' sustainability reports, who all
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also found inter-firm comparability between sustainability reports conducted according to earlier versions of the GRI framework to be inadequate. The main issues observed were results of differences in how the indicators were answered, sometimes quantitatively, sometimes qualitatively, as well as the amount of superfluous information provided.
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Table of Contents
1. Background ... 5
1.1 GRI Background and History ... 6
2. Problem Discussion ... 8
3. Purpose and Research Question ... 9
4. Frame of Reference ...10
4.1 Stakeholder Theory ... 10 4.1.1 Stakeholder ... 10 4.1.2 Stakeholder Theory ... 11 4.2 Functionalist perspective ... 12 4.3 Critical perspective ... 135. Method ...14
5.1 Selection of Companies ... 14 5.2 Selection of Indicators ... 166. Result and Analysis ...18
6.1 Economic Indicators ... 19 6.2 Environmental Indicators ... 21 6.3 Social Indicators ... 22 6.4 Concluding Analysis ... 24
7. Conclusions ...27
8. Discussion ...28
References ...31
Appendix ...38
Appendix 1 ... 38 Appendix 2 ... 42 Appendix 3 ... 485
1. Background
What constitutes good or bad sustainability? This is difficult to define and one could argue that it depends on circumstances and interpretation. As such, a reasonable way of determining whether something is good or bad - when there is no clear definition of what exactly that would entail - is to compare it with other similar entities. This does not mean that the phenomenon actually is comparable, or that the way in which it is compared is adequate. The latter is what this paper sets out to investigate.
Corporate social responsibility (CSR) related questions, i.e., questions with an economic, environmental or social nature are becoming increasingly important, and have as a result developed into an important criterion for global investors and the capital market (Singhal & Dev, 2016). Providing the public with a sustainability report has become part of the general business practice of many companies. An increasing number of customers and stakeholders expect to witness the company’s achievements and advancements in sustainability. The value of non-financial information for stakeholders therefore seems to be recognized to a greater extent by companies (KPMG, 2017). There is a growing awareness that we, as consumers and people in general, need to work hard for sustainable development. Accordingly, it is critical to develop a solid and comprehensive reporting strategy. One of the approaches for sustainability reporting with growing popularity, in the recent years, is the Global Reporting Initiative (GRI) guidelines (Isaksson & Steimle, 2009). “The GRI Sustainability Reporting Standards help organizations increase their transparency and communicate both their positive and negative impact on sustainable development” (GRI Standards, n.d.). With a better understanding, and implementation of the GRI Standards into the general business mindset, companies could have the possibility to enhance their strategic decisions, reduce certain risks, identify new business opportunities, and strengthen their relationships with stakeholders. The Global Reporting Initiative Sustainability Reporting Guidelines are periodically reviewed to provide the best and most up-to-date guidance for effective sustainability reporting (Singhal & Dev, 2016).
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1.1 GRI Background and History
GRI was established in Boston in 1997, and it is based on non-profit organizations CERES and Theellus Institute. The first edition of the GRI Guidelines G1 was published in 2000 and provided the first global framework for sustainability reporting. In 2001, it became an independent non-profit organization. In 2002, the headquarters moved to Amsterdam, Netherlands, and the G2 guidelines were issued in that year. Subsequently, as more and more organizations adopt and demand, the GRI guidelines have been further expanded and improved. The G3 guidelines were released in 2006 and the G4 guidelines released in 2013. In 2016, GRI changed from providing guidance to formulating the world's first sustainability reporting standard—GRI Standard. The Standards continue to be updated and revised, including new Topic Standards on Tax 2019 and Waste 2020 (GRI, n.d.). The purpose of GRI is to create and establish the first accountability mechanism to ensure that companies comply with the principles of responsible environmental behavior, and then expand to social, economic, and governance issues.
GRI’s goal is a sustainable future, which can be achieved through transparent and open dialogue. This is a future in which reporting on impacts is a common practice by all organizations around the world. As a provider of the world’s most widely used sustainability disclosure standards, the GRI standard is a catalyst for that change (GRI, n.d.). Most of GRI's funding comes from business services/events, corporate business, and membership, and 40% of the funding comes from government and foundation program grants (GRI, n.d.).
The GRI system is modeled after generally accepted accounting principles (GAAP), which provide ways to simplify and unify conflicting accounting methodologies (Stenzel, 2010). Sustainability is conceptually helpful even though it lacks specificity. In past decades, many people thought of sustainability primarily in environmental terms, but today the focus has shifted to the Triple Bottom Line, which looks at economy, environment, and social equity (Stenzel, 2010). GRI Standards is one of the specific guidelines for sustainability, but the Triple Bottom Line provides a base point for sustainable development. GRI standards have become a global touchstone for measuring, observing, and reflecting on the sustainable work of enterprises. Likewise, GRI standards placed Triple Bottom Line reporting in a format that promotes accuracy, comparability, and impact. According to the GRI standards guideline, GRI standards help organizations to
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manage and enhance the quality and transparency of sustainability reports while providing a reasonable and efficient framework.
Along with the global sustainable development prosperity, the emergence of GRI standards has not only helped many companies and organizations standardize their own sustainable development strategies. They have also been widely acknowledged and utilized as a measurement tool to be used on such topics as triple bottom line, corporate social responsibility (CSR), stakeholder theory, etc. The GRI reporting framework is the most utilized set of standards employed by companies in the world and is often a key tool when overcoming problems of social or environmental nature (GRI Standards, n.d.).
The GRI Standards create a common language for organizations and stakeholders, with which the economic, environmental, and social impacts of organizations can be communicated and understood. The Standards are designed to enhance the global comparability and quality of information on these impacts, thereby enabling greater transparency and accountability of organizations (GRI, 2020). Organizations can use GRI standards to prepare sustainability reports, or they can use selected standards to report information for specific purposes. The information made available through sustainability reporting allows internal and external stakeholders to form opinions and to make informed decisions about an organization’s contribution to the goal of sustainable development (GRI, 2020). GRI standards can meet the needs of multiple stakeholders and help organizations understand and disclose their impact. In addition to reporting companies, these standards are also of concern to other groups such as investors, policymakers, markets, citizens, and society.
GRI Standard reports need to be submitted and verified either through the GRI Standards Report Registration System or the Registration form. All reports that claim to meet the GRI Standard requirements need to be submitted and verified either by a representative of the reporting organization or by a 3rd party authorized by the reporting organization. GRI do not check the accuracy or content of the reports and its claim (GRI, n.d.). To become a certified representative, a provider/organization can send the application form to GRI with their draft version of software/tool that can be used to collect and manage data. When GRI has received the application,
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Understanding form from GRI that informs about the fee, timelines, process, subject of certification and other conditions. Then GRI will assess the accuracy to ensure that is accurate use of the GRI Standards. After certain suggested changes are implemented, GRI will provide a permission letter to the applicant that authorized the use of GRI content, and a certification. The certification is valid for one year. Afterwards, the provider/organization can extend it by following the same process (GRI, n.d.). So far there are 21 certified organizations valid by GRI (GRI, n.d.).
2. Problem Discussion
The rise in sustainability-reporting does not automatically mean that the reports fulfil their intended purpose. The validity and use of the sustainability reports is dependent upon the information disclosed being of adequate quality and honesty. The increase in the amount of sustainability reports does not necessarily mean that the quality of the reports increases (Hąbek & Wolniak, 2015). The definition of the relationship between the sustainability concept and accounting also seems to be lacking (Özsözgün Çalişkan, 2014). Of the different aspects which can be used to discuss the quality of sustainability reports, this paper focuses on inter-firm comparability. The information disclosed in sustainability reports might be of lower value if the possibility of comparison between similar companies is lacking. Ambiguous comparability of reports can make it rather problematic for the reader to get an understanding of how a company compares to other companies (Isaksson & Steimle, 2009). Therefore, the usefulness of a report might be hindered if the reader cannot put the information into perspective. Since comparability is one of GRI´s main principles one would expect that reports which are produced using the GRI framework would be comparable. However, according to previous research that does not seem to be the case. Earlier studies conducted in regard to inter-firm comparability of sustainability reports using the GRI framework have found the inter-firm comparability lacking (Boiral & Henri, 2017; Cardoni et al., 2019; Parsa et al., 2018; Sherman & DiGuilio, 2010).
This paper is an attempt to further investigate the inter-firm comparability aspect by using the latest standards from the GRI, namely the GRI Standards that launched in 2016. Many previous studies are based upon earlier standards from the GRI (Boiral 2013; Boiral & Henri, 2017; Parsa et al., 2018; Sherman & DiGuilio, 2010). In order to avoid possible discrepancies and
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inconsistencies with regard to potentially specific sustainability issues for different sectors, this paper will deal only with one sector, specifically the chemical sector. In companies from a polluting sector the disclosure of environmental reporting has a tendency to be relatively high, most likely due to considerable stakeholder pressure (Gamerschlag et al., 2010). This has the potential to create a better and richer information groundwork for the paper. The scope of the paper is also limited to the European region. Due to operating in a common political and economic environment the setting and conditions for companies in the European region should be similar (Sacer, 2015). Ceteris Paribus, or all else being equal, is desirable when comparing, and narrowing the scope down to the European region will increase the possibility of attaining this. This, in turn, has the potential to better promote comparability. To elucidate the findings of this paper the results will be analyzed through the lens of the Stakeholder theory, functionalist perspective and critical perspective. The Stakeholder theory is used to give insight into why companies choose to voluntarily provide information that might otherwise be regarded as sensitive. The functionalist and critical perspective provide two different ways of interpreting the data that is being analyzed in the content analysis. Descriptions of these aspects are provided in the frame of reference section of the paper.
3. Purpose and Research Question
This paper has the purpose of determining whether sustainability reports are inter-firm
comparable. Comparability seems to be a natural way - as there are no clear definitions of what good or bad sustainability would be - of determining whether a company is sustainable or not. The quality of the sustainability reports therefore diminishes, if the inter-firm comparability between them, is lacking. This will be done by examining the sustainability reports from seven different companies. The reports have been conducted according to the GRI Standards. The seven companies make up the population of available companies who share a set of criteria used when narrowing the scope of the paper. How these seven companies have been selected is explained in detail in the method section of the paper. The results will be analyzed from the perspective of the stakeholder theory, functionalist perspective and critical perspective.
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Is the information from the sustainability reports, which have been produced according to GRI Standards, comparable?
4. Frame of Reference
4.1 Stakeholder Theory
4.1.1 Stakeholder
The term stakeholder seems to have originated sometime during the beginning of the 1960’s. The name was meant as an allusion to stockholder, with the intention of elucidating that there were other individuals or groups with an interest in how decisions in public corporations were made, not just the share/stockholders (Goodpaster, 2015).
The stakeholder mindset was adopted relatively early in Scandinavia, with Eric Rhenman, Professor of Business Administration, as its originator. Along with Professor Emeritus Bengt Stymne he presented a book, titled “Företagsledning i en Föränderlig Värld”, or “Corporate Management in a Changing World”. The two professors phrased their interpretation of the term as follows: “Stakeholders in an organization are the individuals and groups who are depending on the firm in order to achieve their goals and on whom the firm is depending for its existence” (Carroll & Nasi, 1997). The creator of the Stakeholder theory, as it is used today, Robert Edward Freeman, has defined stakeholders as “any group or individual who can affect or is affected by the achievement of the firm’s objectives” (Freeman, 1984, p.49). We can derive from these articles that even if the precise wording may differ, every definition boils down to that a company’s stakeholders are made up of the people and groups who have interests tied to the company’s operations and the manner in which the company conducts its business.
Some examples of stakeholders, other than shareholders, can according to Professor Emeritus Kenneth Goodpaster be, “employees, suppliers, customers, creditors, competitors, governments, and communities.” (Goodpaster, 2015, p.54). Stakeholders can be made up of everything from individuals to societies, even nature can be considered a stakeholder (Mitchell, Agle & Wood, 1997).
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4.1.2 Stakeholder Theory
The Stakeholder theory was first developed by Igor Ansoff in 1965. The theory was intended to better explain how the organization's relations with its stakeholders’ matter, as well as how the various interests of the stakeholders needed to be considered and assessed. Robert Freeman later, 1983, continued working on the theory and his contributions are still being used (Roberts, 1992). The theory encourages companies to develop strong, positive connections with the various stakeholders that it has. By conducting its operations in a way that the stakeholders approve of, such as providing reports designed to give an insight into the company, or taking the environment into consideration when producing products, for instance, the organization's stakeholders will view it in a better light and be more willing to affiliate with it (Fernando & Lawrence, 2014).
A key idea in Stakeholder theory is that the company is best off when an organization’s stakeholders, by their own accord, come together and collaborate to make it better for all parties involved. Therefore, a premise for the Stakeholder theory is that the purpose of the company should be aligned with the interest of the company’s stakeholders as it is through the joint interest of the company and its stakeholders that it will thrive best (Freeman, Wicks, & Parmar, 2004).
Stakeholder theory is often divided into two approaches: the ethical or moral branch, and the positive or managerial branch. The two approaches differ in the way that they view how the organization’s different stakeholders should influence the managerial decisions. According to the ethical branch all stakeholders, regardless of size or monetary influence, should be regarded as equally important, and the organization should be operated so that all stakeholders benefit. The managerial branch considers stakeholders increasingly important as the amount that they contribute to the company increases (Guthrie, Petty & Ricceri, 2006).
Accountability is an important term in Stakeholder theory and that the organization is held accountable towards its stakeholders is as important as that the organization takes stakeholder rights and desires into consideration when making managerial decisions (Fernando & Lawrence, 2014). Accountability stems from responsibility but differs in that responsibility is a much more comprehensive term which encompasses several different definitions. Richard Mulgan (1997,
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p.27) explains accountability as follows: “Accountability refers to one aspect, the calling to account and acceptance of oversight, of one type of responsibility to someone else.” One party being held accountable by another is typically a symptom or sign of an unequal relationship dynamic as the accountable party must endeavor to gain the other party’s approval (Mulgan, 1997). The Stakeholder theory has a few key ideas: Companies should try to keep their stakeholders’ rights, interests, and opinions in mind, it is when stakeholders’ readily come together with the company and each other that everyone is best off, and the organization should be accountable towards its stakeholders.
Stakeholder interest for the environmental and social values of companies is progressively growing, and companies, in accordance with the Stakeholder theory, are diverting resources, to match this change and thus keep their stakeholders satisfied (Closs, Speier & Meacham, 2010). A result of the growing importance of environmental and social questions have been that stakeholders want a reliable way to determine whether they should be satisfied with the different companies, the stakeholders typically want information of environmental and social nature to be divulged through reports (Logsdon & Lewellyn, 2000).
Companies want to illustrate how well they are responding to their stakeholders’ needs and by voluntarily providing potentially sensitive information through public reports, they are acknowledging that their stakeholders deserve insight into, at least some parts of the company’s engagements. These organizations get a better public image. Additionally, by sharing sensitive information and thus illustrating their compliance with their stakeholders’ opinions, the organizations are better off (Fernando & Lawrence, 2014).
4.2 Functionalist perspective
The functionalist perspective presupposes that organizations have a systemic character aimed at order and coherence (Morgan, 1980). Information regarding performance measurement of organizations is in this positivist perspective considered objective (Dillard, 2014; Morgan, 1980). Sustainability performance can therefore, implicitly, be objectively measured and comparable. This assumes that the reporting itself is comprehensive and transparent.
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The GRI framework with its orientation towards structure, order and standardisation (Brown et al., 2009; Moneva et al., 2019) and its extensive adoption amongst CSR-reporting (Mori Junior & Best, 2017; de Villiers & Sharma, 2017; KPMG, 2017; Michalczuk & Konarzewska, 2020) provides a bit of strength to those that use the functionalist perspective in regard to sustainability measurement. The GRI framework can potentially, on the issue of sustainability performance and measurability, broadly be considered to be the most rigorous and robust source of material (KPMG 2017; Morhardt et al., 2002). Sustainability performance disclosed in reports produced using the GRI framework should, in accordance with the functionalist perspective, therefore be measurable and comparable. If any complications would arise regarding the comparability and ranking of sustainability performance the problem would be an inadequacy of standardization, according to the functionalist view. If the GRI framework is employed extensively and methodically such issues are assumed to be inconsequential. The perspective, therefore, does not question the assumptions regarding measurability and comparability (Boiral & Henri, 2017).
4.3 Critical perspective
A main point of critical theory is “…questioning established social orders, dominating practices, ideologies, discourses and institutions” (Alvesson & Deetz, 2000, p.1). In stark contrast with the functionalist perspective, the critical perspective is anti-positivist and set forth that organizations are molded by power relations along with the control of beliefs and norms which underlie management praxis (Dillard, 2014). Therefore, one could describe the functionalist and the critical perspective as being opposites of each other.
In the view of the critical perspective this means that the information provided by organizations in the form of, for example, sustainability reports essentially lacks the ability to be transparent (Boiral & Henri 2017). Instead of truly catering to the stakeholders’ interest, the information provided by the organizations has a tendency to gravitate towards echoing their own agendas (Hahn & Lülfs, 2013; O’Dwyer, 2003; Owen et al., 2000). Also, there is the issue of the sustainability reports being used as false fronts to hide the unsustainability of the business (Gray 2010; Hahn & Lülfs, 2013; Moneva et al., 2019). This implies that the possibility of comparability
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is impaired as long as this managerial capture and greenwashing of the sustainability reporting process occurs. Another possible problem, observed by Gray (2006b, 2010) and Milne & Gray (2013), is the broad disassociation between the real connotation of sustainability and what significance it should have for organizations and how sustainability accounting is conducted in practice. The confines of organizations are simply too small to incorporate the entire comprehensiveness of environmental and social sustainability (Boiral & Henri 2017). Because of this one could say that the critical perspective contests the idea that sustainability reporting in its current state is a meaningful endeavor (Gray 2006a, 2006b; Milne & Gray, 2013).
5. Method
This paper will use a content analysis approach in order to analyze the sustainability reports from the companies that have been chosen. Content analysis can be described as a “…research method that uses a set of procedures to make valid inferences from text. These inferences are about the sender(s) of the message, the message itself, or the audience of the message.” (Weber, 1990, p. 10). Many previous studies with similar aspects to this one also use the content analysis approach (Cardoni et al., 2019; Parsa et al., 2018; Boiral & Henri, 2017; Boiral, 2013; Hahn & Lülfs, 2013). This potentially lends credence to the suitability of the content analysis approach for studies of this kind. The content analysis will be conducted by inspecting the sustainability reports provided by the companies that were selected and compiling their answer to each of the selected GRI indicators. Analysis and conclusions will then be drawn from this. The approach for this paper is further described in the sections below.
5.1 Selection of Companies
The purpose of this paper is to determine if different organizations’ sustainability reports are inter-firm comparable with each other. Having as many common denominators as possible is preferred when selecting a sample for which the question will be tested. The paper aims to compare apples to apples, not oranges. Apples would in this case be defined as organizations that share a set of criteria. The GRI database has a search function with filters which have been utilized when narrowing possible organizations down. The seven selected organizations all share a set of attributes that were chosen to make sure that the risk for incomparability, as a result of irrelevant
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differences, would be as low as possible. The organizations selected for the paper are in the same industry, of similar size and based in the same region. They are also using the same GRI reporting standard, the selected reports are of the same year and they are all listed companies. Maybe most importantly, their GRI-reports are all of the same adherence level and verified by either GRI or a third party authorized to represent GRI. While these seven companies make up the population of companies which share all these required criteria, the chemical sector can be considered a sample of all the available industries.
Aside from choosing a polluting sector due to these sectors tendency to have relatively high disclosure regarding environmental pollution, there was no preconceived notion that the chemical industry would be particularly good, or bad, as a sample industry for which to test our research question. Additionally, choosing a sector where the risk for environmental pollution is relatively high makes it more interesting in a sustainability context. Also contributing to the choice of the chemical sector is that a good set of organizations which shared the previous mentioned criteria was found.
The companies are all listed which proposes the idea that they, at least in some way, rely on stakeholders purchasing their stocks in order to raise necessary capital. In order to attract stakeholders in today’s world, as mentioned prior in this paper, proof of compliance with stakeholder wants is increasingly important. Therefore, the likelihood of listed companies to provide, or withhold, certain information might be crucial in understanding if GRI-reports are inter-firm comparable.
Size and region could have been any of the different available options in the database, as long as all selected companies were the same in those regards. The size “Large” and the region “Europe” was selected as sample criteria. Out of the available GRI reporting types the latest available type was desired, as each new report type improves and eventually replaces its predecessors. GRI Standards is the selected report type, and 2019 was chosen as report year. A GRI-report can be conducted either in line with adherence level “Core”, or “Comprehensive”, core being the simpler of the two options (Globalreporting.org, 2020). As a majority of reports were conducted with adherence level core, and core being an approved level of contribution, it was
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added to the sample criteria along with a green check mark indicating that the organization’s reports details has been approved by either a GRI direct, or indirect representative.
The criteria used when selecting the seven organizations ended up as follows: Verified 2019-year reports of reporting type GRI Standards. Conducted in accordance with the core adherence level and provided by large, listed organizations from the European region. The organizations operate in the chemical sector. Our selected companies are, in alphabetic order: Clariant AG, Evonik Industries AG, Givaudan S.A., OCI N.V., Semperit Group AG, Synthomer PLC and Wacker Chemie AG.
5.2 Selection of Indicators
The report type GRI Standards divide its questions, or indicators, into different groups: general, economic, environmental, and social topics. The indicators listed in the general topic were deemed unnecessary for the purpose of this paper as they were mostly concerned about - like the name suggests - general disclosures such as name of the company and location of its headquarters. The general topic, and its indicators are therefore not included in this paper.
Each main topic has several subtopics intended to further specify what each underlying indicator addresses. GRI-reports are constructed in a manner so that they are applicable for every organization regardless of the industry in which it operates, hence some indicators might be more important than others, and vice versa. Organizations do not have to provide information about each indicator and all questions might not be relevant for the chemical sector; relevant indicators need to be identified.
If some indicators are left unanswered by all, or a majority of the selected companies, it is a likely sign that it is due to them being irrelevant to that sector, and conversely the opposite is true - more answers indicate a higher relevance.
The initial step when determining which indicators that best would provide an answer to the research question, was to identify which of them were answered by a minority of the seven organizations and mark them as discards. Following this, the indicators that were answered by all the companies were tested for relevance, mainly by comparing them with each other, if two of them were too similar, one of them would not be needed. None of the indicators answered by all of the companies were taken out. After first selecting indicators with a clear majority - six or seven
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answers from the companies - subtopics with indicators only answered by a minor majority -four or five out of the seven companies - were selected. The selected indicators are listed in Table 1. Table 1.
Indicator Economic
201-1 Direct economic value generated and distribution
202-1 Ratios of standard entry level wage by gender compared to local minimum
wage
204-1 Proportion of spending on local suppliers
205-1 Operations assessed for risks related to corruption
205-2 Communication and training about anti-corruption policies and procedures
206-1 Legal actions for anti-competitive behavior, anti-trust, and monopoly
practices
Indicator Environmental
301-1 Materials used by weight or volume
302-1 Energy consumption within the organization
305-1 Direct (Scope 1) GHG emissions
305-2 Energy indirect (Scope 2) GHG emissions
305-3 Other indirect (Scope 3) GHG emissions
305-4 GHG emissions intensity
305-5 Reduction of GHG emissions
305-7 Nitrogen oxides (NOX), Sulfur oxides (SOX), and other significant air
emissions
306-2 Management of significant waste waste-related impacts
307-1 Non-compliance with environmental laws and regulations
308-1 New suppliers that were screened using environmental criteria
Indicator Social
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403-2 (2016 version)
Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities
403-2 (2018 version)
Hazard identification, risk assessment, and incident investigation
404-1 Average hours of training per year per employee
404-3 Percentage of employees receiving regular performance and career development
reviews
405-1 Diversity of governance bodies and employees
406-1 Incidents of discrimination and corrective actions taken
407-1 Operations and suppliers in which the right to freedom of association and
collective bargaining may be at risk
408-1 Operations and suppliers at significant risk for incidents of child labor
409-1 Operations and suppliers at significant risk for incidents for forced or
compulsory labor
412-1 Operations that have been subject to human rights reviews or impact
assessments
413-1 Operations with local community engagement, impact assessments, and
development programs
414-1 New suppliers that were screened using social criteria
414-2 Negative social impacts in the supply chain and actions taken
416-1 Assessment of the health and safety impacts of product and services categories
417-1 Requirements for product and services information and labeling
419-1 Non-compliance with laws and regulations in the social and economic area
6. Result and Analysis
As to best maintain a clear and concise structure throughout the paper, the result and analysis sections have been merged. The result and analysis presentation will not go through each indicator, rather certain good or bad indicators and their respective answers that relate to comparability will be selected and made into examples for the findings in general. Each selected indicator will be discussed from its inter-firm comparability aspect and, where applicable, analyzed through the lens of stakeholder theory, functionalist perspective, and critical perspective. At the end of the section a concluding analysis will be presented.
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The paper has found that the selected indicators have been answered in four different ways: quantitively, qualitatively, non-answers and N/A. Quantitative answers, seem to be the most comparable as the information provided gives little room for free, or alternative interpretation. Quantitative answers are closed and specific in nature. If all companies would have answered the indicators quantitively, the inter-comparability of the reports would dramatically increase. Qualitative answers make up a large portion of the provided answers. As some of these indicators refer to complicated matters, qualitative, or open and explanatory answers seem justified. The qualitative answers take very different shapes and often it would appear that the length of the provided answers could be substantially shortened and still provide a similar result. The quantitative answers take the shape of numbers, graphs and tables.
The non-answers were an interesting phenomenon. One of the criteria used when selecting indicators for this paper was the frequency by which the indicators in question were answered by the selected companies. Some indicators show up in the organizations reports, but when analyzing them it was found that they were answered by stating that they were not relevant for the organizations, or that the organizations did not deem them to be important, i.e., not answering them. In other cases, the information that is claimed to answer a particular indicator does not do so. These non-answers may be purposely crafted with the intent of misleading the reader, or they may be a result of misinterpretations of what information the indicator requires the reporting organization to provide. No company had answered all the available indicators, yet some chose to include indicators that they did not provide information for. They might include them to illustrate that they have noticed said indicators, or at least not avoided answering them out of ignorance. It is not completely clear. The N/A indicators are the indicators where an organization has not provided an answer at all.
6.1 Economic Indicators
Indicator 202-1, “Ratios of standard entry level wage by gender compared to local minimum wage”, provides an excellent example of non-answers from companies (see Appendix 1). None of the companies actually answer the indicator. At the end of Clariant's disclosure they say “Therefore, Clariant does not keep statistics of the salaries in relationship to minimum wages”.
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Givaudan only directed the reader to their “Independent Assurance Statement”. Including an indicator but not answering it directly does not promote inter-firm comparability since it potentially adds confusion for the reader. By answering around the indicator and trying to portray the situation in a different light by talking about how their wages are determined and equal pay overall, the reader might get a positive impression of their disclosure. But in a strict sense the companies mislead the reader from the actual indicator. In accordance with the critical perspective, actions of this kind can, to some extent in this case, be interpreted as managerial capture and an echoing of their own agenda (Hahn & Lülfs, 2013; O’Dwyer, 2003; Owen et al., 2000). Inter-firm comparability is therefore impaired in a strict sense. However, it should be noted that the indicator itself can be considered confusing as the phrasing of it might come across as odd. In that case the functionalist perspective argues that more standardization would be needed (Boiral & Henri, 2017), for example a better or more clearly phrased indicator, in order for the companies to extensively disclose it.
Indicator 204-1, “Proportion of spending on local suppliers”, is a prime example of where the overall inter-firm comparability can be considered satisfactory (see Appendix 2). The indicator is clearly defined, and most companies answer it straight to the point with minimal unnecessary information that distracts the reader. A method of potentially improving the inter-firm comparability even further for this kind of indicator would be to standardize the presentation of the disclosure for all companies. For example, all companies would have to present the information in a table or something similar. This further standardization would be in line with the functionalist perspective (Boiral & Henri, 2017).
Indicator 205-1, “Operations assessed for risks related to corruption”, shows an excellent case of superfluous information disclosure by a company (see Appendix 3). While, as an example, Wacker Chemie AG has a clear table with the relevant information, Evonik Industries, on the other hand, has a page of text and then a figure with unrelated information. As a result, the transparency of the disclosure is questionable, and the reader might be misled. From a critical perspective Evonik's approach is not ideal to promote inter-firm comparability as the potential for managerial capture, greenwashing and embellishment of information can be argued to be high. Such actions have the potential to alter the perception of the underlying situation and could be used to hide the
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unsustainability of the business (Gray 2010; Hahn & Lülfs, 2013; Moneva et al., 2019). The interesting thing here is that the indicator is rather clear-cut and alternative interpretations by the companies as to how to disclose about it should be limited. Therefore, the option for more standardization, as promoted by the functionalist perspective, is impaired.
6.2 Environmental Indicators
Indicator 301-1 states that the reporting organization shall report the total weight of renewable and non-renewable materials used. The indicator is an excellent example of the more comparable types of indicators, as it is formulated in a way that warrants a quantitative answer. Most of the selected companies answered the indicator with clear numbers. One company answered by stating that the required information is confidential in nature, and as such they cannot disclose it. This indicates that the company understands stakeholders wants and while said company appears to be willing to comply with stakeholder demands - in this instance for more information - like the stakeholder theory suggests (Fernando & Lawrence, 2014; Logsdon & Lewellyn, 2000), they simply cannot do so because providing those numbers could harm the company. As our selected sample companies have conducted their reports in adherence with the core level, and not the comprehensive, answers like these are sometimes enough. Interestingly the other companies, which all operate in the same industry, did not consider the weight of how much renewable and non-renewable materials to be confidential and one could argue that it is probable that the company who would make such a claim might not be confident that their stakeholders would approve of the numbers, should they be provided with them. According to the critical perspective this seems like a textbook altering of public, or stakeholder perception, i.e., greenwashing (Hahn & Lülfs, 2013; O’Dwyer, 2003; Owen et al., 2000), of the company rather than altering and improving the operations which it conducts. By stating that the required information is confidential, but still including the indicator in the report, the company is likely trying to make it seem as if they have nothing to hide – by hiding in plain sight.
Indicator 302-1 requires the reporting organization to report its energy consumption with regards to renewable and non-renewable sources. This seems to be highly comparable but is made unnecessarily complicated as the allowed formats for how the consumption is measured can be provided in three different formats: joules, watt-hours or multiples. These different formats can be
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converted and altered but as not everyone knows how, it diminishes comparability. A common issue shared in the phrasing of many indicators is the lack of unity, or standardization. Again, according to the functionalist perspective, the solution to these kinds of issue would be more specific and extensive standardization (Boiral & Henri, 2017).
Indicator 308-1, The reporting organization is required to input the percentage of new suppliers that were screened using environmental criteria. The indicator is mostly answered but some answers illustrate a lack of effort, or at least information. One company writes that “all new suppliers are screened”. The report then refers the reader to a section with a text which is suspiciously reminiscent of an advertisement for the company, with sentences such as “we aim to perform a sustainability evaluation of 90 percent of suppliers...” That seems good but it does not really answer how many suppliers are currently screened with environmental criteria. All, or a hundred percent are apparently screened, but the company does not state by what criteria. Observing this, with the scope of the critical perspective, would make one question if this is an altering of perception, i.e., greenwashing (Gray 2010; Hahn & Lülfs, 2013; Moneva et al., 2019), rather than operations.
6.3 Social Indicators
Indicator 403-2 (2018 version), “Hazard identification, risk assessment, and incident investigation”, focuses on descriptions of processes and policies related to work-related hazards, risks and incidents. Viewing the issue from the critical perspective, the focus on just descriptions makes it questionable if the indicator provides anything of value overall to the reporting. One could argue that since the companies only have to state their various processes for handling work-related hazards, risks and incidents, the possibility for embellishment of information has the potential to be high. In some sense the information provided by the companies cannot be truly comparable since they most likely use somewhat different processes and approaches. However, what can be compared is their overall approach to the indicator and how serious they take it, which could be the intention of the GRI in this case. But the issue of information trustworthiness then becomes apparent. Indeed, as the embellishment of information has the potential to be high for an indicator of this kind, one could possibly expect an exaggerated positive description done by the companies which echoes their own agenda (Hahn & Lülfs, 2013; O’Dwyer, 2003; Owen et al., 2000) with
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minimal focus on the not-so-good aspects. This can be deemed as a lack of transparency and mislead the reader by providing a distorted overview of the situation. In the positivistic functionalist perspective however, any information disclosed by the companies for this indicator would be considered relevant as the perspective presupposes that such information would be objective (Dillard, 2014; Morgan, 1980).
Indicator 404-1 requires the reporting organization to report the average hours of training that the organization’s employees have undertaken by gender and employee category. It is a straightforward question with the possibility for clear quantitative answers. Despite this, some of the selected companies reported with regards to other factors, such as region of employment for instance. Although these companies do not answer the indicator correctly, they still list 403-2 as at least one of the indicators which the attached segment is supposed to answer, possibly due to the company understanding that this topic might be important to stakeholders, and even if the provided answer shares information that slightly deviates from what the indicator asked for, the company might still believe that stakeholders may view any answer as better than none (Closs, Speier & Meacham, 2010). The inter-firm comparability is non-existent if organizations do not even provide answers with the necessary information. Issues such as this are prevalent throughout the different topics and might be a result of the selected companies reporting in adherence with the core, and not the comprehensive level. As the core adherence level is still approved by GRI, the sample companies in this paper’s reports are still relevant however, maybe even more so.
Indicator 412-2, “Negative social impacts in the supply chain and actions taken”, asks for numbers and percentages regarding negative social impacts in the supply chain and how the company deal with such issues. Due to the straightforward nature of the indicator, one would expect equally forthright answers from each company. However, that is not the case as only Clariant has what could be considered a straightforward disclosure about the indicator. Evonik has a, more or less, non-answer and only generally talk about human rights and compliance rules for business partners. Synthomer PLC states that restructuring regarding their procurement function has basically made their audit lacking and that they will make up for it in their next report. Wacker Chemie AG answers the indicator but not in the same succinct way as Clariant, due to having more general information about their assessments and audits. This kind of scattered type
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of answers has the potential to impair inter-firm comparability. If every company disclosed the same way as Clariant did in this case the potential for inter-firm comparability would be better. Disclosures that only address the issue in general terms, such as Evonik in this case, with no proper answer, leads back to the issue of trustworthiness and transparency as mentioned for indicator 403-2. However, from an inter-firm comparability standpoint it is interesting to compare the answer of Wacker Chemie AG and Clariant as their approaches to the indicator are so different. Here the question is if the extra information provided by Wacker Chemie AG actually adds anything of value to their disclosure of the indicator. From a strict inter-firm comparability standpoint, the extra information could possibly be considered bloated and non-essential for the indicator and therefore unnecessary. In the critical perspective it could, if one follows it stringently, even be considered as an attempt to embellish information, i.e., a form of greenwashing or managerial capture, that masks the potential unsustainability (Gray 2010; Hahn & Lülfs, 2013; Moneva et al., 2019). The functional perspective, however, would consider all added information to be, if not relevant, at least objective (Dillard, 2014; Morgan, 1980).
Indicator 413-1 requires the reporting organization to provide information about operations with local community engagement, impact assessments, and development programs. A percentage for this is asked for, with regards to eight different sub-questions. This is an instance where the indicator is unnecessarily complicated. A complicated indicator might not be a comparability issue per definition, but seven different companies could claim to have answered the indicator, when in fact seven different sub-questions have been answered, making comparability non-existent.
6.4 Concluding Analysis
An overarching theme that the paper identified is the uncertainty regarding how disclosures from the companies should be judged from an inter-firm comparability standpoint when extra information is provided. Even though a company has answered an indicator and you compare that answer with that of another company the inter-firm comparability is not guaranteed. Indeed, as stated above, extra information is something often provided by companies that are not strictly needed to answer an indicator. If one should deem this information as conducive for inter-firm comparability or not is the issue here. Sometimes this extra information could be considered
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relevant in a sustainability report context. The skeptical nature of the critical perspective would align itself more with the opinion that extra information, being relevant in a sustainability context or not, is unnecessary and not conducive to inter-firm comparability. Since information from companies has a propensity to incline towards echoing their own agenda (Hahn & Lülfs, 2013; O’Dwyer, 2003; Owen et al., 2000) awareness of such an aspect is essential when considering extra, or bloated, information. The issue of sustainability reports being used as false fronts to camouflage or obscure actual unsustainability by the company (Gray 2010; Hahn & Lülfs, 2013; Moneva et al., 2019), is also an inescapable factor not to be dismissed lightly when it comes to extra information provided in the disclosures by the companies. Therefore, the omnipresent concern regarding managerial capture and greenwashing stemming from the critical perspective is a pervasive risk one simply cannot dismiss altogether when it comes to inter-firm comparability. These aspects of the critical perspective, combined with the extra information often observed in the disclosures by the companies in this paper as well as the lack of transparency shown by non-answers, certainly gives some credit to the idea that sustainability reporting in its current state is not a meaningful undertaking. Sustainability reporting not being a meaningful undertaking in its current state is also something indicated by Gray (2006a, 2006b) and Milne & Gray (2013). From the critical point of view the issues regarding transparency, managerial capture and greenwashing will most likely persist as long as the same power relations continue to mold organizations in relation to the beliefs and norms which dominate management praxis (Dillard, 2014). Unless these beliefs, norms and power relations change inter-firm comparability, from a critical perspective standpoint, will be flawed.
However, the functionalist perspective and its call for more standardization might alleviate some of the issues observed through the critical perspective. More standardization might even increase the overall transparency from the companies. After all, the GRI framework has been extensively adopted when it comes to CSR-reporting (Mori Junior & Best, 2017; de Villiers & Sharma, 2017; KPMG, 2017; Michalczuk & Konarzewska, 2020) and further standardization of the framework can most likely be expected in the future. Something which was discerned during the content analysis is that improvement of certain types of indicators is something that needs to be brought about in future versions of the GRI Standards to further facilitate inter-firm comparability. These improvements could potentially take the form of:
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• A reformulation of indicators that previously seems to have given companies the opportunity to embellish or greenwash information, in order to reduce potential managerial capture.
• A reduction of indicators that have too many sub-questions that needs to be answered. For the reader too many sub-questions might lead to confusion as the discernment of what information answers what part of an indicator becomes more demanding. This, in turn, has the possibility of negatively affecting inter-firm comparability. If the sub-question is important it can be an indicator of its own. Alternatively, an indicator with sub-indicators could have an established hierarchy, where certain indicators are required, and others are more voluntary.
• A streamlining of how companies can disclose regarding the indicators. An example would be specifying that a certain indicator must be presented in a table. Such standardization might positively affect inter-firm comparability drastically. Indeed, extra or bloated information might then further be reduced which consecutively can decrease the potential risk of managerial capture and greenwashing.
Nonetheless, one must keep in mind that further standardization always has the possibility of limiting the freedom that each company has regarding their sustainability reporting. This would be especially true when it comes to forcing the company to disclose information regarding an indicator in a certain way, even though that way has the potential to improve inter-firm comparability. Since the GRI framework has the possibility of being called the most rigorous and robust source of material when it comes to the issue of sustainability performance and measurability (KPMG 2017; Morhardt et al., 2002), further standardization would then serve to make it even more meticulous and substantial. If this standardization becomes too much of a detriment to the freedom or autonomy of the reporting process for a company, the usage of the GRI Standards might be negatively affected. This in turn can weaken the potential of inter-firm comparability regarding GRI Standards on a grand scale.
Another view of the issue of extra information from the functionalist perspective, is that the extra information is not actually an issue. As the perspective assumes that the information about
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performance measurement is objective (Dillard, 2014; Morgan, 1980) and that organizations have a systemic character aimed at order and coherence (Morgan, 1980) it must therefore have some value. However, the question boils down to if this value has a positive effect on inter-firm comparability. It can certainly be argued that the information improves the inter-firm comparability from the standpoint that more information gives the possibility of greater context for comparison between companies. But in the context of comparing companies from the standpoint of GRI Standards and its indicators the situation is different. Indeed, the strict focus on inter-firm comparability for this paper combined with the standpoint of GRI Standards and its indicators, inevitably culminate in the result that more information beyond what is required inhibit inter-firm comparability. Undoubtedly, at the root of comparability lies similarity, and if the excess information is not similar, it is not comparable.
7. Conclusions
Overall, the inter-firm comparability was found to be lacking between the GRI sustainability reports produced by the seven companies observed. Therefore, this paper aligns itself with previous studies that also found inter-firm comparability lacking for sustainability reports conducted according to the GRI framework (Boiral & Henri, 2017; Cardoni et al., 2019; Parsa et al., 2018; Sherman & DiGuilio. 2010). Even though the companies in this paper use the newer GRI Standards, the case for good or perfect inter-firm comparability is still an issue. However, there were definitely elements that were comparable. These elements of good comparability most often appeared when the indicator was succinct and conducive to disclosures that are quantitative in nature.
Much like the paper done by Boiral & Henri (2017) this paper also gives credence to the impossibility of measuring and comparing sustainability performance that is disclosed in GRI reports, at least for the companies used in this paper. The number of qualitative disclosures that included extra, or bloated, information is one of the main points found to impair inter-firm comparability. Another considerable point that impedes inter-firm comparability is the alternative ways that the companies go about regarding how they disclose. As mentioned in the analysis section, more standardization - as implied by the functionalist perspective - could be one option to
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remedy these issues. But that, as mentioned previously, comes with its own set of potential complications. The conclusions of this paper also give support to the underpinnings of the critical perspective in regard to managerial capture, lack of transparency and greenwashing when it comes to sustainability reporting using the GRI framework.
8. Discussion
The purpose of this paper is not to determine whether the selected companies can be deemed sustainable based on the information provided in their sustainability reports, but rather to ascertain whether the information in the reports is comparable between the firms. The paper does in no way attempt to define what constitutes good or bad sustainability, but rather good or bad inter-firm comparability between reports. In order for two or more answers to be comparable in the context of sustainability reports, it would be rational to argue that the information provided should attempt to give insight into the same area, in the same or a similar way. Additionally, comparability would increase if the provided information requires a limited amount of time and expertise to understand, and that the answers are formulated in a reasonably closed way so that it limits free interpretation.
One of the three theories or scopes utilized when analyzing the secondary data is the functionalist perspective which would argue that a lack of data is the main hindrance for comparability. A shortage of unity in the way indicators were answered produces a result similar to that of a lack of data and is as such one of the major issues for comparability with regards to the functionalist perspective. As long as the GRI report types have indicators formulated in a way which warrants, or even promotes, open and qualitative answers, comparability will suffer. The information that the GRI reports are asking for, and the overall theme of sustainability is however, quite complex, which could be the reason for why it seems that the reporting organizations have been given such freedom in regard to how they are allowed to express their answers. Expanding on the overall theme of sustainability, the seemingly broad disassociation between the real meaning of sustainability and what it should imply for organizations and how sustainability accounting is done in practice, as observed by (Gray 2006b, 2010) and Milne & Gray (2013), is an issue one should keep in mind. The ramifications of such an issue would certainly be of relevance to policy makers
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in the field of sustainability reporting, including the GRI. Also, the exhaustive nature of environmental and social sustainability might simply be too comprehensive to be incorporated due to the limited confines of organizations (Boiral & Henri, 2017). The potential significance of this would be that perfect inter-firm comparability, on a grand scale, would be impossible to achieve. Again, the implications of this are something the GRI, as well as policy makers related to sustainability reporting in general, would be wise to observe and bear in mind when it comes to future standards and policies.
Organizations’ source of motivation for sharing information which could potentially harm them, seems not to stem from an altruistic sense of environmentalism and concern for society, but - according to the stakeholder theory - rather as a result of an increased sense that stakeholder wants and needs should be met (Fernando & Lawrence, 2014). Sustainability and overall corporate social responsibility reporting happen to be what stakeholders are asking for now, in a decade it might be something else. The source of motivation is not harmful for comparability per definition, it does however give the skeptical nature of the critical perspective some merit. If the reason for the increase in sustainability reporting is mainly due to organizations’ desire to comply with stakeholder demands, the possibility that the focus of their sustainability reporting will lie on altering stakeholder perception of the company, rather than conducting costly operational changes, seems significant. Whereas if the motivation originated from within the company, the trustworthiness of it would increase.
Keeping this in mind, a concrete suggestion for how to improve GRI reporting would be to limit the reporting organizations freedom in regard to how they communicate their answer for an indicator. One part of each indicator could be deemed as mandatory and if not answered in the correct, standardized way, the answer does not get to be included in the report. If the reporting organization wishes to provide information about why something is a certain way, that would be voluntary. Not the other way around. The core adherence level could be less lenient as it seems to allow companies excuses whilst still providing them with the positive light that sustainability reporting is associated with. As companies want to keep their stakeholders happy, stricter requirements should not discourage them from participating in sustainability reporting, it might
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actually make them keener on performing well, as they need to pool more resources – which they will want payoff for- into their reports.
Since the conclusions of this paper are limited to the chemical sector in the European region, a potential future research avenue could be to observe other sectors as well, either in the European region or outside. Such studies would add to the existing knowledge about GRI sustainability reporting and inter-firm comparability. Which, in turn, could contribute to more generalized conclusions being drawn regarding inter-firm comparability and the GRI framework. Studying future versions of the GRI Standards, in order to find out if inter-firm comparability improves, is also something of interest. A more grand undertaking would be to develop some kind of general framework regarding inter-firm comparability and GRI Standards. Such a framework could potentially be applied on a much larger scale to check inter-firm comparability in many different sectors. Consequently, the possibility of creating such a framework relies on the presumption that sustainability is measurable, and that topic, in itself, requires further research.
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