Why Do Companies Not Produce Sustainability Reports?

Business Strategy and the Environment Bus. Strat. Env. 22, 456–470 (2013) Published online 12 November 2012 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/bse.1756

Why Do Companies Not Produce Sustainability Reports? Wendy Stubbs,1* Colin Higgins2 and Markus Milne3 1

School of Geography and Environmental Science, Monash University, Victoria Australia 2 School of Management and Information Systems, Victoria University, Australia 3 Department of Accounting, Finance and Information Systems, College of Business and Economics, University of Canterbury, New Zealand

ABSTRACT Sustainability reporting emerged on the corporate scene nearly 30 years ago as a key mechanism through which business organisations would manage a transition to a new business landscape dominated by greater concern and consciousness about sustainability. While it has become something of a feature on the corporate agenda in some parts of the world, the majority of business organisations do not undertake this type of reporting. This paper explores why 23 of Australia’s top 200 companies do not undertake sustainability reporting. The study is situated in the context of a considerable literature that promised numerous benefits to be derived from this type of reporting. The paper uncovers various social and organisational factors that raise some new questions about legitimacy theory, corporate accountability and the spread and uptake of this organisational practice. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment. Received 24 April 2012; revised 26 July 2012; accepted 14 August 2012 Keywords: sustainability reporting; social and environmental reporting; non-reporters; Australia

Introduction

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HIRTY YEARS AGO SUSTAINABILITY REPORTING (SR)1 WAS AN EXPERIMENTAL, FRINGE ACTIVITY THAT STOOD ON THE CUSP

of widespread adoption. While only a few firms reported in the early 1990s, all indications pointed to it spreading widely and rapidly amongst the business community (Elkington, 1997; UNEP/SustainAbility, 2004; Zadek, 1998). As part of early scholarly inquiries into SR, some canvassed management views about the barriers and disincentives to its uptake (O’Dwyer, 2002; Solomon and Lewis, 2002; SustainAbility, 1998) – suggesting that if these could be identified and overcome, accountability-based and transformational SR would ensue (Adams, 2002; Noci, 2000). *Correspondence to: Dr Wendy Stubbs, Senior Lecturer, School of Geography and Environmental Science, Monash University, Wellington Road, Clayton, Vic. 3800, Australia. E-mail: [email protected] 1 In this paper ‘sustainability reporting’ refers to all types of extended reporting on economic, social and environmental reporting – particularly stand-alone environment reports, corporate social responsibility reports, health, safety and environment reports, triple bottom line reports and sustainable development reports. While acknowledging there are sometimes differences between these, this study’s interest lies in the practice of social/environmental reporting as it has evolved, regardless of the particular title used by business (or in academia) at any particular point in time. It is also necessary to be clear that this view does not endorse references to corporate sustainability reporting as being indicative of corporate sustainability performance (see Gray and Milne 2002, 2004). Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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Despite considerable academic and practitioner activity, it appears today that the majority of business firms still do not report in this way. While KPMG (2011) have found that 95% of the world’s largest multinational companies (the G250) undertake SR, only an estimated 2000 or so of 60,000 multinational companies that operate around the world do so (Milne and Gray, 2007). Further, while SR seems to have become a feature of the corporate agenda in the UK, Australia, Japan and some parts of Europe, the majority of even large business organisations in these countries do not report. In Australia, for example, while 77% of the largest (top 100) firms provide more than a basic level of reporting, only 47% of the top 200 do so (Australian Council of Super Investors, 2011).2 A 2008 study of Australian businesses found that only 126 firms, spread across a considerable range of industries, issue standalone sustainability reports (Higgins et al., 2011). Similar observations have been reported in the UK among the largest 350 publicly listed companies (Martin and Hadley, 2008). This paper discusses the social and organisational factors that help to explain why many companies still do not undertake SR. The research is situated in the context of considerable developments in understanding the internal, organisational and external factors that encourage reporting, the benefits of doing so and firms’ various motivations for reporting. The paper explores whether the barriers and disincentives identified in the early stages of this movement (in, for example, Solomon and Lewis, 2002) are still current, or whether new and different barriers now exist. The aim of the exploratory study is to open up new areas for theoretical inquiry. Are there new questions that need to be asked about legitimacy theory? What new work needs to take place around business accountability for social and environmental issues? Is SR (still?) a useful mechanism for stakeholder management? Are there new theoretical explanations for SR if it is largely the preserve of just a few business organisations? The study is particularly interested in why and how non-reporting firms, subject to similar legitimacy challenges and stakeholder pressures as reporting firms, do not report because they can provide valuable insights in to the existing theoretical base. The next section provides a brief overview of the main perspectives about SR and focuses specifically on how SR was expected to spread widely and rapidly. It touches on the early insights about the barriers and disincentives associated with extended disclosure and SR. The paper then outlines the research approach, including how the sample of 23 non-reporting firms was identified, followed by the results of the interviews and a discussion section. The conclusion draws out some implications for public policy, stakeholder involvement and business interest groups. Directions for future research are also highlighted – particularly some theoretical avenues that should be explored given the findings of this analysis.

Sustainability Reporting Early studies into SR asserted confidence in a changing business landscape, and were couched in considerable optimism about a new business case for sustainability (Andriof and McIntosh, 2001; Elkington, 1997; Wheeler and Elkington, 2001). Management action towards sustainability (including SR) would, in the near future, not only be necessary in order for businesses to survive and to compete (Atkinson, 2000; Dechant et al., 1994; Porter and van der Linde, 1995) but also offered a number of additional and attractive outcomes (Andersen, 2003; Gray et al., 1996; Marshall and Brown, 2003; Zadek, 1998). While reservations about SR, as one emerging management practice, were acknowledged and understood (Cerin, 2002; Noci, 2000), it was expected that these would gradually give way in light of evolving standardisation about reporting, escalating stakeholder scrutiny, more widespread environmental legislation (including about reporting and disclosure) and a groundswell of community interest in business, the environment and social justice (Andersen, 2003; Berman et al., 1999; Burritt, 2002; Mitchell and Hill, 2009; Noci, 2000). From the mid-1990s SR appeared to be on the cusp of widespread business adoption (Marshall and Brown, 2003; Stray and Ballantine, 2000). Early adopters had apparently propelled it in to a ‘key channel for companies to communicate 2 ACSI (2011) classify the ASX200 into five levels of sustainability reporting: no reporting (15%), basic (38%), developing (25%), enhanced (5.5%) and best practice (16.5%). Basic is defined as ‘The company reports on sustainability to a limited extent. For example, the company might provide some basic information and statistics on health and safety. There is no significant consideration of sustainability risks’. Developing is defined as ‘The company shows an increased level of reporting and disclosure of the company’s actual performance against sustainability risks. This might be through a dedicated section on the website, a dedicated section of the annual report, or a standalone sustainability report’ (ACSI, 2011, p.8).

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their environmental performance and [it had also] become an effective tool to demonstrate company-wide integrated environmental management systems, corporate responsibility and the implementation of industry voluntary codes of conduct’ (UNEP/SustainAbility, 2004, p. 1). Environmental issues were described by Cerin (2002) at the time of his study of 1999 corporate reports as having moved in to the mainstream of society. Wheeler and Elkington (2001) asserted that it was now critical for business organisations to find new and active ways to engage with their stakeholders. Much of the early work about SR was also couched in an extended notion of organisational accountability (Gray et al., 1996). In light of the changing business landscape, business organisations both should and would disclose more information about their impacts as a matter of principle. Extended accountability would contribute to social and organisational change – more information about an organisation’s impact will provide a different picture of the business–society relationship (than provided by financial disclosure) and it will raise management consciousness and motivate stakeholders to force change on an organisation. The case for SR seemed assured, and its rapid and widespread adoption almost certain. The new business landscape in most business studies about sustainability and SR was taken as given (see, for example, von Geibler et al., 2006). The academic and practitioner interest in SR largely focused on understanding the characteristics and motivations of those firms that were reporting (Cormier and Gordon, 2001; Cormier and Magnan, 1999; Marshall and Brown, 2003; C. Roberts, 1991). Reporting firms, it was demonstrated, experienced a variety of intersecting internal and external factors, and shared various organisational characteristics. Typically the external factors emphasise stakeholder pressure (Deegan, 2002; Hedberg and von Malmborg, 2003; Patten, 1992) but they also mirror closely aspects of the (assumed) changing business environment (including growing consumer appetite for sustainable firms – see Borkowski et al., 2010). Internal factors and organisational characteristics emphasise size, progressive management, the presence of organisational structures (e.g. sustainability/environment committees, management positions) that facilitate disclosure (Adams, 2002). In terms of organisational motivations for reporting, a mix of market, social, political and accountability motives have been found (Marshall and Brown, 2003; Solomon and Lewis, 2002). Early studies of (mostly extended annual report disclosure) pointed to legitimacy as the most likely motivation for this evolving practice. SR was mostly undertaken by large organisations in prominent industries – and these firms reported more content and more often than any others (Deegan and Gordon, 1996; Ernst and Ernst, 1978; Guthrie and Parker, 1990). Some studies revealed that the disclosure patterns of these firms were tied to accidents and other events that generated threats to legitimacy (Lindblom, 1993) and stakeholder pressure (Roberts, 1992) including those that might be exacerbated by new media (Brown and Deegan, 1998). The implication from this work, and which has largely endured, is that firms subject to stakeholder and media pressure will initiate SR in order to shape the expectations of the community. Of interest, however, is that many firms experience such pressures, but they do not all undertake SR. In light of the extant literature (see overviews in Gray et al., 1995; Mathews, 1997, 2002; Milne, 2007; Parker, 2005, 2011), it is easy to be forgiven for thinking that SR has evolved into a widespread organisational practice. According to Wheeler and Elkington (2001) it ‘has moved from a fringe activity pioneered by socially conscious but non-mainstream companies into a credible and serious practice embraced by a number of major corporations’ (p. 5). In less than a decade, UNEP/SustainAbility (2004) revealed a 600% increase in SR across the world (totalling about 600 reporters in 2003) with as many as 1300 reporting electronically. Likewise Kolk (2003) observed that 50% of the 1998 Fortune Global 250 companies were undertaking some form of SR in 2001. Reporting amongst these firms grew to 79% in 2008 and to 95% in 2011 (KPMG, 2011). The focus on large, listed companies, however, disguises the patchy nature of this type of reporting in most industries in most countries of the world and amongst those outside the largest (usually top 100) firms (Martin and Hadley, 2008). While concerns have consistently been raised about the quality (Morhardt et al., 2002; Vormedal and Ruud, 2009) and management capture of SR (Gray and Bebbington, 2000; Higgins and Walker, 2012 in press; O’Dwyer, 2003; Owen et al., 2000), or indeed if it has anything to do with contributing to and articulating just and environmentally sustainable outcomes (Gray and Milne, 2002, 2004; Milne et al., 2008, 2009), there has been little focus on why firms do not report (although see Martin and Hadley, 2008). Early on, when SR was still burgeoning, various commentators reported reluctance amongst business to extend their disclosure regimes. Typically, firms doubted there was sufficient public or stakeholder interest in their social and environmental performance, there was confusion about what to report and how, firms lacked the information systems to put together the information easily, and managers tended Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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to disbelieve the business case or they considered that the costs outweighed any likely benefits (Andersson and Bateman, 2000; Gray et al., 1993; Noci, 2000; Solomon and Lewis, 2002; World Industry Council for the Environment, 1994). Some recent studies have revealed similar management doubts (Martin and Hadley, 2008; Mitchell and Hill, 2009). These reservations were expected to give way in light of shifts in public policy, greater standardisation of reporting standards and methodologies, and widespread community concern about business and sustainability. But, what has happened since? In the nearly 30 years since firms first started reporting, and in the context of considerable growth in reporting standards, consultancies, award schemes, public policy shifts and new pressures in supply chains the majority of large business organisations still do not undertake SR. Is the reluctance to report the same as it was 20–30 years ago? Have other approaches to managing social and environmental issues eclipsed the attractiveness of reporting (such as the internet; see Adams and Frost, 2006; Isenmann and Lenz, 2002; Morhardt, 2010)? Were early studies prematurely optimistic, or based on quite a different economic, political and social context (see, for example, Solomon and Lewis, 2002 who discuss the influence of British prime minister Tony Blair in the late 1990s and early 2000s on reporting in the UK). Perhaps integrated reporting (Jensen and Berg, 2011) will fare better. If the theories concerning the influences on, and motivations for, SR are still current, in what ways do they need to be adjusted to explain non-reporting firms?

Research Approach and Methods This exploratory study (Blaikie, 2000) sought to uncover the social and organisational factors relating to non-reporting – a phenomenon for which relatively little is known – using in-depth, semi-structured interviews. Data were gathered from large publicly listed Australian organizations (ASX200)3 that are not issuing sustainability reports. While almost all of the ASX200 companies disclose some social/environmental information, not all firms detail their sustainability performance in terms of metrics/measurements, include targets, disclose this information in publicly available report (s) and describe how they undertook their reporting process. It was firms that did not report according to these criteria that were included in the sample. To identify non-reporters, the websites of ASX200 listed firms were searched for non-reporting firms. According to KPMG’s (2011) global research, mining (84%), energy (69–71%) and financial services (61%) sectors have relatively high penetration of SR. The other sectors are less than 60%. The most recent KPMG (2008) Australian data on the 100 largest companies (N100, which equates to the ASX100) verifies that energy (included in oil and gas and utilities sectors where 80% report) and mining (80% report) have high rates of SR while financial services are low at 24%. However, at the time of this study 66% of the retail banks listed in the ASX200 issued sustainability reports and 100% of the ASX100 retail banks did so. Eighty-nine of the ASX200 companies were classified as non-reporters and were invited to participate in the research study. Twenty-three accepted and a face-to-face or telephone interview was organised. All names of companies and participants were kept confidential. The interviews took 45–60 minutes. The sectoral breakdown of the participants was: 43% mining (materials), 13% energy, 9% financials, 4% consumer staples and 30% others (see Table 1). Fourteen (61%) were in industries with high rates of reporting (mining, energy and banking). The sample does not vary significantly from the invited population in terms of size (market capitalisation); however, the sample is weighted towards mining companies who are located in Western Australia, while the rest of the companies in the sample are located in Sydney or Melbourne on the east coast of Australia. While the aim was to speak to the sustainability manager, or person responsible for disclosing environmental and social information, it was sometimes difficult to identify an appropriate person. As Table 1 indicates, there is a wide cross-section of personnel who agreed to be interviewed. In some cases it was a senior person who had a good understanding of the overall business strategies and operations; in other cases it was someone responsible for ‘sustainability’ or the ‘environment’. The data are limited by the fact that only one person from each firm was interviewed, as well as by the perspectives of the people who chose to participate in the interviews, where they ‘sat’ within the organisation and how broad/narrow their organisational perspective and role was. The authors The ASX200 is the top 200 firms listed on the Australian Securities Exchange by market capitalisation. The sector breakdown of the ASX200 is approximately 40% financials and property, 24% materials, 8% consumer staples, 8% industrials, 6% energy and 14% others.

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Industry

Role

C1 E1 E2 E3 FS1 FS2 G1 L1 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 R1 R2 R3 T1 T2

Consumer staples Energy Energy Mining/energy Financial services Financial services (retail bank) Gaming Logistics Mining Mining Mining Mining Mining Mining Mining Mining Mining Mining Retail Retail Retail Transport Transport

Sustainability manager Investor relations manager Corporate sustainability officer General manager, sustainable development Head of environment, social and governance Head of environment and sustainability Company secretary; General manager – group corporate affairs General manager – health, safety, environment and quality Manager, environment and community Principal environmental advisor; Senior environmental advisor Environment manager Chairman Company secretary General manager – safety, health, environment and community Vice president – business development Company secretary/Chief financial officer Manager, environment and community Group environmental manager Environment manager Procurement manager Sustainability manager Manager, strategy and marketing National manager environmental sustainability planning

Table 1. List of research participants

acknowledge these are limitations of the exploratory research study and future studies can test the findings of this study in other contexts to establish their range of application. The interviews sought to probe legitimacy, stakeholder pressure and institutional drivers, and how these firms experience or resist pressures emanating from these perspectives (see Table 2). The interviews were taped and transcribed and, using NVIVO, the transcriptions were coded to draw out key themes (Strauss and Corbin, 1998). Grounded theory techniques (Neuman, 2003; Patton, 2002) were used to code and analyse the data and draw out themes. A provisional ‘start list’ of codes was drawn from the sustainability literature to assist the coding process (Miles and Huberman, 1994). In particular, Bansal and Roth’s (2000) research into the motivations for organisations to adopt sustainability programs was used to help identify codes to understand why some companies do not undertake SR. The codes were grouped together and classified under new themes as patterns emerged within the data (second-level codes). Five themes emerged from analysing and grouping the second-level codes. The authors acknowledge that these themes were derived from the limited sample of interview data and additional, or different, themes may well emerge from interviews with a different set of stakeholders. Further research studies using a larger sample of stakeholders would verify and/or enhance these themes.

1. Background on interviewee. 2. Probe the most significant social and environmental issues facing their industry and company. 3. Probe whether pressures are applied to disclose social and environmental information (stakeholder, institutional) and how they are responding. 4. Probe the organisation’s view on sustainability reporting. 5. Since there is no legal requirement for social and environmental reporting, probe why they think some of their peers do it. 6. Probe whether they think sustainability reporting is a growing trend. Why/why not? Probe how this might impact their organisation. Table 2. Interview guide Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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Results and Discussion Despite classifying the participating firms as ‘non-reporters’, all engage in some communication with stakeholders about social/environmental issues. For more than half, the communication is a requirement of licence or permit conditions (and this disclosure is not always easily accessible to the general public) or it involves narrative information about a ‘commitment to sustainability’ in the annual report and/or the company website. In some cases, it involves direct contact with interested parties. In almost all of the firms interviewed, there was an awareness of the social and environmental issues associated with their operations, and an understanding of community concern. In one or two cases, the manager interviewed recognised and understood the issues associated with business and sustainable development, and that this presented challenges to the way in which the firm operated and required some action to address these. Most argued that the absence of a dedicated sustainability report did not mean an absence of social and environmental responsibility or a lack of concern about sustainability. Communication about corporate responsibility and sustainability can take a variety of forms. One mining company suggested, for example, that: We’ve done things like mine tours . . . we’ve had fairly large responses, just people curious to get on a mine site and see what goes on . . . To not communicate what you’re doing or not give them an opportunity to have a look, by failing to do that, in my experience, if there’s misinformation out there, it just gets an opportunity to perpetuate itself. One of the ways of combating that is to get people to site and explain to them well this is what we do, this is how it’s done, this is how we monitor it, this is how we report it and it gives them an opportunity to actually see it live rather than relying on potentially misinformation.(M10) The consumer staples firm outlined a range of other reporting and disclosure practices that they’re involved in. For instance: I’m all for open transparency, which is why we report through CDP [carbon disclosure program], the Dow Jones Sustainability Index and CDP Water for the first time this year. So our information is out there in the public domain but we don’t go to the trouble and expense of putting it in a fancy brochure. . .. We already put all of our action plans through Australian Packaging Covenant and Responsible Round Table on Sustainable Palm Oil. . .. I don’t think that reporting is the be all and end all. I think it’s more important that businesses are taking action. I think if they’re sharing it with their supply chain, if they’re sharing it with their customers, I think they’re doing a good job. (C1) ‘Actions rather than words’ is a recurring theme throughout the interviews. However, ‘words’ do matter. According to early studies (see above) and much of the practitioner-oriented literature (Group 100, 2003; KPMG and Group 100, 2008) dedicated, targeted SR is important, and it can deliver important benefits. What is more, it has been found to drive much reporting activity amongst a wide range of firms. Five themes capture the factors that explain why a firm does not produce a comprehensive and publicly available report of their social/environmental performance: (1) a lack of external stakeholder pressure; (2) no perceived benefits and thus little motivation to report; (3) SR is a nice-to-do, not must-do; (4) a compliance culture towards sustainability; and (5) the organisational structure and/or culture does not encourage reporting.

Lack of External Stakeholder Pressure Despite all of the participants being in industries for which there is some broad social and/or environmental concern, none of the companies experience stakeholder pressure to issue a sustainability report. Additionally, none suggested that any extension to prevailing accountability norms or requirements was necessary. The only exception was some new interest in social and environmental performance by institutional investors. One retailer (R3), for example, had been approached by ‘a few investment groups’ about ethical Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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sourcing risk but the interest of this group was by no means widespread or extensive. Some participants acknowledged that there may be some value in SR ‘if investors ask for it’, in order to assess risk. One energy participant suggested: It’s important if an institutional investor is going to look at [company] for the first time, that they can get something like this and actually, you know, you’ve plotted out all the risks and how you’re mitigating those risks and identified why you’re better than your competitor. (E1) Concern from institutional investors, while an acknowledgement of organisational accountability to owners (or potential owners), does not represent any substantial shift in organisational thinking from traditional business concerns. The non-reporting firms are, for the most part, characterised by a traditional view of business and society that privileges shareholder interests. Indeed, several participants made it fairly clear that management priorities lie with shareholders. Also pertinent, although it did not surface in the interviews, is that in seeking environmental risk information, institutional investors are often able to bypass the need for public documents through private meetings with management (Solomon et al., 2011). From a legitimacy perspective, the non-reporting firms only consider legitimacy in terms of traditional business outcomes – business growth, profitability and return on investment – and this model of business and society is not challenged by any alternative demands on business practice. Legitimacy challenges associated with social and environmental performance appear to be of concern only to the larger organisations (ASX100). According to the non-reporters, larger and more visible companies would have more stakeholder pressure (consumers, local communities, NGOs, investment community, shareholders) to produce sustainability reports. One miner explained: Look, I think as you become a bigger company and you have, I guess, a bigger impact on community and your brand is more recognisable, then you get more targeted . . . or you are open more to be targeted by these pressure groups; that then holds you are more accountable for your sustainability commitments. (M7) By this reckoning, the drivers for SR differ for the very largest firms. According to the interview participants, larger firms would see SR contributing to reputation, corporate image and credibility – some want to be listed on the sustainability indices such as the Dow Jones Sustainability Index (DJSI) – as well as competitive pressures/advantage. Non-reporters also suggest that the bigger companies have more (dedicated) resources to produce SRs, as one miner described: I would suspect that the companies that are producing those documents are in the larger echelon of a company in terms of size and profitability; so I suspect that they’ve got the capacity. . . I would suspect that a lot of those operations would potentially have individual groups specifically tasked with sustainability and sustainability reporting; whereas a lot of the smaller players, that sort of technical input is being resourced by existing staff under existing environmental teams. (M10) Size appears to matter regarding the reputational and community issues associated with impacts of mining and energy companies, thus warranting the dedication of resources to manage the ‘licence to operate’. Clearly, however, irrespective of size and visibility, like organisations would generate similar types of impacts. Mining companies, for example, whether large or small, use toxic substances, generate toxic by-products and mine non-renewable resources (Campbell and Mollica, 2009). A number of the non-reporters feel they can ‘fly under the radar’. They do not recognise responsibility or accountability beyond that which is necessary for compliance. The non-reporting companies generally express a very weak and instrumental view of sustainability and corporate responsibility (Milne et al., 2009). This view emphasises ‘business as usual’ and assumes that the environment is something to be ‘managed’ rather than a fundamental business imperative (Gladwin, 1993). While this view is not a lot different from those that do produce sustainability reports (Milne et al., 2009; Spence, 2007) many non-reporters do not recognise the business outcomes that can accrue from even a very basic commitment to sustainability. For many, there is little awareness of the broader business and sustainability agenda. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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From the perspective of institutional theory, organisational activities are subject to the conditioning effects of the fields4 in which firms participate. Of particular significance within fields are industry associations, which are seen as key actors in developing and spreading new organisational norms and activities (DiMaggio and Powell, 1983). For many non-reporters, there is little engagement with industry associations, sustainability networks and other interest groups where sustainability is discussed and debated. The non-reporting mining companies do not think they are ‘big enough’ to participate in the industry associations, they do not see any benefit in being involved, or sustainability is either not discussed or is not perceived as being much value. The institutional theory literature is, however, ambiguous about the specific nature and level of the fields that influence organisational activity (Dillard et al., 2004). Fields are not always industry-based. Sometimes fields form around issues that are important to organisations in a variety of industries (Hoffman, 1999). In the case of SR, there may be an issues-based field forming around sustainability, of which reporting is a legitimised practice (Higgins and Larrinaga, 2012). Three firms – mining, retailer and energy – currently do not report but are in the process of developing their first report. The managers in each of these firms have become recent participants in sustainability interest groups that span different industries. Their decision to start reporting reflects the discourse developed and put forward by these sustainability interest groups. For example, an energy company representative suggested: Well fundamentally I think that report will just enable us, moving forward, to really get a visual on what sustainability, what it encompasses. It’s probably got a lot of value internally, more internally than externally, so people within the company can say oh maybe . . . there’s certain aspects of our operations for example that we may need to improve on. Without doing it, sort of working through that GRI process of, you know you tend to just focus on what you know you’re doing and then when you’re forced to look at things that you probably wouldn’t have thought of otherwise, you go ‘actually. . .’ (E2) Regardless of whether firms are influenced by industry or issue-based fields (most likely a combination of both), SR is either only in the very early stages of institutionalisation or the field(s) exert relatively weak institutional pressure. Two of the non-reporters – the consumer staples firm and a financial services firm – are active participants in their industry associations and within sustainability interest groups. They also both understand and are aware of SR arguments, and both play leadership roles in these organisations. Despite this, they have consciously and purposely rejected SR as appropriate for their organisations. While the type of pressure exerted within fields by institutions differs, organisations will typically copy the practices of their peers when new activities reach a degree of acceptability or are seen to deliver important business benefits. Where early adopters of new activities tend to desire a leadership position (Bansal, 2005), later adopters copy only when activities reach a stage of taken-for-grantedness (or become institutionalised). Most of the non-reporters in this sample do not want to be seen as leaders in sustainability, but four did suggest they would increase their reporting if they saw their competitors doing more. There is thus some evidence of isomorphic pressure (DiMaggio and Powell, 1983) in relation to reporting amongst competitors.

No Perceived Benefits While the interviewees generally acknowledged that sustainability could provide a competitive advantage, none were interested in positioning their organisations in this way. Accordingly, few saw any benefit in voluntarily extending the reporting they do. Five non-reporters (transport, two mining, consumer staples, financial services) actually regarded SR as a waste of time, a distraction to core business, and something that offered few real business outcomes: ‘it’s seen to be a waste of time . . . just see it as a distraction to making money. . .. They [managers] can’t see necessarily the value-add in the process’ (T2). 4

Fields in institutional theory relate to the social context of which business organisations are a part. Sometimes considered analogous to industry, they can also form around geographical locations, strategies and issues. They are groups in which various participants interact regularly, participants view themselves as peers, connected in some common area of organisational life.

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Five non-reporters state that they need to understand their social and environmental risks, as these can negatively impact profits, but they don’t believe SR offers much of a contribution to doing so, and the costs would outweigh the benefits. The consumer staples representative described the production of a SR as an inefficient use of resources: Personal opinion, what is a sustainability report other than a PR brochure? Would it not be better to spend your $100K, $200K of production money on actual efficiency projects? (C1) Some perceived that greater disclosure raised more risks than benefits. A miner and retailer believed that disclosing too much information is risky as it may draw unwanted attention to the company This supports O’Dwyer’s (2002) finding that more detailed disclosure could implicitly provide legitimacy to some stakeholders’ claims and cause concern among powerful stakeholders, such as fund managers. Some non-reporters did see some benefits related to employees, but the views were quite mixed. Four maintained that their employees were not interested in or expected SR, but two considered that it could have some benefits in terms of retention and morale. One retailer is issuing its first SR for its employees only: We’ve never had a Sustainability Report. It’s not going to be public, it’s going to be an internal report, and we’re going to use it for team member engagement and education for the first year and see how it goes. . . I don’t think that the business is ready yet for it to go external and have it separate. I don’t think we’re advanced enough in our framework to have a separate report. (R3) While a business case is widely advocated as a key driver for SR, especially amongst practitioner and interest groups (Group 100, 2003; KPMG and Group 100, 2008), these benefits are not convincing for non-reporters. Several studies point out that management attitudes shape the way an organisation identifies and manages sustainability expectations (see Bansal and Roth, 2000; Gunningham et al., 2003). For some non-reporters, managers simply do not believe that SR is important for achieving the business outcomes being pursued. Sustainability Reporting is a Nice-to-Do, Not a Must-Do Given the lack pressure firms experience for information about their social/environmental performance and that firms appear able to easily move in and out of the influence exerted by their industries/fields, SR is completely at the discretion of organisational managers. It is thus organisational imperatives, rather than social or accountability drivers, that influence SR decisions. For most of the interviewees, SR is seen as a luxury and not an obligation. Seven of the non-reporters expressed the view that, despite being ASX200 listed firms, they are small companies with few resources and thus they don’t have the resources to devote to SR, as one transport interviewee explained: In reporting we don’t have the luxury of being able to devote one or two people to sustainability and reporting so it’s just like a lot of the things we do, we wear multiple hats. So I guess we’re less focused on reporting and more focused on actually doing things that make a difference in the community. (T1) In 15 of the non-reporting firms, there were no people dedicated to sustainability. Any reporting sits within a compliance area. While three interviewees said that when they have the resources, they intend to start SR, non-reporting couched in terms of ‘resources’ and ‘luxury’, disguises the lack of recognition about accountability and supports the prioritising of economic over social and environmental impacts. Reporting is discretionary, and the choice to undertake it is not made. Non-reporters feel little need or value in doing so. Firms, however, can and do find resources when pressures threaten legitimacy or survival or when behaviour or activities are seen as a key part of strategic positioning. Compliance Culture Several non-reporters view SR as unnecessary. For these firms, a different logic prevails. Those viewing it as unnecessary tend to be subject to extensive reporting requirements set down by regulatory bodies. The mandatory Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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requirements are extensive and involve detailed social and/or environmental compliance reports that run to several hundred pages. For the mining non-reporters, these reports typically provide baseline benchmarks of existing social/heritage/environmental features, an analysis of sensitive flora and fauna, and include detailed remedial plans. The extensiveness of reporting requirements results in the employment of dedicated environmental specialists, trained in environmental science. Mandatory reporting is often seen as desirable within the social/environmental accounting and reporting literature, but for these non-reporting firms it encourages a compliance culture coupled with structural arrangements that separate operational sustainability from corporate strategy and decision-making. For some of the environmental/ sustainability managers interviewed, there was little awareness of how sustainability related to the organisation’s governance and strategy arrangements. An operational focus prevailed. One miner stated the situation thus: We have a sustainability report that has to be out every year and that report is part of our licence requirements, but it isn’t really for external consumption, other than the environmental agency it goes to. (M7) A compliance culture contributes to a weak, instrumental understanding of sustainability. For six firms, there was no real sense that non-reporters needed to go beyond compliance reporting, they did not see any value in ‘mimicking’ the ASX100 companies who issue sustainability reports, and there was a sense that any expansion of reporting and disclosure would most likely come from regulators. There was an expectation that if it was necessary it would be required. Five non-reporters are experiencing increasing pressure to report from regulators, because they have reached threshold limits that require them to report under the National Greenhouse and Energy Reporting Scheme (NGERS) and Energy Efficiency Opportunities (EEO) legislation, as one miner described: I certainly think that the trend is going towards more significant reporting. The impost of the EEO and NGERS, I guess just from my experience, those two regulatory requirements in itself have required additional reporting on our part. . . and [our] capacity . . . is becoming quite problematic just from a perspective of having to maintain current regulatory reporting requirements. (M10) Structure and/or Culture Does Not Encourage Reporting For the non-reporters not subject to extensive regulatory requirements to report, organisational characteristics play a large part in how SR is viewed and understood. Four of the non-reporters believe that sustainability is part of the way they do business – it is part of their culture – but the cultural norms do not extend to SR. One energy interviewee pointed out: I don’t think it’s within the company’s culture to ignore [sustainability]. . . the focus is almost always on doing the right thing, whatever that might be; and so ignoring it isn’t really ever an option . . . And I think the company, because it has been committed to the various components of sustainability for so long, it didn’t necessarily see the need [to do SR]. They were like well we’re doing it anyway, why do we need to tell the world about it. It should be enough just to be doing it and investing our resources in the actual doing as opposed to those companies that spend the millions telling people what they do without actually doing it on the ground. (E2) A financial services interviewee explained that the organisational structure is simply not in place to facilitate SR and a transport participant suggested the reporting and monitoring culture within their organisation prevented moves to introduce SR: We’d only do things if it had a pure commercial focus otherwise we couldn’t afford to do it, let alone interested in doing it culturally. . . you have a culture where divisions feel threatened in that someone from outside their business wants to get data on them and measure them and report on them, they can find it quite threatening. . . GRI [Global Reporting Initiative] requires I think quite a leap of faith in management feeling comfortable with putting up information about yourself and some bold statements from senior management about their commitment. (T2) Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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Another two interviewees pointed out boundary issues in terms of how their organisation fitted together. These two operated according to a franchise model where sustainability issues occurred within the franchises, but the franchisor was not interested in initiatives to reduce impacts (such as energy efficiency and waste reduction programs). This not only inhibited sustainability-related innovations, it also made meaningful organisation-wide reporting difficult. In essence, the franchisees are interested in financial sustainability only, as one retailer explains: As a property owner, their object is to get the most return out of their buildings and creating investment and waiting for pay-back reduces that return. I think that’s the key driver. (R2) Internal characteristics have been identified within the literature as important for shaping SR and disclosure (Adams, 2002; Bebbington et al., 2009). The study found evidence of the significance of the chief executive officer (CEO) or senior management in decisions about SR in that explicit instructions would need to be made at the top of the organisation in order for SR to happen: The executives of the company would have to make it clear it was a priority and it was something that they wish for us to do. It’s like any organisation; if there’s no compelling reason, there’s no push to do it, then get on with something else that there is a reason to do. That’s my attitude. I would like to see us do it personally, and I would be responsible, but I’m not going to rush off and do something that doesn’t have the backing of the Board. (R2) In a similar vein, the gaming and transport interviewees mentioned that a new chairman or CEO could drive cultural change and support SR. More than half of the non-reporters believe that the requirements for SR will increase in the future, primarily driven by increasing regulation and a gradual ‘mainstreaming’ of sustainability into business: I think the whole market is going through an adjustment phase around how ESG [environment, social and governance] enters and then embeds itself within the mainstream funds management process. I would say that there’s evidence of momentum that’s building, but depending on who you talk to in the broader industry, you probably get different views as to how quickly or not that uptake is actually occurring. I think there’s a strong recognition that it will only become increasingly important. (FS1)

Conclusion Surprisingly, the social and organisational factors that were found to explain non-reporting in the sample of 23 firms are not a whole lot different from the early explorations of the barriers and disincentives associated with environmental reporting (Noci, 2000; Solomon and Lewis, 2002). The interviewed managers see SR as unnecessary or irrelevant: they do not accept the business case – largely because they experience very little pressure, and they are thus unmotivated to bring about the structural and cultural changes necessary to facilitate it. While a compliance culture pervades many of these firms (especially those in the mining industry), for others SR is simply seen as a luxury – something that is ‘nice to do’, but not a ‘must do’ for those that ‘fly under the radar’. The managers are, however, not ignorant about sustainability or unaware of the social and environmental impacts of their operations. But early assertions about a changed business landscape and broader societal and community-level interests (and demands) regarding sustainability (Elkington, 1997; Porter and van der Linde, 1995) may have been a bit optimistic. Despite early studies of SR pointing to legitimacy as a key motivating driver, the firms in the sample do not experience sustained, societal and stakeholder pressure about their social/environmental performance, nor are there stakeholder demands for information about their performance. Perhaps legitimacy is something relevant to only the very largest firms, or it is something that is no longer perceived as being obtainable through extended disclosure and SR. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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Given that the firms respond to pressures on a situationally specific and largely pragmatic basis, firms are responding to any shifts in the business landscape in a wide range of different ways. For these firms, there are simply more effective and direct ways of dealing with the issues that arise than by devoting resources to sustainability reporting. Sustainability, more generally, is perceived mostly as a risk management issue – but not something that raises new accountability considerations. The non-reporting firms take a very specific ‘decision-usefulness’ view of their communications and disclosure. The sample firms do not report because no-one asks for the information. They do not believe, contrary to the urges and arguments of some reporting proponents (see, for example, Gray et al., 1988, 1997; Cooper and Owen, 2007), they have a duty to discharge accountability for their impacts under any notion of a ‘social contract’. For some reason, an ‘accountability revolution’ has not occurred, and a very weak and instrumental understanding of sustainability pervades the non-reporting firms in this study. In this context, it is not hard to appreciate that ‘business case’ arguments are unconvincing for many non-reporting business firms, and notions of reporting fulfilling stakeholder accountability are entirely absent. Given that a decision-usefulness perspective prevails, the findings suggest that the route to encouraging greater (and better quality) uptake of sustainability reporting rests on stakeholders (e.g. government, industry associations, institutional investors) exerting pressure for better and more detailed disclosure from business firms. Similarly, interest groups and regulators need to engage more widely to understand the sort of information that is desired by groups and stakeholders seeking to influence business activity. Firms do appear responsive to stakeholders they perceive as possessing power, legitimacy and urgency (Mitchell et al., 1997). While the firms are responsive to regulatory demands, and this has long been argued to be necessary to generate improved disclosure and reporting (Gray et al., 1996), it also generates a compliance culture that results in structural arrangements that limit broader organisational learning and consciousness about sustainability. Social and environmental matters are outsourced or dealt with by specialists with little connection to corporate governance, strategy and decision-making. If new regulatory requirements are to be enacted they should be carefully designed to deliver corporate as well as operational outcomes. Changes to the regulations surrounding the content and form of the annual report would help to shift management thinking by more than what extensive and detailed operational monitoring delivers. A word of caution is required, however, in over-generalising the results and conclusions. The sample of respondent non-reporters contains a significant number of mining organisations from Western Australia, a remote and distinctive resource-rich region. As such, the results may provide a particular insight into a distinctive group of large companies that are exposed to lesser stakeholder pressure and are more able to resist it because of the particular culture that operates in such zones. The geography and high concentrations of particular organisations and their enterprising culture may provide further factors that explain organisational resistance to reporting initiatives. Further research on such zones, organisational concentrations and cultures is required. Lastly, the analysis points to some interesting observations about how reporting is spreading, and the basis on which this is occurring. The study did not find common industry profiles for the non-reporters. It was not that all of the mining companies had similar perspectives, and some issues were more salient for some firms than others – even in the same industries. These observations point to an institutionalisation processes that span industries, but given the existence of non-reporters, are not necessarily part of general, mainstream organisational fields. Theoretical developments need to shift to consider whether SR is becoming a mainstream organisational activity or whether it is appropriate and destined to remain the preserve of a subset of organisations in some countries and some industries.

Acknowledgements We would like to acknowledge the work of the three research assistants who all made valuable contributions to the project at various stages: Lalitha Nair, Erin Castellas and Shalini Samuel. We gratefully acknowledge the research grant from CPA Australia that funded this research study. This paper is based on the report submitted to CPA Australia in fulfilment of the grant conditions. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment

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