A Client Perspective on Sustainability
Practices
Arjen P. Hofman, 10678670
AbstractBased on the development of a more refined conception of legitimacy than has been adopted in most prior literature on sustainability report assurance practices, this study analyses motivations and factors influencing sustainability practices engaged in by a range of Dutch organisations, viewed from a client perspective. Having conducted a series of semi-structured interviews, I find that organisational sustainability practices are an outcome of the intertwined effects of internal and external legitimising strategies. Here, I find that client motivations underlying sustainability report assurance practices are mainly embedded in its potential to improve internal controls and processes, and are therefore mainly a reflection of managerial needs and demands. Meanwhile, I find that management perceives external demand for assurance practices to be minimal, which provides a counterpoint to Hodge, Subramaniam, and Stewart’s (2009) findings, who assume a demand from stakeholders for assurance as it improves the perceived reliability of reported social and environmental information from the perspective of report users. As a result, it could be argued that sustainability managers currently underestimate the value of external assurance in externally legitimising the organisation.
Key words: Sustainability, Sustainability Reporting, Sustainability Report Assurance, Limited
Level of Assurance, Reasonable Level of Assurance, Client Perspective, Legitimacy Theory, Internal and External Legitimacy, Pragmatic and Moral Legitimacy
Submission date: June 23rd, 2014
Degree: M.Sc. Accountancy & Control, control track Amsterdam Business School
Faculty of Economics and Business, University of Amsterdam Supervisor: Prof. Dr. Brendan O’Dwyer
Word count: 20,192 (excl. title page, table of contents, footnotes, and references)
Table of Contents
Nederlandse samenvatting (Dutch summary) 4
1. Introduction 5 1.1 Background information 5 1.2 Research focus 7 1.3 Research question 10 1.4 Research contribution 11 1.5 Paper structure 12 2. Theory 12 2.1 Legitimacy theory 14 3. Methodology 18 3.1 Research setting 18 3.2 Data collection 19 3.3 Data analysis 22 4. Descriptive analysis 25 5. Discussion 40 6. Conclusions 46 6.1 Conclusions 46
6.2 Potential limitations and suggestions for future research 48
7. References 49
Nederlandse samenvatting (Dutch summary)
In deze paper heb ik door middel van interviews met duurzaamheidsmanagers van een verscheidenheid aan Nederlandse organisaties onderzoek gedaan naar motivaties en factoren die de duurzaamheidspraktijken bij deze organisaties beïnvloeden. Aan de hand van een verfijnde versie van de legitimiteitstheorie heb ik onderzocht wat de drijvende factoren zijn achter de substantieel verschillende duurzaamheidspraktijken waar verschillende organisaties zich mee bezig houden.
Voortvloeiend uit een grondige analyse van de interview responsen maak ik op dat duurzaamheidsbeslissingen binnen organisaties met elkaar samenhangen en niet in isolatie kunnen worden geanalyseerd. Uit de negen verschillende interviews komt duidelijk naar voren dat de grootste motivatie voor organisaties om een duurzaam beleid te voeren ligt in de economische aantrekkelijkheid die hiermee gepaard gaat. Dit economisch voordeel ontstaat dan wel doordat belanghebbenden hier expliciet om vragen en zij eerder geneigd zijn met de organisatie in zee te gaan, dan wel doordat het intern tot kostenbesparingen kan leiden. De keuze van organisaties om vervolgens te rapporteren over de respectievelijke duurzaamheidsprestaties komt voort uit het verlangen om belanghebbenden te informeren over de prestaties van de organisatie op het gebied van duurzaamheid. Dit verlangen wordt enerzijds gevoed door een expliciete vraag vanuit de markt, en anderzijds door de marketingdoeleinden die de rapportage kan dienen. Daarbij ligt de motivatie voor organisaties om deze rapportage extern te laten verifiëren voornamelijk intern in de organisatie, waar het dient als een instrument om de interne processen en controles te verbeteren. Ten slotte kiezen enkele organisaties voor externe verificatie met een redelijke mate van zekerheid in plaats van een beperkte mate van zekerheid, aangezien dit in hun optiek in nog grotere mate leidt tot verbeteringen in de interne processen en controles. Tegelijkertijd geven de geïnterviewde duurzaamheidsmanagers aan dat de externe waarde van de verificatie relatief beperkt blijft vanwege de minimale waargenomen vraag en de onwetendheid bij belanghebbenden, en zien zij zodoende geen meerwaarde in de stap naar een redelijke mate van zekerheid.
Concluderend zijn alle organisaties in het onderzoek sample in mindere of meerdere mate betrokken bij duurzaamheidspraktijken met het oog op het verbeteren van de interne bedrijfsvoering, met als uiteindelijke doel het verbeteren van het economische resultaat van de organisatie. Opvallend is voornamelijk de breed gedragen perceptie onder duurzaamheidsmanagers dat belanghebbenden maar in zeer beperkte mate vragen naar externe verificatie en daarbij weinig kennis hebben van de verschillende verificatieniveaus, wat een contrapunt biedt ten opzichte van de conclusies van Hodge, Subramaniam en Stewart (2009) die weldegelijk een vraag voor externe verificatie bevinden onder de gebruikers van de rapportage. Als een gevolg hiervan zou het beweerd kunnen worden dat duurzaamheidsmanagers momenteel de waarde van externe verificatie onderschatten in het extern legitimeren van de organisatie.
1. Introduction
1.1 Background information
Since the initial publishing of the Brundtland report (1987), a widespread growth in sustainability reporting can be observed, both in the number of companies making social and environmental disclosures and in the amount of information being reported (e.g. Deegan & Gordon, 1996; Ernst & Ernst, 1978; Gray, 2000; Gray, Kouhy, & Lavers, 1995; Harte & Owen, 1991; Kolk, 2003).1 The Brundtland report (1987) calls for economic growth that takes into account the conservation and restoration of ‘the basis of our existence for ourselves and for generations to come’ – i.e. the environment (Hueting, 1990, p. 109) –. Building on this report, sustainability reporting aims to inform the public on an organisation’s environmental, social and economic performance (Hodge, Subramaniam, & Stewart, 2009; O’Dwyer, 2011). As a result, nowadays, sustainability reporting is undeniably considered a mainstream business practice worldwide, undertaken by almost three quarters (71 percent, 2011: 64 percent) of 4,100 surveyed organisations (KPMG, 2013, p. 11). For management, sustainability reports are considered a vehicle to disclose private information on the organisation’s sustainable performance to stakeholders. On the side of stakeholders, it is argued that demand for reporting and disclosure arises from information asymmetries and, consequently, agency conflicts between managers and outside investors. These agency conflicts arise as managers often have better information about the company’s sustainability performance than outside investors and, for that reason, managers have incentives to overstate this performance (Healy & Palepu, 2001, p. 407). In that regard, disclosures in the form of sustainability reports have the potential to contribute to a reduction in information asymmetry and agency conflicts, provided that disclosed information is considered credible and complete (Healy & Palepu, 2001, p. 420).
Despite the stakeholders' interest in the reported information and the credibility and completeness of this information, however, sustainability reporting is, in most countries, largely voluntary in nature (Dhaliwal et al., 2012, p. 750; Moser & Martin, 2012, p. 797). As there is no mandated standardisation nor uniformity in terms of the items reported and the process of reporting, managers have autonomy in deciding on the scope of the sustainability report – i.e. the content of the report, the amount of detail provided, and the measures that the report is based on (Reverte, 2008). In order to strive for enhanced standardisation and
1
Various terminologies have often been used interchangeably to describe this type of reporting, including sustainability (e.g. O’Dwyer, Owen, & Unerman (2011), CSR (e.g. Fortanier, Kolk, & Pinkse, 2011), social and environmental (e.g. Edgley, Jones, & Solomon, 2010), and triple bottom line (TBL) reporting (e.g. Archel, Fernández, & Larrinaga, 2008). In recent times, however, a trend can be identified towards the adoption of the term ‘sustainability reporting’ to describe any form of reporting on environmental and social performance of organisations (Hodge, Subramaniam, & Stewart, 2009). Hence, for the remainder of this report, I will use the term ‘sustainability reporting’ to refer to this concept.
uniformity in this regard,, the Global Reporting Initiative (GRI) offers guidance to organisations by pursuing the mission to make sustainability reporting a standard practice worldwide (GRI, 2012). As a result, the GRI guidelines are considered the de-facto standard for sustainability reporting (Joseph, 2011, p. 97; KPMG, 2011, p. 21). Nonetheless, as managers are recommended, yet not mandated, to follow these guidelines, prior research has indicated that the credibility and completeness of information voluntarily presented in sustainability reports may be impeded by the potential of ‘managerial capture’ over the reporting process (e.g. Edgley, Jones, & Solomon, 2010). Managerial capture exists when managers “take control of the debate over what CSR [sustainability] involves by attempting to outline their own definition which is primarily concerned with pursuing corporate goals of shareholder wealth maximisation” (Bebbington, 1997; O’Dwyer, 2003; Owen, Gray, & Bebbington, 1997; Owen et al., 2000; Power, 1991). As the perceived credibility of the information disclosed in the sustainability reports is vital if outside investors and other stakeholders are to rely on this information, action must be taken to guarantee this credibility. To this end, established theory suggests that the inclusion of an external assurance statement in the sustainability report can contribute to the enhancement of the perceived credibility and completeness of sustainability reports (Healy & Palepu, 2001; O’Dwyer, 2011; Simnett, Vanstraelen, & Chua, 2009).2
In line with this established theory, the GRI recommends organisations to use external assurance to enhance the credibility and completeness of these reports. However, as it is not a requirement for organisations to be ‘in accordance’ with the latest issued ‘G4 Sustainability Reporting Guidelines’ and hence, like sustainability reporting itself, sustainability report assurance can be considered to be voluntary (GRI, 2013a, p. 13). Due to this voluntary nature, organisations have autonomy in whether or not to assure their sustainability reports, and organisations can make their own analysis of the advantages and disadvantages of doing so. Importantly, as argued by Karjalainen (2011, p. 89), it is not the
actual assurance quality but rather the perceived assurance quality that enhances
credibility. As a result, management needs to judge the extent to which external assurance could enhance perceived assurance quality and therewith credibility of reported information.
Nonetheless, assurance of sustainability reports is, as indicated before, nowadays perceived to be a key element for enhancing credibility and completeness of the information published (e.g. O’Dwyer, 2011; Simnett, Vanstraelen, & Chua, 2009) and is no
2
The term ‘assurance’, sometimes used interchangeably with terms as ‘verification’ and ‘audit’ (O’Dwyer & Owen, 2005), can be defined as an evaluation of specified public reports, ideally against a specific set of principles and standards. As such, assurance involves an examination of the quality of the systems, processes and competencies that underlie the reported information and underpin the reporting organisation’s performance (AccountAbility, 2003a), in this case on sustainability. In the remainder of this report, the term ‘assurance’, rather than ‘verification’ or ‘audit’ will be used to refer to this activity.
longer just an option for organisations issuing sustainability reports; ‘Many companies now face significant pressure to give stakeholders confidence in what they say and assurance can help provide this credibility’ (KPMG, 2013, p. 12). In that way, sustainability report assurance represents a similar function as auditing does in financial reporting (Deegan, Cooper, & Shelly, 2009), although it is generally accepted that it does not provide the same level of assurance (AccountAbility, 2003b). As such, despite the voluntary nature of sustainability report assurance in most countries, over half of the world’s 250 largest companies (59 percent, 2011: 46 percent), referred to as the ‘G250’, that issue sustainability reports, now invest in external assurance of these respective reports (KPMG, 2013, p. 12).
Fuelled by the rising attention and demand, ample research has been conducted on the concept of sustainability report assurance (e.g. Darnall, Seol, & Sarkis, 2009; Deegan, Cooper, & Shelly, 2006; Edgley, Jones, & Solomon, 2010; Gray 2000, 2001; Hodge, Subramaniam, & Stewart, 2009; O’Dwyer, 2011; O’Dwyer & Owen, 2005, 2007; O’Dwyer, Owen, & Unerman, 2011; Perego & Kolk, 2012). However, despite the widespread assumption that the assurance of sustainability reports enhances credibility of the reported information (e.g. Healy & Palepu, 2001; O’Dwyer, 2011; Simnett, Vanstraelen, & Chua, 2009), surprisingly little empirical evidence is provided to substantiate this claim (Ballou et all, 2012, p. 285; Hasan et al., 2005, p. 93; Healy & Palepu, 2001), leaving open a significant gap in the literature.
1.2 Research focus
In this research, I address this identified gap in the literature by providing interview evidence on sustainability reporting and sustainability report assurance practices from an assurance client perspective in a research setting in the Netherlands.3 In this study, I assume that the value added of sustainability report assurance in terms of enhanced credibility of sustainability information reported and reduced information asymmetry between management and stakeholders is contingent on the rigour of the assurance provided. Consequently, I proxy the rigour of assurance on sustainability reports with the level of the assurance statement included in the report, as it is suggested that ‘the higher the level of assurance, the more rigorous the assurance process is’ (GRI, 2013b, p. 9). More specifically, assurance providers in the Netherlands often offer two distinct levels of assurance for sustainability reports, based on Standard 3810N4 – previously Standard 3410N – on ‘assurance engagement relating to sustainability reports’, issued by the ‘The Netherlands
3
In this paper, ‘client organisation’ or ‘client’ refers to an organisation issuing a sustainability report, that is currently or potentially seeking external assurance for this respective report by an ‘assuror’, ‘assurance provider’, or ‘assurance practitioner’. Besides, ‘auditee organisation’ or ‘auditee’ is used to refer to an organisation that has its financial statements audited by an external firm – i.e. the ‘auditor’.
4 This Standard is based on the International Standard on Assurance Engagements 3000 (ISAE 3000) issued by the ‘International Auditing and Assurance Standards Board (IAASB)’ (IAASB, 2004), and also adopted by the GRI (2013b).
Institute of Chartered Accountants’ (NBA, 2013a).5 These two levels of assurance are, respectively, reasonable assurance – i.e. high but not absolute – and limited assurance – i.e. moderate – (GRI, 2013b, p. 9; IAASB, 2011, p. 5; NBA, 2013c). Accordingly, the detailed descriptions of these two distinctive levels of assurance are to be found below.
i. In the case of reasonable assurance, for which the underlying assurance services are referred to as ‘audit’ (IAASB, 2011; NBA, 2013a), on the one hand, ‘sufficient appropriate evidence’ is presented to conclude that ‘the subject matter conforms in all material respects with identified suitable criteria’ (IAASB, 2011; NBA, 2002). In this definition, the term ‘sufficient’ refers to the quantity of the evidence obtained. The amount of evidence obtained must be ‘enough’, but the interpretation of what is ‘enough’ is subjective and depending on the circumstances of the assurance engagement. Additionally, ‘appropriate’ refers to the quality of the evidence obtained. More specifically, evidence is considered to be ‘appropriate’ if it is both relevant to the information being tested and obtained from a reliable source. As a result, from an assuror’s viewpoint, ‘the objective of a reasonable assurance engagement is a reduction in assurance engagement risk [for the assurance provider] to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion’ (NBA, 2013c; IAASB, 2011, p. 19). For this positive conclusion, the assurance practitioner issues a ‘direct’ opinion on the reported information stating that ‘the information in the environmental and social [sustainability] report conforms in all material respects with the identified criteria’ (Hodge, Subramaniam, & Stewart, 2009; IAASB, 2011). ii. With regards to limited assurance, for which the services underlying the assurance
are referred to as ‘review’ (IAASB, 2011; NBA, 2013a), on the other hand, ‘sufficient appropriate evidence’ is presented to conclude that ‘the subject matter is plausible in the circumstances’ (IAASB, 2011; NBA, 2002). As such, ‘the objective of a limited assurance engagement is a reduction in assurance engagement risk [for the assurance provider] to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the practitioner’s conclusion’ (NBA, 2013c; IAASB, 2011, p. 19). In this case of this negative conclusion, the assuror provides an ‘indirect’ opinion on the reported information that ‘nothing has come to their attention to indicate that the information is not presented fairly in
5
‘The Netherlands Institute of Chartered Accountants’ is the international name of the ‘Nederlandse Beroeps-organisatie van Accountants (NBA)’, which is the professional body for accountants in the Netherlands, founded on January 1st 2013 as a result of a merger between Royal NIVRA and NOvAA (NBA, 2013b). In this paper, this organisation will be referred to by its Dutch abbreviation, being NBA.
accordance with the identified criteria’ (Hodge, Subramaniam, & Stewart, 2009; IAASB, 2011)
As is clear from the explanations above, a reasonable level of assurance is the highest level of assurance offered by assurance practitioners, yet it does not provide hundred percent assurance to the client organisation nor the report users that the reported information is credible and complete. This hundred percent assurance would be offered only in case of an absolute assurance level, but due to several factors it is virtually never possible or cost-efficient for organisations to issue an absolute level of sustainability report assurance. Examples of these factors, referred to as ‘inherent limitations of an audit’, are the use of selective testing, the inherent limitations of accounting and internal control systems, the persuasive rather than conclusive nature of assurance evidence, and the use of professional judgment in gathering and evaluating evidence and forming conclusions based on that evidence (ISAE, 2011; NBA, 2013c). Therefore, reasonable assurance is considered to be the highest level of assurance on reported information that is both achievable and cost-efficient. Furthermore, it is important to note that these two respective levels of sustainability report assurance are not to be seen as two mutually exclusive absolutes, but rather as two extremes of a continuum. Accordingly, a combination of a reasonable and a limited assurance level is possible, varying between different business areas or activities within one organisation (NBA, 2013a). Besides, it must be noted that organisations also have discretion in opting for assurance on a selected set of Key Performance Indicators (KPIs) or on the entire report including text statements. Despite that this distinction may be of influence in determining the rigour of assurance, however, I will not consider this distinction for the sake of this research.
As such, in practice, as stated before, 59 percent of the G250 invest in external sustainability report assurance services, whereas the remaining 41 percent do not (KPMG, 2013, p. 12). In 2013, among the 100 largest companies in 41 countries, referred to as N100, that choose to assure their sustainability reports, the majority (72 percent) opts for a limited level of assurance, while 10 percent choose a reasonable assurance level and 8 percent opt for a combination of the two levels on their reported sustainability information (KPMG, 2013, p. 33). Meanwhile, in a research sample of Dutch listed companies in the Netherlands, the focal research setting of this study, 46 percent of companies show to provide no external assurance on the sustainability information reported on, whereas 38 percent assure their sustainability information to a limited level and the remaining 16 percent adopt a reasonable level of assurance (Deloitte, 2013, p. 4), indicating a similar image to that of the G250 and N100.6 From the perspective of the assuror, it has been argued in prior literature that it may be more complex and more risky to provide higher levels of assurance
6 The research sample used for this study consists of 49 Dutch listed companies (AEX and AMX) operative in a variety of industries, including consumer business, energy resources & transportation, financial services, manufacturing, real estate, and technology media & telecommunication.
to larger, more complex clients (Mock, Strohm, & Swartz, 2009, p. 73), leading to an assuror preference for providing a limited level of assurance on sustainability reports. Given the samples of merely large companies – i.e. the G250, N100, and a sample of Dutch listed companies –, this may be a possible explanation for the relative dominance of limited level, rather than reasonable level, assurance on sustainability reports.
Meanwhile, from a sustainability report users’ perspective, Hodge, Subramaniam, and Stewart (2009) have investigated in their study in the Australian context if the assurance and, specifically, level of assurance, on sustainability reports affects users’ perceptions of the reliability of these reports. As a result, Hodge, Subramaniam, and Stewart (2009) find that an assurance statement improves the perceived reliability of reported social and environmental information from the perspective of report users. However, no distinction in perceived value was found for, respectively, a reasonable and limited level of assurance. Nevertheless, despite these findings suggestive of benefits of external assurance but indicating user indifference with regards to the assurance level, as presented above, organisations are highly varied in their adoption of either no, a reasonable, or a limited level of assurance (KPMG, 2013). As a result of this variance in the chosen assurance level, questions arise regarding the factors of influence and motivations of companies underlying their decision whether or not to assure their sustainability reports, and if so, to a reasonable or a limited level. To my knowledge, however, limited research is available on this matter.
1.3 Research question
In this paper, I intend to address this lack of in-depth research on the views of client organisations on the level of assurance of their sustainability reports. Consequently, the main aim of this paper is to unveil factors that affect client organisations in their decision regarding the level of assurance enacted and desired for their sustainability reports, being either none, limited or reasonable. As research shows that assurance enhances sustainability report credibility (e.g. O’Dwyer, 2011; Simnett, Vanstraelen, & Chua, 2009), why does not every company have their report assured? Likewise, as research shows that a reasonable assurance level, rather than a limited assurance level, does not add any significant additional value to report users (Hodge, Subramaniam, & Stewart, 2012), why do some organisations have their sustainability reports assured to a reasonable level nevertheless? Additionally, if besides little report user interest in a reasonable level of assurance also assurors themselves have a preference for a limited level of assurance (Mock, Strohm, & Swartz, 2009, p. 73), what factors induce a client organisation to opt for a reasonable level of assurance nonetheless?
In this regard, I take a broader perspective than management’s decision for the level of assurance alone. To this end, I also address management’s decisions with regards to sustainable business conduct, sustainability reporting, and sustainability report assurance practices in general, as I believe that these practices are all interrelated and cannot be considered in isolation. As such, I intend to collect management views on these matters by
interviewing a varied sample of client organisation representatives. Accordingly, I will analyse and understand the interviewee responses through the theoretical lens of legitimacy theory, which will be extensively discussed in the next chapter of this paper. By doing so, I aspire to find the underlying motivations and influencing factors for organisations to opt for either no assurance or a certain level of sustainability report assurance – i.e. limited level or reasonable level –, taking into account the broader context of the organisations at hand. As a result, the research questions addressed in this paper are the following;
“Why do organisations conduct business sustainably, and why does management subsequently decide to report on the organisation’s sustainability performances?”
“Why does the management of a certain client organisation decide for external sustainability report assurance on their reported sustainability information?”
“Why does the management of a certain client organisation opt for a certain level of sustainability report assurance – i.e. limited or reasonable?”
1.4 Research contribution
As indicated before, various researchers have indicated a lack of research into assurance services other than financial statement assurance (e.g. Ballou et al., 2012, p. 285; Hasan et al., 2005, p. 93; Healy & Palepu, 2001). By investigating sustainability report assurance services more in-depth, the contribution to this gap in the literature that is made in this paper is twofold. Firstly, this paper responds, as O’Dwyer (2011), to continuing calls for extended examinations of the complex “back-stage” of voluntary sustainability report assurance practices (Free, Salterio, Sheerer, 2009; Humphrey, 2008). Accordingly, while O’Dwyer (2011) has responded to this call for a deeper understanding of this assurance type from an assuror’s perspective, this study examines the matter from a different angle; that of the client’s management. As a result, this study adds to the literature by providing for the first time, to my knowledge, the views of sustainability representatives of companies in the Netherlands on sustainability report assurance practices through interview-based work. By taking this perspective, I intend to gain in-depth insights in the contributing factors and motivations of client management underlying their sustainable business conduct, sustainability reporting practices, and adopted level of sustainability report assurance, being none, limited, or reasonable.
Secondly, in this paper, a distinction is made between, respectively, a reasonable level of assurance and a limited level of assurance; an often neglected distinction in research on sustainability report assurance so far. I believe this to be a relevant and valuable contribution, as prior research has left questions unanswered concerning this matter. Specifically, as specified before, prior studies have not found a difference in the perceived added value, from a report user perspective, of sustainability reports accompanied with,
respectively, a reasonable or limited level of assurance (Hodge, Subramaniam, & Stewart, 2009). Thereby, assuror organisations generally prefer to assure – especially larger and more complex – clients to a limited level rather than a reasonable level, as a higher level of assurance brings along higher complexity and risk to the assuror (Mock, Strohm, & Swarts, 2009). Nevertheless, despite these arguments in favour of a limited level of sustainability report assurance, certain organisations do opt for reasonable assurance; leaving questions unanswered regarding contributing factors and client management’s motivations underlying this decision. Consequently, this research contributes to the literature by providing insight in these respective factors and motivations.
Finally, this paper contributes to the literature by adopting legitimacy theory as a theoretical lens for this research and distinguishing between internal and external legitimacy, as well as moral and pragmatic types of legitimacy. By doing so, this study responds directly to requests in prior literature by Power (2003) for “more detailed empirical […] studies on the extension of audit-type practices into new areas, and their effects and consequences” (p. 387) and, besides, for research into auditing and assurance to be “more sensitive to the [organisational] realties of [assurance] work (Power, 1996, p. 334). Additionally, from a societal point of view, this study is of relevance to assuror organisations as it allows them to analyse which aspects motivate or withhold current and potential client organisations from having their sustainability reports assured and, if so, to a limited or reasonable level. Thereby, the identification of client management’s motivations underlying assurance practices could provide insights for organisations currently or potentially engaging in sustainability report assurance practices, and could contribute to the perception of sustainability report credibility held by report users
1.5 Paper structure
The remainder of this paper is structured as follows. Firstly, in the next section, the theoretical lens of legitimacy theory through which the subject matter is approached will be presented, which will function as the basis for the remainder of the paper. Subsequently, the methodology of this study will be described in detail in the third section. Thirdly, the themes identified through an elaborate interview process will be presented in the descriptive analysis chapter. Fourthly, these themes will be discussed in the light of the lens of legitimacy theory in the discussion chapter. Finally, my conclusions regarding the client perspective on sustainability practices will be depicted in the concluding paragraphs of this paper, followed by a section concerning this study’s limitations and suggestions for future research.
2. Theory
As discussed in the introduction of this paper, sustainability reporting is a practice commonly engaged in by organisations worldwide nowadays (KPMG, 2013). Motivations for
organisations to disclose private company information on social and environmental performance by means of sustainability reports vary widely, and these motivations can be framed according to distinctive theoretical perspectives. In prior research, several theoretical frameworks have been adopted as a perspective to analyse and understand sustainability reporting and assurance practices.
On the one hand, market-based theories such as agency theory (Jensen & Meckling, 1976) were often utilised to explain management decisions regarding sustainability reporting and sustainability report assurance practices (e.g. Bartov & Bodnar, 1996; Healy & Palepu, 1993, 2001; Percy, 2000). According to this theory, management decisions are assumed to be the product of an organisation’s central objective of maximising firm value and thus maximising shareholder wealth (Jensen & Meckling, 1976). To this end, various researchers have claimed that the voluntary disclosure of private company information is a potentially important means to maximising firm value, for it contributes to the reduction of information asymmetries between more informed managers and less informed outside investors (Bartov & Bodnar, 1996; Healy & Palepu, 1993), and thus to a reduction in agency costs (Percy, 2000). However, it can be argued that the focus of the theoretical perspective of agency theory, while useful, is overly restrictive in that it disregards the contextual richness of the matter at hand (Cohen, Krishnamoorthy, Wright, 2008). As such, Eisenhardt (1989) recommends to use agency theory with complementary theories, as “agency theory presents a partial view of the world that, although it is valid, also ignores a good bit of the complexity of [organisations].”
Therefore, on the other hand, in recent research on sustainability reporting and assurance practices, a shift can be identified in the literature towards the adoption of a broader, social-based theoretical perspective, of which legitimacy theory is an important example (Suchman, 1995). Legitimacy theory is the most frequently used theoretical basis in attempts to describe and explain phenomena in corporate social and environmental disclosure practices (Deegan, Rankin, & Tobin, 2002, p. 318), assuming a broader moral responsibility for organisations than solely the pursuit of the objective of maximising shareholder wealth (Shocker & Sethi, 1973). In this regard, Suchman (1995, p. 576) made the assertion that legitimation has a crucial influence on ‘how the [organisation] is built, how it is run, and simultaneously, how it is understood and evaluated’. As a result, much research on sustainability has been conducted in the past decades adopting legitimacy theory as a theoretical lens (e.g. Deegan & Gordon, 1996; Deegan, Rankin, & Tobin, 2002; Guthrie & Parker, 1989; Hrasky, 2012; Neu, Warsame, & Pedwell, 1998; O’Donovan, 1999, 2002; O’Dwyer, Owen, & Unerman, 2011; Patten, 1992).
Within this prior research, the interrelationship between assurance practices on the one hand, and attempts to ascertain organisational legitimacy on the other hand, is regarded a focal point in the development and widespread acceptance of different types of assurance, such as financial, quality, and sustainability assurance (Curtis & Turley, 2007;
O’Dwyer, Owen, & Unerman, 2011; Power, 1999, 2003), of which the latter is of particular concern in this paper. As a result of the increasing number of studies on sustainability reporting that take a legitimacy theory focus, it can be argued that social-based motives, rather than market-based motives as agency theory, are gaining in favour as the most likely explanation for increased social and environmental disclosures. As such, this research accedes to the reasoning that assumes managerial motivations regarding sustainability reporting and assurance practices to be social-based, rather than market-based, in nature. Consequently, I will use legitimacy theory in this study to analyse and understand the data acquired throughout the research process in an attempt to capture the greater complexity of sustainability report assurance.
2.1 Legitimacy theory
Legitimacy can be defined as “a [generalised] perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman, 1995, p. 574). As such, external stakeholders assign legitimacy to an organisation, reflecting collective perceptions and beliefs about this particular organisation (Suchman, 1995). Legitimacy theory, in turn, argues that organisations operate on the basis of a so-called ‘social contract’, being an implicit agreement between an organisation and society (Shocker & Sethi, 1974). Organisations that are perceived by their external stakeholders to be legitimate based on their social contract are perceived to be trustworthy and deserving of support, whereas those lacking legitimacy are viewed as less reliable and acceptable. As a result, illegitimate organisations are less likely to secure the resources necessary for survival (e.g. Dowling & Pfeffer, 1975; Meyer & Rowan, 1991; Pfeffer & Salancik, 1974; Suchman, 1995; Zimmerman & Zeitz, 2002). Consequently, it is argued that upon breach of this social contract that secures perceived legitimacy, the ability of the organisation to continue its operations unfettered is threatened (Deegan, Rankin, & Tobin, 2002; Hrasky, 2012). It is generally agreed that an organisation’s disclosures of private social and environmental information is crucial to inform the public and make them aware of the organisation’s changes in environmental performance (Deegan et al., 2000; Cormier & Gordon, 2001). As a result, legitimacy theory holds the assumption that ‘management will adopt strategies, inclusive of disclosure strategies, which show society that the organisation is attempting to comply with society’s expectations’ – i.e. the social contract (Deegan, Rankin, & Tobin, 2002).
Prior research has shown the applicability of legitimacy theory to the concept of sustainability reporting (e.g. Deegan & Gordon, 1996; Deegan, Rankin, & Tobin, 2002; Guthrie & Parker, 1989; Hrasky, 2012; Neu, Warsame, & Pedwell, 1998; O’Donovan, 1999, 2002; O’Dwyer, Owen, & Unerman, 2011; Patten, 1992). As such, management’s intentions and decisions to assure sustainability reports to a certain level may also be based on the notion of the social contract embedded in legitimacy theory. However, although legitimacy is generally associated with endorsement of the organisation and its activities by external stakeholders (Scott, 2001), prior research has essentially overlooked how legitimacy
emerges and evolves within organisations (Drori & Honig, 2013). Although legitimacy may be bestowed by external means, it also evolves by means of actions internal to the organisation (Kostova & Roth, 2002; Kostova & Zaheer, 1999). In that regard, Drori & Honig (2013) demonstrate that organisational legitimacy is a product of action of individual organisational members within an organisation, in concordance with external legitimation activities. As a consequence, internal legitimacy can be defined as the acceptance and approval of an entity – i.e. the organisational member – and his actions, by other entities – i.e. organisational members – within the firm (Kostova & Zaheer, 1999). Similar to external legitimacy, the concept previously referred to as mere ‘legitimacy’, internal legitimacy is important to the survival of individual organisational members, because of his or her dependence on other, especially superior, organisational members for continuing access to organisational resources such as capital and knowledge (Kostova & Zaheer, 1999; Pfeffer & Salancik, 1978). Therefore, the notion of internal legitimacy may also be relevant to the practices engaged in by the organisational members responsible for the issuance of sustainability information and the potentially associated assurance level. More specifically, with regards to sustainability practices, these practices need to obtain legitimacy internal to the organisation as a foundation to being considered legitimate by the external world.
Before moving on to the application of legitimacy theory, externally as well as internally, to the specific phenomenon of sustainability report assurance and the respective level of this assurance, I will first define legitimacy theory in greater detail. I consider this essential, as legitimacy theory at a shallow level has, due to its presumed simplicity, the potential to present a distorted view of reality (O’Dwyer, Owen, & Unerman, 2011). More specifically, without the further refinement of the conceptions of legitimacy theory, a risk arises that, when analysing data, a wide range of phenomena are generalised to be consistent with a legitimacy explanation, despite that these phenomena may in fact be of an entirely different nature (O’Dwyer, Owen, & Unerman, 2011).
To start off, organisational management’s legitimising efforts to maintain the social contract internal as well as external to the organisation can be either of a symbolic or a
behavioural nature (Hrasky, 2012). In the case of symbolism, management’s efforts to
disclose private social and environmental information and to have this information assured have been constructed with the aim to create a positive impression of the organisational member’s activities (internally) and organisation’s operations (externally), without the actual associated changes in the organisation’s activities. On the contrary, in the case of behavioural management, management informs the public, through sustainability reports and potentially an associated level of assurance, about how actual changes in the organisation’s activities have effected operational changes that are more consistent with the organisation’s social contract (Kim, Bach, & Clelland, 2007).
Accordingly, organisational members and organisations adopt different strategies to live up with organisational and societal expectations, respectively, and comply with the
social contract. These different strategies embody one of three broad types of legitimacy, being pragmatic, moral, and cognitive legitimacy (Suchman, 1995). While all three types of legitimacy fit the earlier provided definition of legitimacy in that they involve “a [generalised] perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman, 1995, p. 574), each type is based on a somewhat different behavioural dynamic (Suchman, 1995). On that account, the former two types of legitimacy, pragmatic and moral legitimacy, involve and rely on discursive evaluation of the organisational member, the organisation and their activities. To this end, internal stakeholders evaluate individual organisational members’ actions and decisions and, likewise, external stakeholders arrive at cost-benefit appraisals and ethical judgments on the organisation’s practices through explicit public discussion. Here, this public discussion is largely influenced by the participation of organisations in such discussion by means of corporate disclosure (Hrasky, 2012; Suchman, 1995). In contrast, the cognitive legitimacy type is a taken-for-granted cultural account, lacking specific judgment (Tost, 2011). Therefore, it does not rely on discursive interaction as enabled by corporate disclosure, but rather on an objective evaluation of the organisational member, the organisation and their activities, which may be imperilled by corporate disclosure (Suchman, 1995). For this reason, as Hrasky (2012), I believe the pragmatic and moral type of legitimacy to be the most relevant in the course of analysing and understanding organisational sustainability performance disclosure practices and the consequent level of sustainability report assurance, and I will therefore include only these two legitimacy types in this paper’s theoretical framework. To illustrate the different behavioural dynamics of pragmatic and moral legitimacy, I will elaborate on these two broad legitimacy types in the following paragraphs.
Firstly, pragmatic legitimacy involves an organisational member’s or organisation’s engagement in self-interested behaviour with the aim to acquire the support of its most immediate audiences, based on the perceived practical consequences or the instrumental value of this behaviour to these audiences (Hrasky, 2012; Kumar & Das, 2007; O’Dwyer, Owen, & Unerman, 2011; Suchman, 1995). In the case of an organisational member pursuing internal legitimacy, these most immediate audiences could be, for example, peers and superiors, whereas for organisations pursuing external legitimacy, these audiences could be, for example, external investors. As this form of legitimacy merely involves the portraying of a favourable image of the organisational member, the organisation and their activities, pragmatic legitimacy is consistent with a symbolic management approach, rather than a behavioural management approach (Hrasky, 2012).
Secondly, moral legitimacy is garnered when external (internal) stakeholders make a positive, normative evaluation of the organisation (organisational member) and its activities (Hrasky, 2012; O’Dwyer, Owen, & Unerman, 2011; Suchman, 1995). As such, moral legitimacy is based on constituents’ assessments of whether an organisational member’s or
organisation’s practices are deemed to be ‘right’ and whether these practices effectively promote societal welfare in the light of the audience’s socially constructed value system (O’Dwyer, Owen, & Unerman, 2011). Needless to say, this altruistic foundation of moral legitimacy does not necessarily render the legitimacy type entirely “interest-free”, but it reflects a pro-social logic that differs fundamentally from narrow self-interest (Suchman, 1995). For this reason, moral concerns generally prove more resistant to the temptation of self-interested behaviour than do considerations of a purely pragmatic legitimacy type (Suchman, 1995; Weick, 1969). Consequently, the pursuit of moral legitimacy requires a behavioural management approach, rather than a symbolic management approach, to the disclosure of private information on the organisation’s sustainability performance, addressing both the outcomes and processes of organisational practices (Hrasky, 2012). Combining the descriptions of pragmatic and moral legitimacy, it is suggested that moral legitimacy is relatively more elusive to obtain and more difficult to manipulate (Suchman, 1995). Meanwhile, it is also suggested that moral legitimacy is more subtle, profound, and self-sustaining than pragmatic legitimacy, once it is established for an organisation (Suchman, 1995). As substantial differences can be identified between the two types of legitimacy, it is of great interest for this research which type of legitimacy particular organisational members responsible for an organisation’s sustainability practices and organisations with a particular level of sustainability report assurance engage in, as I expect this to be highly influential in managerial motivations regarding assurance practices.
Accordingly, I relate the theoretical perspective developed throughout the preceding paragraphs with the research questions formulated in this study focused on identifying factors and motivations underlying organisational choices for sustainability practices. Building on the notion of legitimacy theory, my assumption is that responsible organisational members and client organisations assure their sustainability reports to a certain level – i.e. none, limited, or reasonable – based on their desire to stay legitimate individually, internal to the organisation, and as an organisation as a whole, externally to the organisation, and in response to the risk of breaching the social contract. As argued by Deegan, Rankin, and Tobin (2002), managers’ choices of legitimising strategies are founded on the individual perceptions of the particular managers involved. In this regard, different managers are likely to have a different perception of what the organisation’s social contract comprises, and whether external stakeholders whom the organisation holds this social contract with perceive the organisation to be complying with the expectations associated with this social contract (Deegan, Rankin, & Tobin, 2002).
Given that different organisations opt for different levels of assurance (KPMG, 2013), I assume that there are distinguishable factors at play that influence a client organisation’s management’s perception of its current and future legitimacy which, in turn, affects management’s decisions regarding sustainability reporting and the assurance level of the sustainability report. Thereby, contextual factors may also influence whether client
organisation management’s sustainability reporting and sustainability report assurance practices are symbolic or behavioural in nature, and whether the organisation’s legitimacy can be considered of a pragmatic or moral type, respectively. In this regard, I expect to identify influencing factors and management motivations that form a possible explanation for these respective differences between organisations with regards to the level of sustainability report assurance. More specifically, I assume that organisations that have their sustainability reports assured, and in particular those who have their sustainability reports assured at a reasonable level, will have a stronger perceived responsibility or pressure to be and remain legitimate by complying with the organisation’s social contract. Thereby, I expect organisations with a reasonable assurance statement accompanying their sustainability report to be more likely to engage in a behavioural management approach towards legitimacy, as a more rigorous assurance process would be more likely to unveil any symbolic disclosures on sustainability performance.
3. Methodology
Given that sustainability report assurance practices have rarely been studied in depth, it remains a topic that lacks sufficient understanding (O’Dwyer, Owen, & Unerman, 2011). As a result, I adopt a qualitative approach to this research with the objective of developing an understanding of the practices, and in particular of the complexities underlying these practices (e.g. Cooper & Morgan, 2008; Edmundson & McManus, 2007; O’Dwyer, 2011; O’Dwyer, Owen, & Unerman, 2011). Consistent with this objective, I have carried out a series of semi-structured interviews with sustainability representatives of a variety of firms engaged in sustainability reporting in the Netherlands. While doing so, I focused my attention on obtaining the perspectives of individuals who are directly involved in practices concerning sustainability reporting and assurance. In the light of the theoretical approach of legitimacy theory adopted in this research, I focus explicitly both on these individuals’ personal formulations of legitimation strategies and those of the company as a whole.
3.1 Research setting
As stated before, the general propositions developed in the theoretical development paragraphs of this paper are examined in a research setting in the Netherlands. I have chosen the Netherlands is it is a pioneering country in sustainability reporting, and widely acknowledged to be a leading country in the matter (e.g. GRI, 2013c; Kolk, 2003, p. 284). In the period from March till June 2014, I have conducted in-depth interviews with sustainability representatives of a broad range of financial audit clients of a ‘Big Four’ auditor engaged in sustainability report assurance.7 To this end, I have ensured myself access to these client firms through personal and business relations of people engaged in
7
The ‘Big Four’ financial auditors generally refer to the four largest worldwide financial auditor companies, being KPMG, EY, PwC, and Deloitte.
sustainability practices at this ‘Big Four’ auditor. The decision for a ‘Big Four’ auditor is derived from the general presumption that the ‘Big Four’ are leading in the area of sustainability report assurance, and that these assurance providers have captured a significant market share in this practice (O’Dwyer, 2011; Verdantix, 2013). Additionally, it is presumed that only accountants have the requisite skills and understanding to meaningfully assure sustainability information (Gray, 2000). Thereby, by focusing on a ‘Big Four’ auditor, a wide array of organisations in a broad range of industries could be approached, allowing me to identify contextual factors that may affect management intentions with regards to sustainability practices.
3.2 Data collection
I have selected interviews as the means to gather my data, as it is considered to be the most appropriate means of researching ethical and social responsibility dimensions of accounting and finance (Edgley, Jones, & Solomon, 2010; Parker & Roffey, 1997). Therefore, and given the quickly changing and maturing nature of the topic, I believe interview-work to be the best method to capture the current management perceptions regarding sustainability practices and sustainability reporting and report assurance levels in particular. Accordingly, I have interviewed sustainability representatives of these respective organisations, as these individuals are primarily in charge of and knowledgeable about the organisation’s sustainability practices. To this end, I have conducted interviews until I believed to have reached theoretical saturation, meaning that no new issues were any longer arising from the interviews conducted (Strauss & Corbin, 1998). As such, eight individual interviews were conducted with the managers primary responsible for the sustainability practices of the respective organisations, and one joint interview (with interviewee IE and IF) with two individuals sharing this responsibility. As a result, I conducted 9 separate interviews at a wide variety of organisations, all taking up between 42 and 79 minutes. Among this sample, 3 organisations currently produce a sustainability report but do not have external assurance, whereas 3 organisations currently have a limited level of assurance on their report, and the remaining 3 organisations accompany their sustainability report with a reasonable level of assurance. As such, all three categories of respondents are equally represented in the interview sample, allowing me to conduct a comparative analysis on the matter. Accordingly, the summary of the interviewee details can be found in Table 1 below.
Table 1
Interviewee details
# Interviewee Position Organisation
Assurance level Date of interview Duration (minutes) 1. IA Senior Risk
Controller Civil engineer Limited April 9
th
79 2. IB Manager Financial service Reasonable April 9th 43
Sustainability provider 3. IC Manager Sustainability Reporting and Control
Energy supplier Reasonable April 10th 47
4. ID CR Reporting
Manager Postal operator Reasonable April 10
th 49 5. IE & IF Corporate communication manager & Internal audit manager
Supervisory body Limited April 28th 66
6. IG Corporate Manager Health, Safety and Environment Technical service
provider None May 9
th
54
7. IH Sustainability Manager
Piping
manufacturer Limited May 13
th
51
8. II Financial
Director Waste processor None May 23
rd
42
9. IJ Group CR
Coordinator
Consultant/
engineer None June 5
th
47
Additionally, in figure 1 below, a visual representation of the interview sample is depicted, specifying the level of sustainability practices that the nine sustainable businesses are engaged in.
Figure 1
Sustainability reporting (n = 9) Sustainability report assurance (n = 6)
Reasonable
level of
assurance
(n = 3)
n = number of intervieweesAs stated before, initial contact with and access to these sustainability representatives was established through the personal and professional contacts of both financial and sustainability auditors operative at the Big Four audit firm where I conduct my internship. Subsequently, each potential interviewee was contacted by telephone and via email provided with a concise list of open-ended themes for discussion, designed to encourage individuals to discuss their experiences in and views on sustainability practices. The main themes addressed in this email were sustainability, sustainability reporting, sustainability report assurance, and the key theme of this paper, sustainability report assurance level. As a basis for these initial themes I have taken my understanding of sustainability reporting and sustainability report assurance as based on prior literature. Thereby, I have informed myself by speaking with experts in the field of sustainability and sustainability report assurance, operative internal as well as external to the ‘Big Four’ auditor organisation that the organisations are clients of, to extend my understanding prior to the phase in which I have conducted the interviews. As noted before, the interviews were based on a semi-structured format based on the interview protocol included in table 7 in the appendix of this paper. As a result, interviewees were enabled and encouraged to develop and elaborate on their experiences in and views on the themes discussed above. Consequently, by discussing the main themes underlying this paper in depth with the interviewees, I have identified client organisation management’s underlying motivations for their specific choices regarding sustainable business conduct, and sustainability reporting and assurance practices in particular
At the beginning of the interviews, the interviewees were asked permission to record the interview. The individual interviewees were explained that the recording of the interviews is merely a means to enhancing the accuracy of the interview record. Besides, I assured the interviewees of the confidentiality of the interviews conducted, and I notified them that the interview would be transcribed and sent back to them for review. Accordingly, all interviewees agreed to having the interview recorded, which considerably enhanced the accuracy of the data I could obtain from the interviews. However, unfortunately, in two cases, a technical malfunction caused the recording to be unusable for the purpose of the analysis. Therefore, in these two cases, the further analysis has been based on extensive note-taking during and after the interviews.
Furthermore, at the start of each interview, considerable time was spent on the establishment of a rapport with each interviewee. This involved elaborating on the interview context, containing a discussion of the background and position of the interviewee, as well as the background and interest in the topic of investigation of me as a researcher. Finally, it is important to note that, in all cases, the interviews were conducted in the native language of the interviewees, being Dutch, after which I have translated the interview responses to English as accurately as possible for the sake of this study.
During the course of the recorded interviews, I have engaged in active probing to direct interviewee responses towards certain matters of particular interest and to ensure the coverage of all topics of relevance. Besides, I took notes during and right after the interviews to optimise the accuracy and completeness of the acquired data.
3.3 Data analysis
In the data analysis process, the transcribed data collected throughout the interview process were analysed using three sub-processes, being data reduction, data display, and conclusion drawing/verification, respectively (Huberman & Miles, 1994; Irvine & Gaffikin, 2006; O’Dwyer, 2004). By means of reading all transcripts and accompanying notes in detail, as well as listening to the tape-recorded interviews and post-interview reflections, a list of themes was identified from the data. Consequently, all of these themes correspond with one of the established key categories of concern, being sustainability, sustainability reporting, sustainability report assurance, and the level of sustainability report assurance. Subsequently, a summary table was prepared listing the intuitively developed codifications of the themes, the explanation of their nature, and their location within each of the transcripts (Miles & Huberman, 1994; Ryan & Bernard, 2003). As such, a detailed mind map was constructed drawing on all the themes that had arisen during all interviews, grouped under the study’s four main categories of concern. This mind map is to be found in table 2
through to 5 below, which subsequently depict the main themes derived from the interview transcripts in the four main categories8.
Accordingly, a descriptive analysis was framed around this mind map, paying express attention to contradictions and similarities within interviews and among interviewees. Finally, in the discussion chapter, through an iterative process of revisiting the transcripts and key literature, a narrative was constructed which views the topics of concern through the lens of legitimacy theory.
Table 2
Primary theme: The factors and motivations underlying a sustainable business conduct (S)
Code/Interviewee9 S/BM S/CSR S/D S/C S/Ex S/R S/Reg S/E
IA 9, 11, 13 2 9, 11, 12 2 2, 3 IB 1 1 IC 1-3, 9 ID 7, 10, 11 3 5 3, 5 3, 7 IE & IF 14 3 2 14 IG 9 IH 1-5 1 5 3 1, 2 II 1, 2 1 1 IJ 3, 9, 14 3, 6 4, 7 3, 5 7 6, 7, 9 1 4, 6 Total 9 5 6 4 5 3 2 1 Table 3
Primary theme: The factors and motivations underlying sustainability reporting (R)
Code/Interviewee10 R/R R/C R/Reg R/IC R/E R/St R/Ex R/D R/CSR R/IL
8
In tables 2 to 5, the numbers in the columns beside the interview codes (e.g. IA) refer to the pages of the individual transcripts where the code was identified with bright highlighters. The numbers in the ‘Total’ row represent the number of interviewees addressing the specific theme under this category.
9
Code index: S/BM: Business model, correlation perceived between economic success and CSR; S/CSR: Felt (corporate social) responsibility; S/D: Demand from the market/society; S/C: Effect of the crisis/financial situation/cost/time; S/Ex: The effect of the relationship with executive management; S/R: Means to retaining/enhancing corporate reputation and enhance perception/appraisal of company’s business conduct; S/Reg: The necessity caused by rules and regulations; S/E: Means to enhancing motivation/pride/involvement of employees.
IA 3, 6, 13 2-6, 9, 13 15 10, 12 IB 1 IC 3, 6 6 6, 7 3, 4 6 ID 3 3 4, 9 5, 9 10 IE & IF 8 4, 8 4 5, 6 7 8, 9 IG 3, 11 3, 5 4, 7 4, 9, 10 2, 4, 5, 10-12 5, 6 2, 4 5 11 IH 2, 12 4 3, 5 6 3 II 2 2 2 2 IJ 2, 7, 10 7 1 2, 5, 7-10 2 Total 5 5 3 4 2 9 5 7 3 1 Table 4
Primary theme: The factors and motivations underlying sustainability report assurance (A)
Code/Interviewee11 A/R A/IC A/C A/D A/Cr A/Cur A/Ex A/CSR
IA 8, 9 7 8 7, 9, 10, 14 11, 12 IB 2 2 2 2 IC 5, 6 6 5 5, 7 5 ID 7 7 7 IE & IF 8 11 12 8 8 10 Code index: R/R: Means to retaining/enhancing corporate reputation and enhance perception/appraisal of company’s business conduct; R/C: Effect of the crisis/financial situation/cost/time; R/Reg: The necessity caused by rules and regulations; R/IC: Improvement/quality of internal controls/processes; R/CSR: Felt (corporate social) responsibility; R/E: Means to enhancing motivation/pride/involvement of employees; R/St: Means to inform stakeholders/induce stakeholder engagement/platform; R/Ex: The effect of the relationship with executive management; R/D: Demand/ignorance from stakeholders/clients; R/IL: Internal legitimacy. 11
Code index: A/R: Means to retaining/enhancing corporate reputation and enhance perception/appraisal of company’s business conduct; A/IC: Improvement/quality of internal controls/processes; A/F: Equally important as financial information; A/C: Effect of the crisis/financial situation/cost/time; A/Cr: Search for credibility/trustworthiness/being taken serious; A/Cur: The perceived current level of credibility of the reported information; A/Ex: The effect of the relationship with executive management; A/CSR: Felt (corporate social) responsibility; A/D: Demand/ignorance from stakeholders/clients; A/IL: Internal legitimacy.
IG 6 3, 8, 11 3, 4, 6, 11-13 3, 6, 7, 11-13 IH 7 7 6, 9 7, 9, 10 2, 7, 8 II 3 3 2, 3 IJ 12 12 12 12, 13 10-13 Total 6 8 5 7 6 3 3 1 Table 5
Primary theme: The factors and motivations underlying the level of assurance (L)
Code/Interviewee12 L/R L/C L/Read L/D L/IC L/Cr L/AV L/IL
IA 13, 15 12 14 IB 2 2 2 2 IC 9 8 8 8 ID 8 8, 9 8 IE & IF 14 12, 13 11-13 13 12 IG 13 13 14 IH 9, 10 11 7, 10 11 10 9 II IJ Total 1 3 5 7 5 4 2 1
4. Descriptive analysis
In the following section, I present a descriptive analysis of the data obtained throughout the nine interviews conducted for this study. To this end, I address the themes identified concerning the broad categories of research-interest and I exemplify these themes with quotes from interviewees. Accordingly, as the findings of this research show, organisational decisions with regards to the level of assurance accompanying reported sustainability information are not to be viewed in isolation. Rather, decisions of organisations in this regard are interrelated with their decisions to conduct business in a sustainable way, report
12 Code index: L/R: Means to retaining/enhancing corporate reputation and enhance perception/appraisal of company’s business conduct; L/C: Effect of the crisis/financial situation/cost/time; L/Read: Readiness of internal controls/processes; L/D: Demand/ignorance from stakeholders/clients; L/IC: Improvement/quality of internal controls/processes; L/Cr: Credibility and trustworthiness of reported information; L/AV: Low perceived added value of higher level.
on sustainability matters, and have assurance on their reports, respectively. For instance, an important distinction can be made between those organisations that opt for external assurance to improve their report, and those that do so to improve their underlying sustainable business conduct. Accordingly, in Figure 2 below, the flow of sustainability practice decision-making is depicted. Besides, the key factors affecting the respective sustainability practice decisions identified during the course of this study are listed in bullet point-form and will consequently be explained in further detail in the following sections. Figure 2
The process of sustainability practice decision-making
As such, decisions regarding sustainability practices should be viewed in the broader context, taking into consideration factors affecting the entire process of decision-making on sustainability practices. Therefore, the four relevant categories that are of influence in the eventual management decision to assure their reported sustainability information to a certain level are outlined and discussed subsequently in the sections below.
4.1 Sustainability
Of the organisations included in this study, all are engaged in conducting business in a sustainable way to a greater or lesser extent. However, as became clear from the interviews conducted, organisations have different motivations to do so. As such, throughout the interviews, the large majority of interviewees pronounced how sustainable business conduct is part of the organisation’s business model, because a correlation is perceived between being sustainable and the economic success of the company. As was pointed out by interviewee IH, when conducting business “the most important thing is to earn money, so higher margins or higher volume… that customers purchase our product, because they
Sustainable business conduct •Business Model •Felt responsibility •Market demand Sustainability reporting •Marketing tool •Employee awareness •Market demand Sustainability report assurance •Improvement of ICs
•Credibility of reported information •Reputation
•Lack of market demand
Level of assurance
•Improvement of ICs •Readiness of ICs •Cost
