Annual reports and sustainability in corporate reporting

The ever-increasing demand from stakeholders has been pushing companies to disclose their economic performance, and also their environmental and social practices (Waddock, 2003). Environmental reporting has become a necessary and an essential responsibility (Elliot & Elliot 2011, p. 857). Daub (2005) also mentions that stricter monitoring and policing of corporations and the critical public

demanding more ethicality has increased sustainability reporting, and more and more companies include the environmental impacts of their direct and indirect activities (Bernhart & Slater 2007). Thus, companies need to present published accounts such as annual reports and sustainability reports to provide shareholders with information concerning stewardship and management performance, and to also help them predict future cash flows (Elliot & Elliot 2011, p. 186).

Corporate annual reports have evolved over time from merely legal declarations to

“highly sophisticated” (Stanton & Stanton 2002) reports that help positively enhance the visibility and the image of an organization (Hopwood 1996).

Companies take annual reporting seriously, and often utilize the help of design agencies, corporate photographers, and such (Hopwood 1996). Annual reports are statutory, submitted regularly, and easily accessible sources of information, and are commonly regarded as the predominant means of communication of company’s activities and intentions (Smaliukienė 2007). However, Daub (2005) states that annual reports often do not tell more than what meets the eye. Many companies have produced annual reports to give themselves perhaps even misleadingly positive picture (Daub 2005). Keeping that in mind, Elliot and Elliot (2011. p. 696-697) recommend criticality, perhaps even cynicism, when assessing annual reports.

The Global Reporting Initiative (GRI 2015a) sets standards and provides guidelines for corporative reporting on economic, environmental, and social dimensions (Slater 2009, Elliot & Elliot 2011, p. 870). First version of the guidelines was launched in 2000, and currently the fourth generation of guidelines is in use (GRI 2015b). Using the guidelines is voluntary (Elliot & Elliot 2011, 870), but the demand from stakeholders is forcing more and more companies to adopt them.

Smaliukienė (2007) adds that social motives encourage environmental responsibility and that stakeholders influence environmental responsiveness.

Consumers, government agencies, the media, industry and trade associations, and environmental groups are usually the most influential stakeholders from an environmental perspective (Smaliukienė 2007).

The concept of CSR was reviewed earlier, and environmentally responsive approach is one part of Corporate Social Responsibility and CSR reporting, with

the two others being social and ethical approaches (Elliot & Elliot 2011, p. 866).

Including all three approaches in an annual report can yield a very large volume of data; a problem which companies are assessing, for instance, by providing independent environmental reports (Elliot & Elliot 2011, p. 849). A sustainability report itself encompasses environmental, as well as both economic and social aspects GRI (2015b). Shnayder, van Rijnsoever and Hekkert (2015, p. 4) define a sustainability report as “a public report, put together by an organization to provide information to its stakeholders about organization’s performance in the field of sustainability”. World Business Council for Sustainable Development (WBCSD 2002) states that “one-size-fits-all” approach cannot be used in sustainable development reporting. It is up to each company to assess by themselves what approaches, if not all, they are going to include in their report (WBCSD 2002). CSR reporting and sustainability reporting can be considered synonymous (GRI 2015b).

Companies first started in mid-1990s to add more information of ethical, social and environmental activities in their annual reports (Daub 2005). Even though that trend is still growing (Daub 2005), and as more and more companies have moved to providing standalone sustainability reports, there are still lots of those who cram all the information in one and the same report. A sustainability report provides a view of a company’s progress toward integrated economic growth, environmental stewardship and social responsibility (Bernhart & Slater 2007). It is up to each firm to decide whether they want to include only some or all of their sustainability indicators, but in any case, it provides a more encompassing approach to reporting than merely providing financial disclosure (Bernhart & Slater 2007). After all, disclosure of environmental activity is largely dependent upon the company’s environmental policy, its actions on environmental protection, such as pollution control, and participation in environmental programs (Han & Zhang 2008).

Determining factors are the size, revenues and the industrial sector (Gray, Javad, Power & Sinclair 2001), and development stage of the country (Smaliukienė 2007).

Large companies in European Union countries and in Norway (Kolk 2005) are legally required to include sustainability factors in their annual reporting (Greenbiz 2014a). In United States, environmental reporting is not regulated by any laws.

Continuing with the factors affecting the amount of companies’ environmental disclosure, prior research (Michelon 2011; Kilian & Hennigs 2014) has found out that firms in controversial industries are more likely to disclose information about the environmental impacts of their activities. Companies in industries such as oil and gas communicate more about those matters in order to adapt to stakeholder’s increasing expectations proactively (Kilian & Hennigs 2014). Prior research has recognized the importance of sustainability reporting in oil and gas industry already in the turn of the new millennium. (Lantos 2002). As stated earlier, Statoil and Valero operate in oil and gas industry.

Michelon (2011) points out that usually European companies disclose environmental impacts of their business more than their American counterparts, and larger companies disclose more than smaller ones. That may stem from social and cultural differences between the U.S. and European countries, as American companies traditionally have a minimalist approach to social responsibility (Fisher, 2004). However, a research by Gill, Dickinson and Scharl (2008) found out that oil and gas firms tend to disclose more of their sustainability issues and activities in North America than Europe. The six chosen companies in this study are all multinational, multibillion-dollar corporations, and the great size and power of course bring great responsibility. The larger a company is, the more it generates both positive and negative effects, says Daub (2005). That then leads to the company manifesting itself more in public, and that creates a responsibility to justify its presence (Daub 2005). As mentioned before, however, this study does not go deep into the factors effecting the levels of corporate green communication, instead concentrating on the green communication itself and its linkage to the companies’ green images.

Lastly, prior research has also recognized that reporting about sustainability improves the companies’ chances of getting noticed by sustainability ratings, rankings and other credible third parties (G&A 2013, p. 10). As mentioned before, just being included in different sustainability ranking can bring benefits to the companies (G&A 2013, p. 6).