A review-based dissertation on the credibility of CSR reports
Tagged: Business & Management
Introduction
Corporate social responsibility is a notion that states that a firm should be accountable to its employees, suppliers, customers, shareholders, and other stakeholders in its daily business decisions and strategy design. Corporate responsibility necessitates leaving behind the goal of “profit only” in favour of establishing a broader system of social relations. The fact that the corporation is socially responsible influences customer attitudes and purchasing decisions. It is critical that businesses use proper communication platforms to inform their customers about their CSR initiatives. Large multinational corporations, in particular, but now also small and medium-sized businesses, present the public with comprehensive reports that go beyond the usual annual reports. These reports should present the company’s environmental and sustainability policies, or they should be explicitly focused on the area of obligations under the CSR concept. This type of communication with the public has become a subject of excellent reputation and prestige and demonstrates effective and conscious management. (Moravcikova, 2015).
Literature review
CSR reporting is one of the most successful strategies for communicating CSR; it includes standards of conduct as well as online reporting (mostly CSR reports). These reports are described as distinct, independent corporate editorial works that provide information regarding corporate social responsibility. CSR reports are thus a formalised method of communication that can take the shape of standalone reports or integrated publications that combine economic, social, and environmental information in a single annual report (Lock, 2015). However, the quality of these reports has received far too little attention, and little is known about the contextual elements that influence reporting quality (Hahn and Kühnen, 2013).
There have been a lot of criticisms of CSR reports due to being pseudo-transparent (Coombs and Holladay, 2013), lacking credibility and being poor in quality (Milne and Gray, 2013). Instead of encouraging engagement with stakeholders and contributing to corporate greenwashing, CSR reports are accused of widening the credibility gap and compromising the company’s legitimacy in society (Seele and Gatti, 2014). Even stakeholders view CSR reports as strategic and untrustworthy (Elving, 2013). This is due to the reports ‘Cherry-picking’ news despite standardisation (Milne and Gray, 2013) and publishing news that lauds their public relations (Seele and Knebel, 2015). Other factors contributing to this gap include inconsistencies between CSR activities and what is reported and scandals involving the companies, such as the Rana Plaza factory fire.
Objective
To determine the factors that lead to credibility issues with CSR reports.
Research question:
The study seeks to answer the following question:
What are the factors affecting the credibility of CSR reports?
Methodology
The dissertation follows a review-based methodology that examines the available literature on CSR reports and the factors determining their credibility. Articles for the study were retrieved from reputed sites like Emerald, Sage Publications, Science Direct, Springer and Taylor and Francis. Research scholars have argued that transparency in corporate activities is crucial since there has been an increase in the reporting of negative events such as climate change, oil spills and social issues such as child labour (Cheng, 2016). Moreover, with an increase in globalisation and the growth of Multinational Companies (MNCs), questions related to the nature of the relationship between businesses and society have increased. Evidence suggests that communicating an organisation’s commitment to society and sustainability helps improve a company’s reputation.
Initially, huge MNCs began to disclose information on their product quality, equal opportunities and social advantages for employees, and social contributions to the areas where they operated (Fifka, 2013). Nonetheless, there has been an alarming rise in deceptive information provided by organisations, including information on environmental and social issues. There is growing concern that some businesses are creatively managing their public image with their stakeholders (financial community, customers, regulators, society, etc.) to conceal flaws and problems, improve their reputation, or appear more competitive (Balluchi, 2020). Legitimacy theory has been used to explain the intention of a company to produce more deceptive reports. The lesser a company’s legitimacy (and reputation), the more it will endeavour to increase its legitimacy. The more a corporation works to improve its reputation, the more sceptical stakeholders will be. As a result, the corporation may find itself in a vicious spiral, with its CSR operations perceived as self-serving and misleading (Elving, 2013). The following section emphasises the factors influencing the credibility of CSR reports.
A lack of auditing
Unlike financial reporting, which follows a structure, CSR reports have no specific structure. Organisations can highlight the issues they want to cover in their CSR reports.
Moreover, there is a lack of auditing, which helps improve the credibility of the reports. According to Al-Shaer and Zaman (2018), corporations are increasingly reporting on environmental concerns and voluntarily assuring the reports in order to alleviate stakeholder and regulatory issues. As energy prices increase and environmental concerns grow, more companies turn to sustainability reports to show how socially and environmentally conscious efforts benefit the bottom line. Programmes to minimise power use and carbon footprint, for example, are beneficial to the environment and cost-effective.
Unrealistic targets
According to a study of over 40,000 CSR reports undertaken by Bjørn et al. (2016), less than 5% of reporting corporations mentioned the ecological constraints restricting economic progress. Fewer than 1%—said they considered environmental goals aligned with experts’ understanding of planetary limits while developing their products. A longitudinal study of three companies revealed that they did not directly report progress towards intended adjustments based on ecological restrictions and provided insights into why some organisations abandoned planned changes entirely.
Organisational culture
The credibility of CSR reporting is heavily influenced by organisational culture. A culture that prioritises social responsibility ensures true commitment and open reporting. In such environments, leadership support integrates CSR into strategies, fostering credibility. Transparent cultures openly communicate accurate CSR information, and staff engagement boosts credibility by demonstrating a group commitment to responsible practices (García‐Sánchez, 2020).
Traceability issues
While globalisation has the benefit of providing more job opportunities, it presents a challenge to the credibility of CSR reports. Most branded commodities like clothing and shoes are manufactured in developing countries. The manufacturing process has become outsourced to contractors and subcontractors, making traceability difficult. It has become difficult to detect social and environmental violations. The lack of traceability has affected other domains like automobiles, construction and food (Abeysekera, 2022).
Conclusion
The concept of Corporate Social Responsibility leaves behind the notion of ‘profit-only’. It acknowledges the role of the organisation in the well-being of their employees, suppliers, customers and stakeholders. CSR reports help communicate an organisation’s objectives and responsibilities for ensuring overall well-being and increasing sustainable practices. There have been various criticisms of the credibility of CSR reports about being less transparent and communicating misleading information. The factors causing credibility issues can be understood by conducting a review-based study. They include a lack of auditing, unrealistic targets, organisational culture and traceability issues. Future research can focus on developing a standardised framework for CSR reports and improving traceability.
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