AHMAD KHAIRIN NADZMI ZULKIFLI 300437105

ANALYZING DIFFERENT APPROACHES IN SOCIAL AND

ENVIRONMENT REPORTING : WHAT COULD BE THEIR MAIN

INTENTIONS, POSSIBLE OVERLAPS AND CONFLICT

The concept of Corporate Social Responsibility has long been introduced in the

business world. The concept is perfectly described in 1953 where “[CSR] refers to the

obligations of businessmen to pursue those policies, to make those decisions, or to follow those

lines of action which are desirable in terms of the objectives and values of our society” (Bowen,

2013, p. 06). Over the years, this concept has been refined due to the challenges in the business

world and accounting side of it. As of present, the world is more aware of the need of corporate

responsibility, hence the rise of CSR. Gray holds one of many views in CSR where he outlines

that “an environmental or social report might be thought of as seeking to satisfy either the

intentions of management or the demands of accountability. Whilst there is some overlap

between the objectives there is more conflict here than is generally recognised” (Gray, 2000,

p.248). This essay will address the insights of Gray’s discussion and my opinion regarding his

views.

To fully understand Gray’s statement, it would require brief history of CSR and basic

understanding of the terminology involved. Social accounting has been deemed important ever

since the introduction of CSR in the business world. Over the years, new challenges arise which

questions the reliability, and usefulness of social and environmental reporting. Businesses,

professional accounting bodies, and educators have gone through innovative ways to properly

address these issues in accounting. These issues have become ever-more so important when

legislators introduce new laws in business including Companies Acts 2013. The most common

definition of Social and Environmental Reporting (SER) might be “the preparation and
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publication of an account about an organisation’s social, environmental, employee,

community, customer and other stakeholder interactions and activities, where, possible, the

consequences of those interactions and activities” (Gray, 200). In 2015, many countries start

to adopt a set of goals to end poverty, protect the planet and ensure prosperity for all for the

sustainable development agenda. This should be the goals where activities in a business should

adhere to.

Gray has distinctive approach towards SER. He categorized SER into internal

stakeholders and external stakeholders. He made it into four quadrants where which

stakeholders compiled the report and for whom it compiled the report for. His first quadrant,

internal stakeholders prepared the reports for internal stakeholders for management purposes.

These reports comprise information of business activities to check whether the activities

comply with their principles. It also helps them to identify risks and missed opportunity. The

second quadrant, external stakeholders prepare the reports for internal stakeholders. The

organization brings in external consultants to investigate the company’s impact on social and

the environment. The third quadrant, where external stakeholders prepare for other external

stakeholders. Environmental or Social organizations may perform investigation of the

organization to maximize transparency and publicity for its activities. The fourth quadrant is

about internal stakeholder preparing the report for external stakeholder. The organization

publishes its own report to the public detailing the company’s impact to social and the

environment.

Looking closely to these quadrants, it is determinable which part of the quadrant cater

for which goals the management have. The fourth quadrant characteristics have loopholes that

allows management to “cherry pick” the good impacts that the organization did to social and

the environment and leave out the insignificant or possibly negative impacts to social and

environment. This shows management intentions to control and have good organizational
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image. However, the society and activists are very aware of bad business practices and value

transparency. This kind of organizational behaviour certainly would not last in this day of age.

In contrast, the third quadrant maximises transparency which is very invaluable in the business

world. In the third quadrant, an organization outsource the investigation SER to external

parties. This shows that the organization have possibly nothing to hide and very confident in

their decision making regarding organizational activities for the sake of democracy,

accountability and sustainability purposes. The first and second quadrant is simply a step for

them to gather information for management processing and the third and fourth quadrant are

the part where they choose how to report to external stakeholders. Looking through these

quadrants, we can infer that if the company wants to do SER for management control purposes

it would choose to go with quadrant four and if the company wants to do SER for the sake of

accountability it would do it through quadrant three. However, it is still possible that

organizations that go through quadrant four, still produces reports that is very transparent and

that could possible mean they would still do it for social and environment. The same goes if

the organization choose quadrant four just to show how accountable the company might be for

doing so. So far, we can see that intentions still can be overlapped and there is still no strong

evidence showing otherwise.

Looking from another perspective, Judy Brown and Michael Fraser has summarized

and categorized SER approach into three categories. These categories include the traditional

business case approach, stakeholder accountability approach and critical theory approach.

Starting from business case approach, it focuses in how can SER bring benefits into the

business and the stakeholders. This approach emphasizes on how the reports could create

financial value and increase business longevity and operability. “Business leaders are

increasingly acting upon this responsibility [to report] because it makes good business sense.

It helps companies to mitigate risk, protect corporate brand, and gain competitive advantage"
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(Deloitte Touche Tohmatsu, 2002). This approach is also known as the traditional approach,

emphasizes on stakeholder management rather than accountability (Brown & Fraser, 2006,

p.114). To prevent regulations, it prefers to do SER voluntarily as they claim regulation is too

costly and inflexible. Business leaders focuses on ‘win-win’ relationships as they provide SER

to stakeholders and gain business benefits in return. Therefore, in order to create positive

company image, businesses tend to report activities selectively which holds significant positive

impact to social and environment in hoping that it could provide more long-term capital

investors, attract talents, etc. Their biggest challenge is to face the sceptical public regarding

their business practice and external parties verifying the legitimacy of the reports. The suitable

example is McDonald’s, a fast food company, has been very active in promoting their brands

in children sports.

Another approach is the stakeholder-accountability approach. This approach is

considered in-the-middle approach where some form of regulations is compulsory to reach a

certain level of accountability and transparency of organizations. This approach “is based on

an ideal of transparency which presumes that the information reported provides the most

complete and realistic portrait possible of the positive and negative impacts of corporate

activities” (Boiral, 2013, p.1038). This approach acknowledges stakeholder’s right to full

information for decision-making and this requires regulation to ensure accountability and

balanced reporting. To develop meaningful relationship between stakeholders, it requires some

guideline from professional accounting bodies, such as GRI, in monitoring the reports. This

approach could raise questions about accuracy. It is very hard to translate, for example,

pollution, or gender equality into numbers that we could recognize as debits or credits. The

development of the regulation system could take many years of tweaking and could ended up

being something very similar to GAAP, where it sets a certain standard, rather than motivating

organizations to exceed boundaries for the sake of accountability and democracy. For
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businesses, this could be good as it would not incur so much cost to follow the guidelines rather

than having to abide to strict government laws.

The critical approach is the radical approach towards SER. This approach is aims to

expose the ‘exploitative’ aspects of businesses and highlights environmental and social

degradation (Brown & Fraser, 2006). This approach is very cynical towards organizations and

their practices. It requires organizations to abide to legislation and government intervention.

Due to this, its unlikely to have meaningful participation from stakeholders because of heavy

regulations. This approach plants the notion that organizations just have to follow the law for

‘fair play’ in business rather than for accountability and sustainability. Therefore, this approach

is more likely to lean to image management which is following the law.

The different approaches have a very similar pattern. It relates heavily on the value of

transparency and how sceptical and possible cynical the public views organization.

Transparency was something very uncommon for business with traditional views of accounting

as they favour to maximize financial gains. Accounting students inevitably has been taught this

from this perspective and education bodies put so much emphasis on the technical aspects of

accounting than preparing students to face the volatile and ever-changing world of business.

This form of education does not necessarily internalize the concept of transparency in students

thus leading to a lot of ‘low-quality’ and undiversified accountants. Until organizations

internalizes the concept of transparency rather than treating it as something that is value-added,

it stays becoming the main conflict to the notion that organizations do SER only for

management purpose or for sustainability, democracy and accountability rather than doing

SER for management purpose and for sustainability, democracy and accountability.

In conclusion, there are many approaches introduced for SER including Fraser, Brown

and Gray’s approach. These approaches have a hidden element that transparency is something
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that is an internalized characteristic rather than something that is value-added that separates the

views of social and environmental reporting. Therefore, Gray’s statement remains correct until

the previous statement still holds true. With transparency in mind, education bodies should play

more of an active role to prepare students to face accounting challenges. On the other hand, no

matter which approach organizations may take and done it transparently, we are one step closer

to more sustainable social and environment.

(1640 words)
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References

Boiral, O. (2013). Sustainability reports as simulacra? A counter-account of A and A+ 1 GRI

reports. Department of Management, Universite´ Laval, Que´bec City, Canada,

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Bowen, H. R. (2013). Social responsibilities of the businessman. Iowa City, IA: University

of Iowa Press.

Brown, J., & Fraser, M. (2006). Approaches and Perspectives in Social and Environmental

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Deloitte Touche Tohmatsu. (2002). Sustainability Reporting and Assurance – Trends,

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United Nation. (2015). Sustainable development goals - United Nations. Retrieved from

https://www.un.org/sustainabledevelopment/sustainable-development-goals/