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Corporate sustainability: historical development and reporting practices

Andreas Christo
Monmouth University, West Long Branch, New Jersey, USA, and

Corporate sustainability


Petros Christo and Seleshi Sisaye

Duquesne University, Pittsburgh, Pennsylvania, USA
Purpose The purpose of this paper is to compare the sustainability disclosure methods-instruments practiced by the two most widely employed indexes/instruments (DJSI World and GRI-G3 Guidelines). The paper suggests that the newly created triple bottom line (TBL) reporting practices need to undergo further standardization and enforcement to avoid, or give early warnings about, future corporate mismanagement that leads to socio-economic consequences detrimental to investors and consumers in general. Design/methodology/approach This paper utilizes sample rms from the DJSI World Index and the GRI-G3 Sustainability Guidelines membership list to draw inferences on sustainability indicators of performance. The authors compare the GRI reporting guidelines with the disclosure indicators of the DJSI World. Findings The authors ndings suggest that TBL reporting has made enormous progress over the last two decades. However, the two widely used sustainability reporting instruments/indexes (DJSI World and GRI-G3 Guidelines) differ in disclosure practice-methods and the authors recommend that further standardization and enforcement is necessary. The authors view is that the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) should become actively involved with the issue of standardization and enforcement of corporate socio-environmental disclosures. The paper presents evidence that investors have neither rewarded nor penalized rms for adhering to or violating sustainability matters in their corporate decisions. Practical implications The authors argue for further standardization and enforcement with regard to the disclosure methods of the two widely used (GRI and DJSI) sustainability indicators in order to avoid future corporate mismanagement that leads to (systemic) economic and socio-environmental consequences detrimental to citizen investors and consumers in general. Originality/value The research is of interest to academicians and practitioners who are interested in the theory and practice of sustainability reporting or TBL reporting. The ndings suggest that this newly created disclosure instrument needs to undergo further standardization and enforcement for meaningful and accurate disclosure of economic-social and environmental performance. The authors view is that the SEC and FASB should become actively involved with the issue of standardization and enforcement of socio-environmental disclosure of corporate sustainability. Keywords Financial reporting, Corporate governance, Disclosure, Corporate sustainability, Sustainability reporting, Global Reporting Initiative, Dow Jones Sustainability Index Paper type Conceptual paper
Management Research Review Vol. 35 No. 2, 2012 pp. 157-172 q Emerald Group Publishing Limited 2040-8269 DOI 10.1108/01409171211195170

Introduction Corporate sustainability has been the subject of research interest in the social sciences since the mid-1900s. The research focused on how sustainability can safeguard the well

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being of human population and protect the environment from unregulated production activities resulting in pollution and resource degradation. Sustainability reporting evolved in the mid-1990s as a means for business organizations to manage and balance their productive efforts with those of the environment and their surrounding communities. The collective and multidisciplinary research efforts resulted in the implementation of accounting methods that record and report triple bottom line (TBL) results. TBL measurement and reporting, however, is at the initial stage of development and has not yet achieved full standardization and enforcement by the accounting standards setting organizations. This paper traces the evolution and progress of corporate sustainability development efforts that resulted in the establishment of sustainability indicators published by the Dow Jones Sustainability Index (DJSI, 2009) World and the Global Reporting Initiative (GRI, 2009) Reporting Framework. Though both instruments/indexes address the same issues, we argue that they employ different disclosure methods. Accordingly, these different disclosure formats call for reporting standardization and enforcement. Historically, corporate sustainability has evolved as a result of economic growth, environmental regulation-stewardship, and a push for social justice and equity. However, something more extraordinary has occurred. There emerged global interest among industry, governments, and non-government organizations to collaborate to develop methods for sharing responsibility and respecting the laws that preserve and maintain the environment and its natural resources. In addition, the recent turmoil in the nancial and capital markets resulted in a worldwide government cooperation to end the age of irresponsibility[1]. The environmental pollutions of the industrialized era and the discovery of toxic waste dumps, such as Love Canal and Times Beach, led to the establishment of the landmark Superfund law for cleanup, in 1980[2]. Several other environmental disasters occurred in the past, especially during the 1980s and 1990s. They include: the Union Carbide gas leak in Bhopal, India, the Chernobyl nuclear power plant explosion in Russia, the Kuwait oil-well res during the Gulf War, the Exxon Valdez oil spill, and the recent Deepwater Horizon oil spill in the Gulf of Mexico. A recent survey conducted by GlobeScan for the University of Marylands Program on International Policy Attitudes revealed that environmental protection ranked high among public attitudes in 20 countries, including the USA[3]. About 75 percent of those polled favored tougher regulation to protect the environment. The social responsibility part of sustainability is far more difcult to assess even though it cost society just as much, if not more, as the environmental pollution and resource degradation. For example, the Enron Financial Scandal, WorldCom, Inc. and Tyco fraud and corruption scandals, among others, contributed to massive job losses and wiped out life-long retirement plans. They threatened job stability and security. The irresponsibility of these rms resulted in the Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act. The most recent sub-prime mortgage crisis in the USA and several Ponzi schemes[4] (e.g. Bernard Madoff) devastated the global nancial markets, forcing the entire world into the most persistent recessionary period in our history, since the great depression. According to the results of the survey by GlobeScan, mentioned above, two-third of Americans stated that they would like to see major corporations have less inuence in national affairs. Moreover, the number of Americans who see big business as the

biggest threat to the future of this country has reached the highest point (38 percent) in 48 years of polling, even though more Americans fear big government. A recent The New York Times/CBS News Poll (2010) showed only 19 percent of respondents say they trust the government to do what is right all or most of the time, while 78 percent believed the government is run by special interests, not for the benet of the people. Collectively, these market disruptions contributed to the advancement of corporate sustainability. Corporations voluntarily adopted initiatives to expand the traditional economic objective, which leads to shareholder wealth maximization, to include environmental and social elements. Accordingly, corporate sustainability expanded its scope into voluntary TBL reporting to decrease unethical behaviors-practices, or catch early signals for intervention/correction purposes. However, even in the TBL economy, implicitly, the economic dogma will not be compromised but rather complemented by the other two objectives, for as long as it leads to shareholder wealth maximization. While most of the aforementioned sustainability development and reporting have been the result of innovation through corporate practice and guidance from international consortiums, legislators and regulators have also expressed heightened interest to recent socio-environmental issues and concerns. For example, on 2 February 2010, the Securities and Exchange Commission (SEC, 2010) has formally issued guidelines for disclosure of risks related to global warming. The document issued by the SEC offers several examples of risks that could require disclosure, including changing legislation such as the passing and implementation of an emissions cap and trade policy or the effects on costs or demand resulting from already adopted legislation or international treaties. Even under new guidelines, corporate ofcers would have to decide what constitutes a material risk that must be shared with investors. Many industry experts and nancial analysts nd the voluntary reporting by corporations very difcult to analyze and quantify. For example, Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc., said that while more companies are reporting climate-change data in public lings, the information isnt in a standard form and is difcult to analyze. Also, when Newsweek ranked the 500 largest US companies, in 2009, based on their actual environmental performance, policies, and reputation stated: Even among companies that do report green data, theres not uniform standard, so their numbers often arent compatible. Over time, government regulators and policy makers have realized that corporate sustainability is at the heart of investors and public citizens and are increasingly concerned with potential consequences. As a result, in the wake of the recent nancial crisis, they are working on regulation and guidelines to prevent the cost of future social and environmental corporate irresponsibility. The SEC has already taken an active role in environmental-related risk disclosure. However, the cost of corporate social irresponsibility which is estimated to be just as large as the cost of environmental irresponsibility is still debated in congress. In a recent article on nancial regulation, Rothschild (2010) argues that:
[. . .] given the colossal damage the big banks have wreaked, and the systemic aws this scandal has exposed, Congress is not responding with the requisite vigor. Its amazing that the big banks have skated free for so long, and it looks like theyll be able to keep on gliding, even after all their destructiveness.

Corporate sustainability


These big banks are blamed not only for contributing to the 2007-2008 real estate bubble, but also for nancing the reckless debt accumulation of several European Governments to nance the unsustainable consumption habits of their citizens.

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In an effort to contain the social cost and other repercussions of such unprecedented systemic risks, the US Government and several European Governments have engaged in massive bailouts. However, without a roadmap of harnessing the risks and the resulting cost associated with environmental and social violations, it is unlikely that we will be free from similar nancial wrecks in the future. When push comes to shove, even the most ethical and socially responsible corporations will act in the best interest of their shareholders. As an example, HSBC, Britains biggest bank, was accused of quickening the fall of Lehman Brothers by demanding billions of pounds in collateral, days before its collapse (The Sunday Times, 2010). Oddly, a corporate social responsibility (CSR) Survey of Hang Seng Index Constituent Companies, published by Oxfam Hong Kong (2008), in December 2008 ranked HSBC as number 1 among 43 companies. This is not surprising, considering the impressive corporate responsibility report by HSPC Holdings PLC (2006). However, HSBC claims that it acted in the best interest of its shareholders and accuses Lehman Brothers for using an accounting device to shift assets off its balance sheet and give the appearance of robust liquidity. Regardless of which party acted responsibly and which one acted irresponsibly, the end result was the collapse of Lehman Brothers with signicant social consequences. Literature review[5] This paper attempts to review the corporate sustainability development and its reporting, according to their chronological sequence of development. Corporate sustainability, in general, is an outgrowth of earlier concerns expressed in CSR, sustainable development, and stakeholder theory. But according to Wilson (2003), Corporate sustainability can be viewed as a new and evolving corporate management paradigm. He calls it a paradigm deliberately, since corporate sustainability constitutes an alternative to the traditional growth and prot-maximization model. He states that:
[. . .] while corporate sustainability recognizes that corporate growth and protability are important, it also requires the corporation to pursue societal goals, specically those relating to sustainable development environmental protection, social justice and equity, and economic development ( p. 1).

Sustainability was a subject of interest as early as the 1900s. In 1916, J.M. Clark, in an article in the Journal of Political Economy, stated that:
If men are responsible for the known results of their actions, business responsibilities must include the known results of business dealings, whether these have been recognized by law or not (CSRQuest, 2010, p. 4).

While there is no mention of the term corporate sustainability, this might have been the earliest trace implying social responsibility. However, it was in 1953 that H. Bowen introduced the rst denition of CSR. He dened CSR as:
[. . .] the obligation 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, 1953).

His beliefs and statements earned him the title/honor of Father of CSR (Carroll, 1999, p. 270).

In the 1950s and 1960s, concerns in environmental conservation became a subject of interest when the push for industrialization increased the awareness of the limits to growth. These issues were expressed by many social scientists. For example, Goyder (1961) suggested that social audits could provide a management tool that could offer stakeholders a platform to challenge and inuence companies in their thinking and decision making. Heald (1970) criticized businessmens understanding and practice of CSR since their interests and actions were limited to corporate philanthropy and community relations. Johnson (1971) offered an expanded view of CSR, which included employees, suppliers, dealers, local communities, and the nation (p. 50). The proliferation of CSR denitions and elaborations of theories contributed to the emergence of early CSR modeling. Sethi (1975) has been recognized for publishing the rst model of CSR. He constructed the corporate social performance (CSP) model as a three-tier corporate behavior: (1) social obligation (representing the legal and market constraint); (2) social responsibility (societal norms and expectations); and (3) social responsiveness (anticipatory competence and preventative adaptation to social needs). Sethis model was expanded by Carroll (1999) as a four-tier model: (1) economic (protability); (2) legal (obedience to the rules of law); (3) ethical (avoid harm, do what is right and fair); and (4) discretional/ philanthropic (be a concerned corporate citizen for disadvantaged workers). Carroll advanced the view that CSR can incorporate economic, social and legal issues that cover broader business concerns. Many years later, these models laid the foundation and shaped the future of corporate management to what is nowadays known as sustainable business management. The concept and essence of sustainability was popularized by the 1987 publication of the Brundtland Report, under the title Our Common Future. The report dened sustainability as the ability to meet the needs of present generations without compromising the ability of future generations to meet their own needs (Brundtland Report, 1987). The report also challenged the world to envision a future in which the threats of environmental destruction are minimized and the people of the world enjoy economic stability and social equity between and within generations. It recognized that humans are dependent on the environment to meet their needs. The report suggested that the well beings of society are linked on the balance between ecology and economic growth. It called for an appropriate balance between exploitation of resources and environmental protection and conservation (Hopwood et al., 2005). Other forms of social-environmental responsibility were practiced around the same time by international donor organizations in the form of sustainable agriculture and other development programs in low income and developing nations. The World Bank, for example, formulated and implemented the social assessment structure (SAS) learning as a tool to assess the impact of its supported economic operations. It focused on the identication and design of development activities, collecting feedback

Corporate sustainability


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on interventions, and addressing implementations constraints, with added emphasis on gender and diversity. Host governments provided data, fundraising, institutional support and expertise for maximum performance results. The technical experts use the information from the SASs report to redesign bank operations, so that the project objectives always address the current needs of the stakeholders (The World Bank, 1995). Similarly, the United States Agency for International Development (USAID) developed the social soundness analysis (SSA) framework for program design, use and assessment. Social scientists, mostly anthropologists and sociologists, applied SSA to evaluate the management of development programs and their social impact on stakeholders, such as employees, customers, organizations and communities. SSA approaches incorporated full participation and involvement of stakeholders during the planning and implementation processes, so that these projects and their services eventually become their ownership to manage and expand (USAID, 2002). The multilateral (The World Bank) and bilateral (USAID) aid organizations programs in sustainability agricultural and industrial development received support by many international business organizations and consortiums. The 1992 Rio de Janeiro Conference on Environment and Development played a major role in promoting the idea that corporate sustainability is the result of three pillars: economic growth, ecological balance, and social responsibility (DESA, 1992). Building on Rios principles and on corporate missmanagements of that time (Clark, 2005), the UN Global Compact (UNGC) was formed in 2000 by UN agencies, government and civil society groups, to guide business organizations to align their operations and strategies around the following four sustainability principles: (1) the universal declaration of human rights; (2) the international labour organizations declaration of fundamental principles and rights at work; (3) the Rio declaration on environment and development; and (4) the United Nations convention against corruption. Currently, over 6,200 participants including 4,700 businesses and other stakeholders from over 130 countries joined voluntarily to help advance the development of business markets into sustainable-oriented growth economies (UNGC, 2009). In light of the environmental disasters of the 1980s and the corruption and economic scandals of the 1990s, socially responsible companies perceived an economic advantage as to whether sustainability programs can be closely associated with better corporate performance. These efforts culminated in the creation of the DJSI World in 1999 by the Sustainable Asset Management (SAM) Group of Zurich and the DJSI. The DJSI covers the top 10 percent of the biggest 2,500 companies in the Dow Jones Global Index that pursue economic, social, and environmental reporting (DJSIs, 2009). Dow Jones denes corporate sustainability as a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. According to them, leading sustainability companies display high levels of management competence in addressing global and industry challenges dealing with economic, environmental, and social opportunities and risks that can be quantied and screened for investing purposes.

The interest in sustainability development and reporting expanded beyond investing purposes to be embraced by the entire international community as a voluntary instrument for TBL disclosure. In 2000, the GRI was created under the guidance and support of the United Nations Environmental Programme (UNEP) in cooperation with the Coalition for Environmentally Responsible Economies (CERES) and the Tellus Institute to provide the international community with a reporting framework to guide their sustainability efforts and initiatives. GRI thereafter became an independent center that cooperates closely with UNEP and UNGC. It is the worlds leader and largest producer of standards/guidelines to report ecological footprints in sustainability reports. Their guidelines are based on the notion that transparency and accountability about economic, environmental, and social impacts are of interest to a diverse group of stakeholders (GRI, 2008). This effort gained popularity in recent years, as more and more institutional investors (pension funds, mutual funds and venture capital funds) increased their ownership of corporate wealth. These institutional stakeholders seek, undeniably, top returns, but they have also practiced responsible management and have been increasingly assertive to sustainability issues[6]. While sustainable reporting was at its development stage throughout the 1990s, it was practiced by local authorities and government agencies (Dyllick and Hockerts, 2002). Thereafter, literature on sustainability practice and reporting started shifting towards the businesses, rst, as an element in their corporate strategies, and, then, in the form of sustainability reports. The importance of sustainability in corporate strategic planning process was also reported by Sroufe and Sarkis (2007). They reported that many rms as a part of their strategic planning systems have developed environmental policies for their operating facilities and supply chain partners to ensure that strategic and operational decisions are integrated. They stated that:
[. . .] most rms have some version of an Environmental Management System (EMS) in place, ranging from informal policies and practices to formalized third-party certied systems that are widely publicized by the rm and are integral to its strategic direction (p. 12).

Corporate sustainability


The popularity and wide-spread application of sustainability development and reporting by businesses have also been documented by White (2005). She stated that more than 80 percent of senior executives at large US-based businesses included corporate sustainability practices in their companies strategic mission, because the way they manage their social and environmental responsibilities inuences their nancial performance. She also reported that the number of US companies practicing sustainability reporting grew from just a few in the early 1990s to few thousand companies by the mid-2000s, to over two-third of the Fortune 500 companies. White also attributed this wide practice to awareness and increased scrutiny of corporate behavior from consumers, employees, investors, local communities, and governments that would like to minimize and possibly restrain corporate waste and unregulated environmental practices. To this effect, Solomon and Darby (2005) also argued that social, ethical, and environmental disclosure/reporting has the potential to build mutual understanding between companies and investors (individuals and/or institution). These disclosures can promote dialogue and problem-solving educating processes that are essential for socially responsible investment guidelines. Similarly, Gray (2006) and Colbert and Kurucz (2007) suggested that socially responsible companies that focus on ecological and environmental programs are likely to have better nancial performance. Their claim

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is based on the notion that ecologically based reports are important in establishing whether or not organizations are socially and environmentally sustainable, i.e. able to reduce costs associated with waste, liability and clean up, among other. A recent study by Nidumolu et al. (2009) in the Harvard Business Review claims that sustainability isnt the burden on the bottom lines that many executives believe it to be. In fact, becoming environment-friendly can lower your costs and increase your revenues (p. 1). They claim that, in the future, only the companies that make sustainability as a goal will achieve competitive advantage through innovations in models, products, technologies, and processes. They also suggest a ve-stage process for organizations to follow in order to become sustainable and emerge from the recent recession ahead of the pack. Two corporate sustainability paradigms As it has been documented above, corporate sustainability theory and practice have been evolving over the last half century, independently and at a different pace, in both the USA and the European Union. Nevertheless, the theory of sustainability embraced the three discrete but interrelated corporate concepts (economic, social, and environmental). These three concepts shaped the new corporate sustainability paradigm. However, measuring and reporting sustainability performance is still voluntary and in the development stage. It has not been yet fully endorsed by the accounting standards and boards. It is within the last ten years that operational denitions have been developed and measurements established to report TBL corporate sustainability performance/results. Even after several years of research practice and innovation, current sustainability reporting methods are neither universal nor standardized. This paper utilizes information from the DJSI World and the GRI sustainability guidelines membership list to draw inferences on sustainability indicators of performance. We compare the GRI reporting guidelines with the disclosure indicators of the DJSI to summarize and appraise these two sustainability indexes that are currently employed in corporate practice. GRI guidelines are developed in collaboration with experts from all stakeholder groups. They provide consistent language, and metrics that can be used by organizations of any size, sector, or location for the preparation of a trusted and credible sustainable reporting. The recent guidance by the SEC on climate change recognizes the GRI guidelines but it does not require public corporations to adhere to them. GRI outlines three forms of application disclosure information, classied into: (1) organizational prole; (2) management approach; and (3) performance-related indicators (for a detail list of the GRI criteria, see www. The GRI report covers disclosure of the companys prole, governance, and performance (GRI, 2008). The GRI-G3 prole and governance disclosures include: . prole elements (brands, products, services, operating locations, legal form of ownership, employment levels, and assets); . governance structure (ofcers and independent/non-executive members and linkage to their compensation and performance, guidance processes with regard

to qualications and expertise of members, codes of conduct, relevant risks, opportunities, and adherence/compliance to international standards, codes, and principles); and strategic elements (priorities, targets, achievements, failures, challenges, risks, and opportunities).

Corporate sustainability

The GRI-G3 performance disclosure indicators are organized into: . economic/nancial (revenues, operating costs, employee compensation, donations, and community investments); . environmental (impact on living/non-living natural systems, emissions, efuents, waste, biodiversity, and environmental compliance); and . social disclosure (impact on human rights, labor practices, benets, training, education, health, safety, diversity, equal opportunity, procurement practices with regard to anti-corruption and anti-trust practices). The DJSI was launched in 1999 to track the nancial performance of the leading sustainability-driven companies. The main focus of DJ Indexes is to create performance indicators from investable/traded concepts and report on their nancial performance. The notion that corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the markets potential for sustainability products and services while, at the same time, successfully reducing and avoiding sustainability costs and risks is considered to be economically protable and can be targeted for investment decisions. The selection of index components follows a rule-based process dened in the DJSI Guidebooks ( htmle/assessment/criteria.html). It is based on a thorough assessment of general and industry-specic sustainability criteria. The index has three dimensions, covering economic, environmental and social aspects with equal weights (one-third each). In terms of criteria, 43 percent are classied as general criteria and 57 percent as industry criteria. The target selection for each eligible DJSI sector is 10 percent of the companies in the investable universe in that group. The DJSI members are reviewed annually to keep pace with the leaders in sustainability, and as needed to account for extraordinary events such as delisting, bankruptcy, merger, takeover, and other important changes in the corporate sustainability performance. In addition, the selected members of the DJSI family are monitored daily for critical issues and crisis situations against their stated principles and policies, for possible exclusion from the index, regardless of how well they performed in the yearly assessment. For the year 2009/2010, the DJSI World added 33 companies and deleted 33, with a net result of 317 DJSI companies, after an analysis of 1,200 global companies. Comparing the GRI with the DJSI criteria, we observe similarities in the content but differences in the disclosure format method and the depth of the sustainability indicators. For example, GRI under the social responsibility indicators requires information with regard to: impact on human rights, labor practices, benets, training, education, health, safety, diversity, equal opportunity, and procurement practices with regard to anti-corruption and anti-trust practices. DJSIs, social responsibility indicators, on the other hand, include: corporate citizenship/philanthropy, labor practice indicators, human capital development, social reporting, and talent attraction and retention. Though both indexes are referring to the same social core, their assessment


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and disclosure format indicators are different. It seems that GRI has a better handle of the systemic risk of moral hazard, since it probes into anti-corruption and anti-trust practices. On the other hand, Dow Jones qualies the social reporting as based on publicly available information only.


Analysis of the GRI and DJSI sustainability indicators As it has been reported above, during the period of 2009/2010 there were 317 global organizations on the DJSI list considered to be the leading rms in sustainability performance. Similarly, during 2008, there were 905 organizations from around the world registered as GRI-G3 Guidelines users, reporting sustainability indicators and disclosing their adherence level. Organizations that use GRIs disclosure guidelines, as the basis for their sustainability report, are requested to: . notify the GRI upon the release of the report and provide them with a copy of the report; . register their report on GRIs online database of reports; and . request that GRI checks their self-declared application level. While such reporting is voluntary, following these guidelines are necessary for continuous corporate performance improvement over time. These results are eventually communicated to the public via the annual social responsibility report. The level of adherence to the GRI disclosure guidelines is monitored through three levels of application declaration, ranging from C (for beginners) to A (for advanced reporters). Furthermore, organizations can self-evaluate their performance by denoting a plus ( ) next to their levels, if an external assurance provider (GRI or other) offered an independent opinion with regard to their self-declaration. The break down of the 2008 GRI-G3 registered users by application level is provided in Table I. Interpreting Table I, we could state that: . About one-third (285/905) of the registered member organizations adhere fully to the disclosure application criteria of GRI-G3 Reporting Framework. . The majority of the registered member organizations (31 percent plus some undeclared) established great progress towards sustainability implementation. . One-quarter (223/905) of the GRI-registered users are classied as undeclared (not fully adhering to the disclosure guidelines, and most likely, not fully adhering to either the management approach or performance disclosure guidelines, since the prole disclosures are descriptive/routine in nature).

Declaration level C to C B to B A to A Undeclared Total

GRI reports 157 240 285 223 905

Percentage 17 27 31 25 100

Table I. 2008 world-wide registered GRI-G3 users

In trying to gain further insight into the GRI-registered member organizations, their level of application adherence and their host country (place of headquarters), we constructed Table II. While in 2009 the total number of GRI-registered member organizations was 1,299 worldwide, Table II shows the leading nations in GRI registered reports with these highlights: . Spain is the global leader in GRI sustainability implementation with almost every registered member (104/133) fully adhering to the disclosure guidelines (84 reports are veried by GRI itself). . USA and Japan have most of their reports registered as of undeclared adherence. . The most striking nding is the fact that Japan is in a league of its own. It is the leading nation in undeclared adherence level. Only one of its GRI member organizations is fully adhering to the G3 Guidelines, and none of its registered reports are veried/checked by GRI itself. This is almost a paradox, since Japan, rst, and, then, the USA led the way, and the world, in statistical quality control (SQC) and total quality management (TQM). Perhaps, TQMs valuable methods and processes in these two nations have transitioned into socio-sustainable TQM (Christo et al., 2007), or embraced the stakeholders approach (Zink, 2007) to redene the TQM philosophy as the instrument of transferring corporate sustainability into practice. Examples of undeclared level Japanese GRI-registered users are: Canon, Fuji Film, Hitachi, Mazda, Mitsubishi Financial Group, Nikon, Nissan, Sanyo, Sharp, and Sony. Among the US group of GRI-registered member-organizations with undeclared adherence level are: Alcoa, Chevron, Cisco, Exxon Mobil, Johnson & Johnson, McDonalds, Motorola, Pepsi Group, Sara Lee, Texas Instruments, Tyco, and Tyson Foods. In summary, from the above information and discussion, we may draw the following conclusions: . GRI is an instrument for helping/guiding organizations towards building sustainability measurement disclosure, while DJSI is an instrument for building and screening sustainability performance for investing purposes. Thus, the two outlets are similar in content but different in disclosure format/indicators. . GRI and DJSI have different approaches and different disclosure format/methods when it comes to corporate sustainability assessment and reporting.

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Country Spain USA Japan Australia Brazil South Korea UK Germany

Total 133 111 85 68 68 54 42 41

A to A 104 19 1 17 24 31 14 16

GRI veried 84 5 5 11 6 5 14

Undeclared 4 35 69 14 3 13 8 6

Table II. 2009 GRI-G3 registered member organizations by country

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The universe of member companies is different for each index. For example, a DJSI member could also be a GRI member (e.g. Motorola) if that organization chooses to do so, but not every GRI member could be eligible for the DJSI membership, unless they are one of the top 10 percent of the 2,500 DJ Global Index member-organizations. The undeclared adherence-level declaration under GRI is misleading. It indicates that either the organization in question lacks in sustainability disclosure or, due to the different disclosure methods used, GRI cannot determine its adherence, thus the label undeclared is chosen. The large amount of undeclared GRI members is, perhaps, due to the development and reporting of rm-own, or industry-specic sustainability indicators (due to regulatory reforms), or due to the fact that such organizations were members of the DJSI (like Motorola) prior to GRI establishment. The adherence level to the GRI sustainability guidelines varies widely by country and region. The European Union alone comprises about 50 percent of the GRI-registered members and its member-organizations are the primary users of GRIs audits.

Turning to the DJSI, since it is primarily a performance-based metric we evaluate its performance relative the Morgan Stanley Capital International Index, often used as a common benchmark for world or global stock market. As shown in Figure 1, the performance of the DJSI during the last ten years was virtually indistinguishable from that of the Morgan Stanley Capital International Index. In other words, investors were neither rewarding nor penalizing socially and environmentally responsible rms. In a way this is not surprising, since stock market indexes are forward-looking indicators and therefore they do not reect ex post events.
140 Dow Jones Sustainability World Index (in EUR, TR) MSCI World (in EUR, TR) 120




Figure 1. DJSI world performance (August 1999 to August 2009; EUR, total return)

40 Aug-99









Source: SAM_Presentation_090903_Review09.pdf (Reprinted by permission)

In addition, the composition of the index often changes over time, since a member corporation is normally dropped after an environmental or social violation. It is well known that the average investor and citizen consumer, in general, has been impacted by many social and environmental episodes over the years, even though the DJSI does not reect that. The fact that the index does not reect the impact of environmental and social incidents conrms the need for pro-active standards of corporate responsibility. Since much progress has been done on the environmental front, we are especially concerned with the systemic risks of moral hazard[7]. Systemic moral hazard-related risks exist even when good people act ethically and responsibly and, as such, they pose a unique challenge in crafting a regulatory response. The recent European Union turmoil and the sub-prime nancial crisis are good examples of the issue at hand. The HSBC-Lehman Brothers case, discussed in the Introduction, is a specic example of this assertion. Since developing and monitoring standards related to systemic moral hazard is a very complex and difcult task, we suggest that the Financial Accounting Standards Board (FASB) takes on a leading role in this regard, since it is the bona de overseer of corporate responsibility and accountability. Conclusion The main contribution of our paper is to call attention to the importance of the establishment of standardized sustainability reporting by corporations. In addition, we argue that without standardized environmental and social reporting criteria linked to bottom line performance, the TBL concept will not adequately serve its intended purpose. Furthermore, we assert unequivocally the urgency in dealing with the systemic risk of social irresponsibility stemming from moral hazard. In all fairness, we would like to state that much innovation and progress has been achieved towards sustainability reporting. Though voluntary, social and environmental objectives became part of metrics of corporate performance and accountability, alongside the more traditional corporate protability performance, to form the TBL reporting. It is encouraging that many concerned citizens and corporations have already made a good will gesture and a compelling plea to incorporate socio-environmental aspects in the corporate performance metrics towards achieving true TBL reporting. For example, according to Newsweek (2009), Intel recently launched an initiative in which every employees annual bonus is tied, in part, to how well the company does in meeting sustainability goals. According to the same source, Wal-Mart recently announced plans to create a Sustainability Index that will help consumers better understand which products sold in its stores are greener than others. However, we contend that TBL reporting needs further standardization and enforcement by the accepted accounting standards organizations and boards to fully serve its intended purpose. Furthermore, for as long as environmental and social legs of the TBL stool are viewed as subservient to the traditional bottom-line objective of corporate protability will only lead to pseudo shareholder wealth maximization and perhaps perilous circumstances. Sustainability should not be seen as a cost to the business, but as an opportunity to sustain itself for the long run through risk management which includes nancial, environmental, and social elements. In the long run, all citizens are worse off by neglecting the consequences of the lack of, or delay of standardized socio-environmental reporting criteria. Our view is for the SEC and other regulatory agencies and the FASB become actively engaged in this endeavor by serving, at a minimum, as facilitators

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of the good will already expressed by corporate managers and citizen consumers, in general. The proposed Financial Market Reform Plan, which is currently debated before the US Congress, conrms the importance of addressing the systemic risk associated with moral hazard inherent in our current nancial system. Our paper has compelling implications for academics, practitioners and regulators alike. First and foremost, it calls for standardization of environmental and social reporting. In our view, the SEC and FASB should step up their involvement in such an epic endeavor to achieve the desirable sustainability objectives. In addition, our paper calls attention to the subtle consequences of social irresponsibility. As recent events have demonstrated, the apex of social responsibility is directly related to the systemic risk of moral hazard associated with the structure of our nancial system. While we do not believe that this type of risk will ever be eliminated entirely, nevertheless an effort should be made to manage it, or else CSR will remain an elusive goal.
Notes 1. The term age of irresponsibility was used by the former British Prime Minister Gordon Brown in a UN speech on 26 September 2008 who said: The age of irresponsibility must be ended. We must now become that new global order founded on transparency, not opacity. 2. For more information on the Superfund, see also, Case Study 1 Love Canal Superfund Site, Niagara Falls, New York, and, Times Beach, Missouri Super Fund Sites on 3. See The US survey was conducted by the Gallup Organization, 5248 and P0207027 4. A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from either their own money or money paid by subsequent investors, rather than from any actual prot earned. The scheme is named after Charles Ponzi, who became notorious for using the technique in early 1920. 5. The literature reviewed in this paper is by no means exhaustive, as it is impossible even to mention all the studies and initiatives which evolved over the years and shaped the issues of environmental concern and social responsibility, which led to the concept of corporate sustainability. 6. For more discussion on this issue, see Davis et al. (2006). 7. In simple terms, moral hazard is taking risk at someone elses expense, or the transfer of risk without full disclosure. According to Dowd (2009), A moral hazard is where one party is responsible for the interests of another, but has an incentive to put his or her own interests rst. Also, for an excellent exposition on systemic moral hazard and a proposal concerning its regulation, see Okamoto (2009). References Bowen, H. (1953), Social Responsibilities of the Businessman, Harper & Row, New York, NY. Brundtland Report (1987), Our Common Future, The World Commission on Environment and Development, Oxford University Press, New York, NY. Carroll, A. (1999), Corporate social responsibility, Business and Society, Vol. 38 No. 3, pp. 268-95. Christo, P., Bodnar, G. and Sisaye, S. (2007), Micro-socio-sustainable TQM, Internal Auditing, Vol. 22 No. 1, pp. 35-40.

Clark, T. (2005), Corporate Governance: Critical Perspective on Business and Management, Routledge, New York, NY. Colbert, B.A. and Kurucz, E.C. (2007), Three conceptions of triple bottom line business sustainability and the role for HRM, Human Resources Planning, Vol. 30 No. 1, pp. 21-9. CSRQuest (2010), Strategic CSR Corporate Responsibility and Sustainability, pp. 1-10, K-NET Group, available at: Davis, S., Lukomnik, J. and Pitt-Watson, D. (2006), Then New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda, Harvard Business School Press, Boston, MA. DESA (1992), Report of the United Nations Conference on Environment and Development, United Nations Department of Economic and Social Affairs, New York, NY, 3-14 June. DJSI (2009), Corporate sustainability, Dow Jones Sustainability Indexes, available at: www. Dowd, K. (2009), Moral hazard and the nancial crisis, Cato Journal, Vol. 29 No. 1, pp. 141-66. Dyllick, T. and Hockerts, K. (2002), Beyond the business case for corporate sustainability, Business Strategy and the Environment, Vol. 11, pp. 130-41. Goyder, G. (1961), The Responsible Company, Blackwell, Oxford. Gray, R. (2006), Social, environmental and sustainability reporting and organizational value creation? Whose value? Whose creation?, Accounting, Auditing & Accountability Journal, Vol. 19 No. 6, pp. 793-819. GRI (2008), Sustainability Reporting Guidelines, Global Reporting Initiative, available at: www. GRI (2009), About GRI, Global Reporting Initiative, available at: Heald, M. (1970), The Social Responsibilities of Business: Company and Community, 1900-1960, Case Western Reserve University Press, Cleveland, OH. Hopwood, B., Mellor, M. and OBrien, G. (2005), Sustainable development: mapping different approaches, Sustainable Development, Vol. 13 No. 1, pp. 38-52. HSPC Holdings PLC (2006), Corporate Responsibility Report, available at: 1_1_S5/content/assets/csr/2006_hsbc_cr_report.pdf Johnson, H. (1971), Business in Contemporary Society: Framework and Issues, Wadsworth, Belmont, CA. Newsweek (2009), Green rankings, available at: (The) New York Times/CBS News Poll (2010), An edge in the battle for public support, 5-10 February, available at: Nidumolu, R., Prahalad, C.K. and Rangaswami, M.R. (2009), Why sustainability is now the key driver of innovation, Harvard Business Review, Vol. 87 No. 9, pp. 56-64. Okamoto, K.S. (2009), After the bailout: regulating systemic moral hazard, UCLA Law Review, Vol. 57, pp. 183-236. Oxfam Hong Kong (2008), Corporate Social Responsibility Survey of Hang Seng Index Constituent Companies, available at: Rothschild, M. (2010), Dodds bill on nancial regulation doesnt go far enough, The Progressive, Vol. 74 No. 3, available at: SEC (2010), Securities and Exchange Commission, available at: 33-9106.pdf Sethi, S.P. (1975), Dimensions of corporate social performance: an analytic framework, California Management Review, Vol. 17.

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Solomon, J.F. and Darby, L. (2005), Is private social, ethical and environmental reporting mythicizing or demythologizing reality?, Accounting Forum, Vol. 29 No. 1, pp. 27-47. Sroufe, R. and Sarkis, J. (Eds) (2007), Strategic Sustainability: The State of the Art in Corporate Environmental Management Systems, Greenleaf, Shefeld, pp. 12-18. (The) Sunday Times (2010), 14 March, available at: business/industry_sectors/banking_and_nance/article7060999.ece UNGC (2009), Overview of the UN Global Compact, United Nations Global Compact, available at: GC/index.html USAID (2002), Social soundness analysis, mimeo, United States Agency for International Development, Washington, DC. White, G.B. (2005), How to report a companys sustainability activities, Management Accounting Quarterly, Vol. 7 No. 1, pp. 36-43. Wilson, M. (2003), Corporate sustainability: what is it and where does it come from?, Ivey Business Journal, March/April, pp. 1-6. (The) World Bank (1995), Social assessment structured learning preliminary ndings: social assessment team, Social Development Notes, No. 14, pp. 1-4 (September). Zink, J.K. (2007), From total quality management to corporate sustainability based on a stakeholder management, Journal of Management History, Vol. 13 No. 4, pp. 394-401. Further reading Hussey, D.M., Kirsop, P.L. and Meissen, R.E. (2001), Global Reporting Initiative Guidelines: an evaluation of sustainable development metrics for industry, Environmental Quality Management, Vol. 11 No. 1, pp. 1-20. US Department of Commerce (2009), Baldrige National Quality Program: Criteria for Performance Excellence, 2009-2010, National Institute of Standards and Technology (NIST), Gaithersburg, MD. About the authors Dr Andreas Christo holds a PhD degree in Finance from The Pennsylvania State University. His research interests include management and pricing of nancial risks. His publications have appeared in: Financial Management, Journal of Fixed Income, Journal of Portfolio Management, Journal of Investing, Journal of Multinational Financial Management and Financial Review. Dr Petros Christo is an Associate Professor of Supply Chain Management/Operations Management at the Palumbo/Donahue School of Business, Duquesne University. He holds a PhD in Management Science/Operations Management from The Pennsylvania State University. His research interests are in productivity analysis, total quality management, and corporate sustainability. His work has been published in Managerial Finance, Advances in Mathematical Programming and Financial Planning, The Journal of Investing, Journal of Accounting and Finance Research and Internal Auditing. He is a life-long member of POMS. Petros Christo is the corresponding author and can be contacted at: Dr Seleshi Sisaye is a Professor of Accounting at Duquesne Universitys Palumbo-Donahue School of Business. He holds a PhD in Development Sociology from Cornell University and a second PhD in Accounting from the University of Pittsburgh. He has published over 30 articles in refereed journals in accounting, management, organizational development sociology and public administration. His current research interests are in sustainability reporting and accounting innovations. To purchase reprints of this article please e-mail: Or visit our web site for further details: