Marja van Os, s1387952

(1)

MA Thesis International Business & Management

Sustainability

reporting in the food

processing industry

Marja van Os, s1387952

08-09-2010

University of Groningen

Faculty of Economics & Business

MSc International Business &Management

Supervisor:

dr. M.A.G. van Offenbeek Referent:

(2)

2

Abstract

This thesis explores the question, to what extent food processing companies are reporting on sustainability issues towards stakeholder categories. 41 Food companies from Anglo-American and 39 continental European countries were compared. The sustainability framework which is used for this analysis, is the Global Reporting Initiative (GRI). The aim of this research is twofold. First of all, the application of a stakeholder-based approach in sustainability reporting by food processing companies is analyzed. This gives insight in whether the companies are responding to the interests of stakeholders. Second, the sustainability framework GRI, which is used in this research, is critically reviewed. This framework builds on a stakeholder-based approach, but whether this upholds in practice, needs further research.

The results of this research show that the extent of sustainability reporting towards stakeholder categories is broad, but lacks depth. This is true for the Anglo-American companies as well as for the continental European companies. Second, the GRI framework has not balanced sustainability indicators and does not clearly define stakeholder categories. Third, the Anglo-American companies address stakeholders more extensively than continental European companies. However, it is important to divide between GRI reporters and non-GRI reporters. If GRI reporters from the two country clusters are compared, there is virtually no difference in the extent of reporting.

For explanations of the findings, there is pointed to sensitive issues which are underreported such as animal welfare, human rights and public authorities. Also, it is notable that alcoholic beverage companies in the continental European sample report the least. Furthermore, sustainability reporting is of voluntary nature, the companies choose their own initiatives and own ways of presenting information. This harms transparency, quality, reliability and accessibility.

Keywords:

(3)

3

List of tables and figures

Tables...page

Table 1. Summary of frameworks ...14

Table 2. Stakeholder theory debates...20

Table 3. Analysis scheme part 1...28

Table 4. Analysis scheme part 2...28

Table 5. Classification scheme ...31

Table 6. Application levels...32

Table 7. Reporting types for sustainability information...52

Table 8. Standards, certifications and initiatives...53

Table 9. Number of indicators per stakeholder category...59

Figures ...page Figure 1. AA1000 principles ...12

Figure 2. GRI principles ...16

Figure 3. Stakeholder categories of Perrini ...22

Figure 4. Application level Anglo-American ...33

Figure 5. Application level continental European ...34

Figure 6. GRI and non-GRI reporters...35

Figure 7. Reporting classifications Anglo-American ...36

Figure 8. Reporting classifications continental European ...37

Figure 9. Stakeholder category reporting ...38

Figure 10. Economic reporting Anglo-American...39

Figure 11. Economic reporting continental European...40

Figure 12. Environmental reporting Anglo-American ...41

Figure 13. Environmental reporting continental European ...42

Figure 14. Labor reporting Anglo-American ...43

Figure 15. Labor reporting continental European ...44

Figure 16. Human rights reporting Anglo-American ...45

Figure 17. Human rights reporting continental European ...46

Figure 18. Product responsibility reporting Anglo-American...47

Figure 19. Product responsibility reporting continental European...48

Figure 20. Society reporting Anglo-American ...49

Figure 21. Society reporting continental European ...49

(6)

(7)

7

Introduction

This thesis focuses on sustainability reporting practices. According to Hueting and Reijnders (2004), the concept of sustainability was introduced internationally by the World Conservation Strategy of 1980. The definitions of sustainability are various and include economic, social and environmental aspects of human activities. Sustainability issues are particularly interesting for the food industry. This industry affects vulnerable natural resources of plant and animal species (Pullman, 2009; Gernbens-Leenes, 2003). There are several sustainability issues which are of concern; environmental issues, such as soil and water impacts, deforestation, use of chemicals in agriculture, social issues and food safety issues (Pullman, 2009).

Discussion exists in the literature on whether sustainability reporting practices are similar between different regions. A prominent divide is made between Anglo-American countries and continental Europe (Argandoña, von Weltzien Hoivik, 2009; José, Sison, 2009; van Liedekerke, Dubbink, 2008; Levy, Brown, de Jong, 2010; Perrini, 2005). The Anglo-American region is characterized by financing through equity, dispersed ownership, active markets for corporate control, and flexible labor markets. The Continental European region is described as long term debt finance, ownership by large block-holders, weak markets for corporate control, and rigid labor markets. It is therefore interesting to compare countries from these two regions to see how their reporting practices are addressing stakeholders (Aquilera, Jackson, 2003; Perrini, 2005). Consequently, the following research question was developed:

“To what extent is sustainability reporting in the food industry, in Anglo-American versus continental European countries, addressing the stakeholder categories in line with the to GRI indicators?”

(8)

8 In order to research sustainability reporting in the food industry, the Global Reporting (GRI) model is used. The GRI is a multi-stakeholder non-profit organization that develops and publishes guidelines for reporting on economic, environmental, and social performance (“sustainability performance”) (GRI, 2010). The GRI sustainability reporting guidelines are developed through a multi-stakeholder consultative process involving representatives from reporting organizations and report information users from around the world. The guidelines were first published in 2000 and have now entered into their third generation as the GRI G3 Guidelines as of October 2006 (GRI, 2010).

The GRI model is used to assess the reporting practices of companies towards stakeholders. This is done by assigning the GRI sustainability indicators to stakeholder categories. In this way the indicators give insight in which stakeholder categories are addressed as well as to which extent. Seven stakeholder categories are used: (1) Employees; (2) Shareholders and financial community; (3) Customers; (4) Suppliers; (5) Public authorities; (6) Community; (7) Environment (Perrini, 2005; Adams, 2002).

This thesis focuses on sustainable reporting from a stakeholder perspective for the following reasons. First of all, in order to generate transparency of corporate business, food processing companies and their stakeholders must be aware of relevant information. The stakeholder categories provide insight for both managers and stakeholders on which sustainability issues are disclosed and the level of disclosure. This study gives companies the opportunity for self-evaluation, by listing sustainability issues which are of importance for the food processing industry (Perrini, 2005). For academics this study provides insight on the characteristics of sustainable reporting in the food industry, on which a gap exists in literature. Also, it contributes to the discussion about differences between country clusters in sustainability reporting (Lindgreen, Swaen, 2010; Gerbens-Leenes, 2003).

(9)

9

1. Literature Review

This literature review is divided in four parts. First of all, the concept of sustainability and its development are reviewed. In this part the definitions of sustainability, its development and usage are considered. Also, the specific relevance of sustainability for the food industry is discussed. Second, the present state of sustainability reporting literature is analyzed. Furthermore, existing models and organizations which are involved in reporting are outlined. Third, the stakeholder-based approach is explained, which is the approach from which sustainability reporting of food processing companies is analyzed. Fourth, because this thesis compares Anglo-American and continental European country clusters, their CSR characteristics are reviewed. Finally, sub-questions for this research are given.

1.1 The concept of sustainability and its development

Nowadays, concepts as Corporate Social Responsibility (CSR), sustainability and business ethics are used widely in the academic and professional world. In this paper the focus is on sustainability, which is a part of CSR. In order to provide a clear understanding of these notions, the development and conceptualization of sustainability are outlined. However, before doing so, the concept of CSR is addressed first.

1.1.1 From CSR to sustainability

CSR can be defined as: “a concept whereby companies integrate social and environmental concerns into their business operations and interactions with their stakeholders on a voluntary basis” (Perrini, 2005: 2). The development of CSR can be traced back to the 1950s. In those years the Supreme Court in America ruled that companies could participate in philanthropic activities, i.e., undertake initiatives that directly benefit society. In the following 1960s and 1970s CSR was mainly concerned with product and consumer safety. A public opinion movement developed that questioned the role of multinationals to the environment (Lasserre, 2007; Gerbens-Leenes, 2003). Further on the concept got a more different emphasis, when in the 1980s business ethics became popular and in the mid-1990s the influence of business on the natural environment (Waddock, 2008).

(10)

10 Environment and Development (WCED)), which was convened by the United Nations (UN) in 1983. The commission addressed issues such as the environment and natural resources in relation to economic and social development. The UN thereby established that there was a need for global policies with regard to sustainable development. Although the UN decided in 1983 that there was a need for global policies with regard to sustainable development, this is established yet. Nevertheless, several sustainability initiatives, frameworks and guidelines are developed up till now, which are outlined in the section 1.2.1.

1.1.2 Development of the sustainability concept

According to Krajnc and Glavic (2005) many of the definitions proposed for sustainability since the publication of the Brundtland report, are mainly based upon the Triple Bottom Line’ concept. This concept beholds environmental performance, social responsibility and economic contribution. The Triple Bottom Line concept is based upon the definition of sustainable development in the Brundtland Report (Quaak, Goedee, 2007; Monevaa, 2006) Until the 1999s, sustainability beheld mainly environmental issues. Later on the notion expanded to economic and social issues (White, 2005). Nevertheless, there is still no agreement on the precise meaning and definition of the concept sustainability (Swift, 2009; Monevaa, 2006). For example, it is defined by Swift (2009: 28) as: “Sustainability reporting is a way for entities to engage with stakeholders on the economic, environmental and social factors that influence the way the entity operates and to share the entities’ strategies and achievements”. Aras and Crowther (2009) argue that sustainability involves societal influence; the impact of society, Environmental impact, organizational culture and Finance. Overall, one can say that the definitions of sustainability vary, but include economic, social and environmental aspects of human activities, i.e. the Triple Bottom Line (Hueting and Reijnders, 2004; Swift, 2009; Aras and Crowther, 2009). This is the way the Brundtland Commission defined it as ‘‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’’ (Pullman, 2009).

The GRI, which will be used in this thesis for analyzing reporting, uses the classic definition of the Brundtland Commission to conceptualize sustainability (GRI, 2010). This will then also be the working definition applied in this thesis.

1.1.3 Sustainability in the food industry

(11)

11 vulnerable natural resources of plant and animal species (Pullman, 2009; Gernbens-Leenes, 2003). There are several important sustainability issues which are of concern; environmental issues, such as soil and water impacts, deforestation, use of chemicals in agriculture, social issues and food safety issues, which will be further outlined below (Pullman, 2009). Furthermore, consumer interest in sustainability in the food industry is rising. According to a survey in America, approximately 50% of United States consumers consider at least one sustainability factors when they buy a product (Sahota et al. in Baldwin, 2009).

Specific sustainability issues of this industry are the following (Pullman, 2009; GRI, 2010):

- food supply chain: soil and water impacts, deforestation, chemicals (fertilizers, herbicides, pesticides, etc.), waste disposal and farming techniques, vulnerability and capacity of small producers in the food supply chains and scarce natural resources.

- Social sustainability issues: low pay, harsh working conditions and labor migration, fair and ethical trade practices

- food safety: the health and wellbeing of consumers, food safety problems and diseases in plant and animal species.

- Animal welfare: the handling, treatment, and processing of animals, breeding and genetics, physical alteration, housing systems, antibiotic, anti-inflammatory, hormone, and/or growth promotion treatments.

1.1.4 Conclusion

It has become clear that there are various definitions of the concept of sustainability. Nevertheless, most definitions are based upon the triple-bottom line, comprising environmental performance, social responsibility and economic contribution. This classic definition was taken from the Brundtland Report and is now also used by the GRI. It will be the working definition in this paper. Specific sustainability issues for the food processing industry are the food supply chain, social sustainability issues, food safety and animal welfare. These are the specific issues that need to be taken into account, when the results of the companies are considered. Now, a closer look will be taken at the current state of reporting.

1.2 The current state of research on sustainability reporting

(12)

12 develop measurement and implementation tools for sustainability, for which a gap exists in the literature (Lindgreen, Swaen, 2010; Gerbens-Leenes, 2003; GRI, 2010).

1.2.1 Reporting frameworks

The frameworks for general sustainability reporting that were introduced, are outlined briefly in the section below.

Accountability (AA1000)

This non profit organization provides principles-based standards and aims at guiding organizations to become more accountable, responsible and sustainable. A multi-stakeholder consultation process was used to create the standards. The AA1000 provides three guides; the AccountAbility Principles Standard for sustainability challenges, the Assurance Standard which provides assurance on sustainability reports and the Stakeholder Engagement Standard to facilitate stakeholder involvement (Reynolds and Yuthas, 2008; Waddock, 2008; Chen, Bouvain; 2009, Accountability, 2010). This framework is extensive and explained in detail by the AA. For this research it does, however, not fit entirely the purpose. Sustainability is not addressed in the same manner as the GRI does. The emphasis here is on accountability. The indicators are therefore different to sustainability indicators, such as environment, social factors and natural resources, which are not used in the AA1000.

(13)

13 EU Eco-Management and Audit Scheme (EMAS)

EMAS was created in 1995 and comprises a management tool for organizations, for evaluating and reporting their environmental performance. However, only since 2001 it is open to all economic sectors. Furthermore, this scheme is only made for organizations operating in the EU and European Economic Area (EEA) (Reynolds and Yuthas, 2008; Krajnc and Glavic, 2005; EU, 2010). As such, this framework is not a globally used standard.

Global Reporting Initiative (GRI)

The GRI is a multi-stakeholder non-profit organization that develops and publishes guidelines for reporting on economic, environmental, and social performance (“sustainability performance”) (GRI, 2010). The GRI sustainability reporting guidelines are developed through a multi-stakeholder consultative process involving representatives from reporting organizations and report information users from around the world. The guidelines were first published in 2000 and have now entered into their third generation as the GRI G3 Guidelines as of October 2006 (GRI, 2010). GRI has developed a general framework for organizations around the world. It is however now also adopting special sector guidelines, also for the food processing industry, but several of these supplements are still developing (GRI, 2010; Reynolds and Yuthas, 2008; Krajnc and Glavic, 2005; Chen, Bouvain, 2009)

International Organization for Standardization (ISO 26000)

ISO is a developer of international standards and constitutes a network of 161 countries. It was founded in 1947 by delegates from 25 countries and has published more than 18000 international standards ever since. The scope is very broad, ranging from agriculture to medical devices to mechanics. A new standard is currently developed and is expected to be released in 2010 (Waddock, 2008; Reynolds and Yuthas, 2008; Krajnc and Glavic, 2005; ISO 2010).

The Copenhagen Charter

(14)

14 World Business Council for Sustainable Development (WBCSD)

The WBCSD is a global association of companies, which was established in 1992 on the Rio Earth Summit. They focus on sustainable development and on four areas: energy and climate, development, the business role and ecosystems. The WBCSD operates through a regional network in order to create awareness and implementation of its activities (Krajnc and Glavic, 2005; WBCSD, 2010). Although they facilitate best practices for companies in sustainable development by providing guidelines, there is no general framework. Also the four key areas on which they focus do not cover the whole concept of sustainability.

The discussed frameworks are summarized in table 1, which indicates whether they are fit as global sustainability framework. Table 1 shows that the GRI model fits best into the criteria of being a global framework as well as being a specific sustainability framework.

Table 1) Summary of frameworks

Framework Description Global sustainability

framework?

AA1000 Accountability No: Global, but not specifically

about sustainability

EMAS European management tool No: Focus on Europe, not

global

GRI Global sustainability framework Yes: Global and specific

sustainability framework

ISO Sustainability management

tools

No: Global, but consists of several packages, not one overall framework

The Copenhagen Charter Sustainability to stakeholders No: Based upon Danish companies only, not global

WBCSD Guidelines for sustainability No: Lacks overall framework,

only guidelines

(15)

15 The existence of many frameworks and standards brings about proliferation and can be confusing (Waddock, 2008). There is a need for consolidation in sustainability reporting practices.

Now that it is established that the GRI framework best meets the criteria of being a global sustainability framework, compared to other standards, I will continue discussing this framework. In the next section it is assessed how the GRI model works, what its principles are and review its critics.

1.2.2 The GRI model and critics

Nowadays the GRI model has become one of the most widely used models for reporting and an internationally accepted standard and its usage is promoted by the Organization for Economic Cooperation and Development (OECD) (Maclean, 2007; Chen, Bouvain, 2008; Reynolds, Yuthas, 2008; Richards, Dickson, 2007; Levy, Brown, de Jong, 2010; Business & the Environment, 2008). One example is that more than 60% of the Global 1000 corporations are using the GRI model (Reynolds, Yuthas, 2008). The GRI model is used predominantly in the US, Spain, the Netherlands, Brazil and South Africa (Levy, Brown, de Jong, 2010).

- The GRI model

The GRI framework consists of guidelines, protocols and sector supplements. The GRI Guidelines are the basis for all reporting. The GRI states that these outline core content and that they are relevant for all organizations, regardless of size, sector or location. The Guidelines consist of principles and guidance and standard disclosures (including indicators):

Part 1 – Reporting Principles and Guidance

• Principles to define report content: materiality, stakeholder inclusiveness, sustainability context, and completeness.

• Principles to define report quality: balance, comparability, accuracy, timeliness, reliability, and clarity.

• Guidance on how to set the report boundary. Part 2 – Standard Disclosures

• Strategy and Profile: Disclosures that set the overall context for understanding organizational performance such as its strategy, profile, and governance.

(16)

16 • Performance Indicators: Indicators that elicit comparable information on the economic,

environmental, and social performance of the organization.

This framework can be adopted voluntary by organizations.

The GRI Protocols can be used for the indicators and include definitions for key terms of an indicator, compilation methodologies, intended scope of the indicator, and other technical references.

The GRI Sector Supplements are mend to complement the Guidelines for specific sectors, which have their own specific sustainability issues. At the moment the GRI provides supplements for airports, apparel and footwear, automotive, construction and real estate, electric utilities, event organizers, financial services, food processing, logistics and transportation, media, mining and metals, NGO, oil and gas, public agency and telecommunications. It should be noted that several of these sector supplements still need further development. The Sector Supplements are a response to limitations of a one-size-fits-all approach.

- The principles of the GRI model

The GRI model is based on three principles: transparency, inclusiveness and auditability (GRI, 2010; Monevaa, Archel, Correa, 2006). Transparency stands for the accountability of reporting. Inclusiveness represents stakeholder engagement. This part is important for this research, since the stakeholder-based approach is used. This thesis analyzes the extent of reporting to stakeholders and the inclusiveness of all the stakeholder categories (which are discussed in the next section) is essential. The auditability principle stands for verifiability of the information given by companies. The three principles are displayed in figure 2.

(17)

17 Figure 2 shows that the principle of inclusiveness is divided in three parts. These are; what information to report, the quality and reliability of what is reported and the accessibility of the information. In this thesis specific attention is paid to the principles of inclusiveness. It is used to judge how well the companies are applying this principle in their reporting.

- Criticism in the literature

Despite its wide usage, there is also criticism on the GRI model. First of all, it is argued that the GRI model is not fit for comparisons across companies. This is caused by the fact that the GRI model generates data that is not easy comparable across companies. The data is mainly of qualitative nature, which comprises words. This is less straightforward than for example numbers. Qualitative information is more extensive and interpretation matters more. It still has to compete with other standards and has not been able to reach the same status as financial reporting. Also its usage in the US and UK is stagnating (Levy, Brown and de Jong, 2010). This is due to the fact that the GRI model is not able to deliver value to its various stakeholders (Levy, Brown, de Jong, 2010). Although there might be some truth in these points, I do not think they are all correct. First of all, it is true that sustainability reporting is not used as much as financial reporting, but some points need to be kept on mind here. Sustainability reporting is in many regions still a voluntary practice, while financial reporting is a requirement. Furthermore the GRI model is still very young and it must still be developed more. Also the content of sustainability reporting is often of a different nature than financial reporting, which is much more about numbers and statistics and therefore the indictors are harder to compare across companies. Therefore, based on the nature of sustainability information, it can be expected that the information is harder to acquire and less easy to compare across companies, than in the case of annual report information. The results will show the degree of comparability of sustainability information and the workability of the GRI framework.

(18)

18 certain themes, does not give a good impression of objectivity. The GRI does advice to use external verification, but still this is a point for improvement.

The other criticism about the ‘heavy reading’ of the GRI guidelines has two sides. On the one hand I believe it to be necessary to provide extensive guidelines, because sustainability is such a broad topic and many themes need to be covered. Also, it is important to give detailed definitions of the indicators in order to make sure that they are used appropriately, everybody understands their meaning and will report on the same things. On the other hand, the extensive documentation does result in heavy reading, which does make it inefficient and time-consuming to work with.

Finally, it is argued that there is still no integrated method for reporting between companies. Also the attitudes of the target groups to reporting differ; scientists, decision makers and individuals (Kranjnc, Glavic, 2005). According to O’Dwyer and Owen (2005) the GRI focuses on assurance as it is in accountancy and reporting to board of directors. They argue however that most organizations are resistant to broader stakeholder accountability (O’Dwyer, Owen, 2005). Whether companies practice broad stakeholder accountability is discussed on page 57 of the discussion chapter.

1.2.3 Reporting practices of companies

When the characteristics of companies are considered, it is notable that the most consistent reporters are large companies, specifically operating in ‘sensitive’ industrial sectors. Also, larger companies more often relate sustainability practices to their business goals. Furthermore, large companies are more exposed to the public and their activities have a bigger impact on the environment. In general, reporting practices differ per industry, as well as depending on local or national regulations (Chen, 2008; O’Dwyer, Owen, 2005; CMA Management, 2009; Maclean, 2007).

Next to reporting in general, there is also the issue of external assurance of reports. This enhances the credibility of the reports. A global survey in 2003 indicated that 40% of the sustainability reports contained external assurance. Still the completeness is questioned recently (O’Dwyer, Owen, 2007). 1.2.4 Conclusion

(19)

19 question of how ‘workable’ the model is in practice. Third, there has been criticism on the GRI model in relation to broader stakeholder accountability. Whether this is a justified critique will come to the fore in the discussion chapter of this research, on pages 57 and 60.

1.3 The stakeholder-based approach

The GRI model is developed through a multi-stakeholder consultative process and also aims at addressing stakeholders in its reporting practices (GRI, 2010, Reynolds, Yuthas, 2008; Richards, Dickson, 2007). This thesis aims at analyzing the way stakeholders are addressed by sustainability reporting in the food industry. The basis on which this is done is stakeholder-based theory.

1.3.1 Stakeholder theory

(20)

20

Table 2) Stakeholder theory debates

Source: Laplume, Sonpar, Litz, Reginald, 2008

As can be seen from table 2, critique exists, such as that stakeholder theory would be too difficult to implement, that it is under-researched and that its domain may be too broad.

Nevertheless, I would like to point to the following advantages of assessing the sustainability reporting in the food industry from a stakeholder-based approach. First, the importance of stakeholder theory has risen since it beginnings in the 1980s (Laplume, Sonpar, Litz, 2008; Fassin, 2009). Despite this rise in importance there is critique that stakeholder theory is still under-researched (Laplume, Sonpar, Litz, 2008). Therefore, by using stakeholder theory in this research about sustainability reporting, this thesis contributes to this gap in literature.

(21)

21 Also Fassin (2009: 2) has argued that “the stakeholder concept has become the grille de lecture for the analysis of corporate responsibility”. This thesis is interested in analyzing how well the GRI is providing stakeholder inclusiveness and how companies are performing on this issue. For these reasons, the stakeholder-based approach is an appropriate theory for this research.

The basis for this thesis is descriptive stakeholder theory. This is concerned with how firms behave (Fassin, 2009; Laplume, Sonpar, Litz, 2008). In order to use stakeholder theory, the relevant stakeholder categories need to be identified. These are introduced in the next section.

1.3.2 Stakeholder categories

A stakeholder can be defined as ‘any group within or outside of the organization that has a stake in the organization’s performance’ (Daft, 2004: 22). Stakeholder theory holds that the corporation should be seen as socially embedded. It is concerned with all stakeholders that interact with a particular corporation. A stakeholder-based approach assumes that organizational activities are balanced and integrated in such a way that they comply with the needs and interests of various stakeholders (José, Sison, 2009; Daft, 2004).

As outlined above, there are different views of the notions of CSR and stakeholders in the different regions. As a result of these different developments in the respective regions, they also developed different understandings of the notions of CSR and different appreciations of stakeholder theory. Consequently, the corporation in the Anglo-American region is not viewed as socially embedded to the extent that it is in continental Europe (José, Sison, 2009).

(22)

22

Figure 3) Stakeholder categories of Perrini (2005)

This categorization of stakeholders is suitable for the food industry. The mentioned categories cover all the specific sustainability issues for the food industry, which were outlined before: the food supply chain, social sustainability issues, food safety and animal welfare. These can be assigned to categories of customers, suppliers, environment, community and public authorities. Therefore, the categorization of Perrini (2005) will be a good starting point for analyzing stakeholder categories in the food industry.

1.3.3 How does the GRI model relate to stakeholders?

(23)

23 1.3.4 Conclusion

A stakeholder-based approach is taken in this research for the following two reasons. First, the importance of this theory has risen but still it is criticized as under-researched. Second, the GRI framework is based on the stakeholder theory. Stakeholder categories were identified on the basis of previous empirical research and on the basis of the relevant sustainability issues for the food industry; (1) Human resources; (2) Shareholders and financial community; (3) Customers; (4) Suppliers; (5) Financial partners; (6) Public authorities; (7) Community; (8) Environment. This is worked out further in the chapter on methods.

1.4 Regional CSR characteristics

In this part it is assessed what the regional CSR specifics of Anglo-American countries and continental European countries are.

1.4.1 Are there regional characteristics of CSR?

Despite the pace of globalization, Hall and Soskice (2001) have argued that the national ‘embeddedness’ of MNCs has still a large impact on the firm. National institutions and ideologies will remain important. They made a divide between liberal and coordinated market economies. The former is characterized by market competition, arms length market exchanges and formal contracting. Investors have a strong position in the liberal market economy. The latter relies more on collaboration and private information networks. The government and banks have a much larger role. These ‘varieties of capitalism’ divide the US and UK as liberal and Germany and Nordic countries as coordinated market economies (Chen, Bouvain, 2009).

The difference in regions is according to some also notable in CSR and reporting. A prominent divide is made between Anglo-American countries and continental Europe (Argandoña, von Weltzien Hoivik, 2009; José, Sison, 2009; van Liedekerke, Dubbink, 2008; Levy, Brown, de Jong, 2010; Perrini, 2005).

(24)

24 European’ type (José, Sison, 2009). Because Europe has a strong governmental influence on CSR, some argue that it limits voluntary action. This has been described as implicit CSR, which beholds non-voluntary CSR (van Liedekerke, Dubbink, 2008).

The Anglo-American region: The US is described as liberal and individualistic, less government intervention compared to continental Europe, and strong market mechanisms. The type of CSR that characterizes this region has been named ‘explicit CSR’, which stands for voluntary CSR (van Liedekerke, Dubbink, 2008; Kolk, 2006). Although CSR was primarily initiated in the Anglo-Saxon region, Europe is the present leader in CSR, reporting more on sustainability than the rest of the world. Also the verification of reports is higher in Europe than in the US (The National Corporate Responsibility Index (NCRI); van Liedekerke, Dubbink; 2008). This can be explained by the political climate in Europe, which requires at the present more disclosure of companies, than the US government.

1.4.2 Contradictory evidence

The literature described above is contradicted by other research findings, which shows the divide to be not as strong as suggested. Furthermore, some research goes even further by suggesting that Europe should be divided in more sections of CSR, based on countries and country clusters.

Matten en Moon (2008), for example, challenged the idea that the UK and US can be taken together as representing Anglo-American CSR. They described the US as explicit CSR, which stands for voluntary CSR and the UK and Europe as implicit CSR, which beholds non-voluntary CSR (van Liedekerke, Dubbink, 2008). They thus classified the UK not as Anglo-American, but as part of Europe and its characteristics, in terms of CSR practices.

Others challenge the idea that Europe can be taken as a whole. They argue that Europe can be divided in several sub-types, such as Anglo-Saxon, Central-European, Scandinavian or Nordic, Mediterranean, Central and Eastern European (Argandoña, von Weltzien Hoivik, 2009; José, Sison, 2009; Aguilera, Jackson, 2003).

(25)

25 1.4.3 Findings in regional reporting practices

Regional differences seem to prevail in sustainability reporting. Despite the discussion regarding regional characteristics of CSR, when it comes to reporting there seems to be a more consistent trend in different regions. A fairly general observation in the literature is that Europe is the present leader in CSR, reporting more on sustainability than the rest of the world. This is based on European companies in the Fortune Global 250. Also the verification of reports is higher in Europe than in the US. The National Corporate Responsibility Index (NCRI) lists European companies at the top (Van Liedekerke, Dubbink, 2008; Williams, Aguilera, 2008; Perrini, 2005; Kolk, 2003).

Chen and Bouvain (2009) found that differences exist in how important companies consider publicity of CSR, i.e. how important they consider it to be that their CSR policies are available for the public. Also there are differences among companies in the CSR specific issues they address. There is a critical role for investors or financiers. In the liberal markets, such as US and UK, capital is more dispersed than in the coordinated market of continental Europe . Therefore companies in the former market need to appeal to a broader audience. For example in the UK, CSR reports emphasize customer and supplier issues. Such emphasis in a report shows the importance of various stakeholder groups. In Europe, sustainability issues are more important, the USA scores low on environmental issues (Van Liedekerke, Dubbink, 2008; Chen, Bouvain, 2009; Perrini, 2005). Nevertheless, the differences in reporting cannot solely be explained by market economy types. This can also be explained by the political climate in Europe, which requires at the present more disclosure of companies, than the US government (Van Liedekerke, Dubbink, 2008).

1.4.4 Conclusion

Discussion exists, on whether there are regional differences in CSR practices between the Anglo-American and the continental European region. Several (empirical) studies presented various outcomes. In sustainability reporting, the general trend is that Europe is the leader. The results will show which direction is supported by this research of the food processing industry.

This previous review leads tot the following problem statement and sub-questions:

“To what extent is sustainability reporting in the food industry addressing stakeholder groups according to GRI indicators in Anglo-American versus Continental Western European countries?”

To answer this question, the following sub-questions have been developed:

(26)

26 2) What are the specifics of reporting within stakeholder categories, in both country clusters? 3) Are there other specifics of sustainability reporting among the food processing companies? 4) Does the practical usage of the GRI framework in the food processing industry underwrite the

principle of “inclusiveness”?

(27)

27

2. Methods

In this chapter the methods which are used for the research are explained. First of all the research design is outlined, which explains the way in which the research was carried out. Second, the sample, third, the data sources and finally the data analysis are presented.

2.1 Research design

This thesis is a descriptive study, in the sense that it is concerned with finding out to what extent stakeholder categories are addressed (Blumberg, Cooper, Schindler, 2008). The literature review has outlined the current state of the art in the literature and formulated research questions that are answered in the discussion chapter. The sustainability reporting practices of a sample of food processing companies were analyzed by looking at the content of their reports. This content contained quantitative as well as qualitative data. For example, the type of community programs carried out by companies was described in words (qualitative) and the amount of greenhouse gasses in numbers (quantitative). These contents were classified with the help of a scheme, which is explained further below. The tool for this analysis is provided by the GRI sustainability performance indicators. These indicators classify the information for the country clusters in this research: the stakeholder categories in Anglo-American and Continental European countries. The Anglo-American cluster is represented by companies from the United States and the United Kingdom. The continental European cluster is covered by companies from the Netherlands, Norway, Denmark, Sweden, Belgium, Finland, France and Spain. The results indicate if and to what extent stakeholders are addressed in these two country clusters and if there are differences in reporting practices between the two clusters. Whether the stakeholders categories are addressed is established with the GRI sustainability performance indicators. They are grouped in accordance with the stakeholder category they address, which is explained in the next section. If the sustainability performance indicators of the stakeholder categories were reported, then the result is that the respective stakeholder category is addressed. By “addressed” it is meant that sustainability information which is relevant for the respective stakeholder category is disclosed by the company. Also, there is the question to which “extent” this happens. This will be assessed with the help of application levels, which will be explained further in the data analysis part. Taken together, a scheme was created that summarizes which indicators and stakeholder categories are addressed, displayed in table 1 and 2. This is done for food processing companies from Anglo-American and continental European countries.

(28)

28

Table 3) Analysis scheme part 1

Stakeholder group Economic stakeholders Society stakeholders Environment stakeholders

Stakeholder category Shareholders & financial

community Employees Customers Suppliers Public authorities Community Environment GRI performance indicator themes

Economic indicators SPI: Labor practices, Human resources SPI: product responsibility SPI: society

Environmental indicators

Table 4) Analysis scheme part 2

Stakeholder category (1) Employees (2) Share-holders & financial partners & community (3) Customers (4) Suppliers (5) Public authorities (6) Community (7) Environment GRI indicator themes SPI: Labor practices, Human resources Economic indicators SPI: product responsibility SPI: product responsibility SPI: product responsibility SPI: society

SPI: society Environ-mental indicators, Animal welfare

As can be seen from table 2, the information is classified in two ways; along GRI performance indicators and these indicators are in turn grouped along seven stakeholder categories. The GRI performance are enclosed in the appendixes. Now I will continue with the stakeholder categories. I will explain how I have used these to create the scheme for analysis.

- Stakeholder categories

(29)

29 official website). The GRI sustainability reporting guidelines are developed through a multi-stakeholder consultative process involving representatives from reporting organization and report information users from around the world. The GRI indicators, are used to analyze the content of the reports of companies, are grouped along stakeholder categories. This enables analyzing what proportion of reporting is directed at which stakeholder category or not.

The stakeholder categories were selected as follows. Related research in this area has developed stakeholder groups by analyzing companies empirically and the groups which are relevant (Perrini, 2005; Clarkson, 1995; Donaldson and Preston, 1995). This resulted in the identification of 8 stakeholder groups: (1) Human resources; (2) Shareholders and financial community; (3) Customers; (4) Suppliers; (5) Financial partners; (6) Public authorities; (7) Community; (8) Environment. For this research the following stakeholder categories were selected: (1) Employees; (2) Shareholders and financial community; (3) Customers; (4) Suppliers; (5) Public authorities; (6) Community; (7) Environment. As can be seen, shareholders and the financial community became one category. The reason for this is that both shareholders and the financial community are interested in the economic and financial issues of the company, corporate governance, investor relations, capital stock composition, shareholder/ partner remuneration (Perrini, 2005). As a result, I have combined these stakeholders into one category. Furthermore, the human resources category is renamed in employees. Also when the indicators of the GRI model and the food processing sector supplement are considered, these stakeholder groups are appropriate. The GRI indicators are grouped along these categories, which leads to the scheme for analysis. A detailed description of these indicators and their categorization can be found in the appendixes. Now, the compilation of this scheme will be explained briefly.

(1) Employees

Category one, employees, affects those who are directly influenced by corporate operations. The themes that involve this category are: health and safety, protection of workers’ rights, equality of treatment, training, turnover, personnel’s satisfaction, industrial relations, staff composition and schemes of wages. This stakeholder category is covered by the following GRI indicators: labor practices and human resources.

(2) Shareholders, financial community and partners

(30)

30 (3) Customers

The main themes in this category are marketing activities, market development, customer satisfaction and loyalty. This covered by GRI indicators of product responsibility.

(4)_Suppliers

By operating in a sustainable way, the supply chain is also of importance. This involves general characteristics and supplier management policy. This covered by GRI indicators of product responsibility.

(5)_{Public authorities}

This involves disclosure towards for example the government, local and public authorities. Themes that matter here are codes of conduct and rules for the compliance with laws. This covered by GRI indicators of product responsibility and society.

(6)_Community

Direct contributions in the different intervention fields and anti-corruption are important here. The GRI indicators for society relate to this.

(7) Environment

Energy consumption, material and emissions, as well as animal welfare have been placed under this theme.

2.2 Population and sample

The research focuses on companies from the food processing industry, which is the population of this research. From this population, samples of companies were selected in two ways. First of all, a sample of companies was selected from the GRI reporters list. The database was filtered by the Anglo-American and continental European region by the industry sector of food and beverages. This resulted in a total of 25 companies for the year of 2009. The Anglo-American region is covered by 14 companies, of which 13 from the US and 4 from the UK. The continental European region yielded 11 companies, from the Netherlands, Norway, Denmark, Sweden, Belgium, Finland, France and Spain. The reports were all published in 2009.

(31)

31 After sorting the right country of origin and removing those which were double (also in the GRI database), a sample of 27 companies remained. For the continental European region the Euronext is used, representing France, Belgium and the Netherlands. The Euronext is filtered by industry and scanned for country of origin and for double companies. This resulted in a sample of 28.

Taken together, the Anglo-American region is represented by a population of 41 companies and the continental European by 39. In total 80 companies are analyzed. In the appendixes the list of companies in the sample can be found.

2.3 Data sources

The data gathered are the annual reports and/or sustainability reports of companies in the food processing sector. Also the company websites are scanned for information. These reports reveal the disclosure practices towards different stakeholder groups and are therefore the suitable unit of analysis for this research. The companies come from the US, UK, the Netherlands, Norway, Denmark, Sweden, Belgium, Finland, France and Spain. The data sources of the companies from these countries where scanned for language, which was Dutch, English, German or French. This was done in order to select only those data sources which are accessible for the author. Two companies from Portugal were not selected from Euronext, 28 were. From the selected sample of 11 GRI reporters, 3 companies, 2 from Spain and 1 from Finland were not included, because they were written in Spanish and Finnish. 2.4 Data analysis

In order to answer the research question, annual reports, sustainability reports and information on websites was used. The categories in which this information is classified are defined by the GRI performance indicators and stakeholder categories. This was done with the help of a classification scheme, which is displayed in table 3:

Table 5) Classification scheme

Symbol Meaning

+ Reported

~ Partially reported

- Not reported

n/a Not applicable

(32)

32

Table 6) Application levels

Application level C B A

GRI performance indicators

Report a minimum of 10 performance indicators, at least one from each of: social, economic, environment

Report a minimum of 20 performance indicators, at least one from each of: economic, environment, human rights, labor, society, product responsibility

Respond on each core G3 and sector supplement indicator by either a) reporting or b) explaining the reason for omission

In this application level scheme, everything below C comprises companies which report to a low extent and A represents the highest extent.

(33)

33

3. Results Research

In the following chapter the results of the research of sustainability reporting disclosure towards stakeholders of food processing companies, are outlined. First, it is considered if all the stakeholder groups are addressed. These groups comprise people, planet and profit. The results of the companies with regard to these three groups are displayed with the help of application levels. Also, it is considered whether the companies are GRI reporters or not.

Second, a closer look is taken at the stakeholder categories, within the three groups of people, planet and profit. In this part the indicator frequency per stakeholder category is outlined. This will give insight into the specific issues which are reported and which not, or to a lesser extent.

Third, general observations are noted. These are for example the kind of reports companies use for sustainability, the frameworks they use (especially when they are non-GRI) and other guidelines, regulations and initiatives that are observed during this research.

3.1 Application levels of Stakeholder groups

For assessing how extensive sustainability reporting is towards stakeholder groups and categories, application levels were used. There are four application levels, ranging from “A” to “Below C. The highest score is “A”, followed by “B”, “C” and “Below C” as the lowest score. Figure 4 shows the results of the 41 Anglo-American companies.

(34)

34 As can be seen from figure 4 all scores occurred. The highest score “A” only appeared at two companies, which addressed all stakeholder groups and all categories. Application level “B” appeared at 14 companies. These companies have at least used 20 indicators, which touch upon each stakeholder category. Most companies scored a “C”, which indicates that all stakeholder groups (economic, social and environmental) are addressed. Between 10 and 20 indicators were used, of the total of 79 performance indicators. Although all stakeholder groups are addressed, it does not mean that also all categories within each stakeholder group were used. I will return on this issue in section 3.2 about frequency of indicators. Finally, in a third position are the companies which scored “below C”. These companies use less than 10 indicators and/or address not all stakeholder groups.

Figure 5 shows the results of the 39 continental European companies.

Figure 5) Application level continental European

(35)

35 striking aspect of figure 5 are the two extremes of “B” and “Below C”, whereas the Anglo-American companies are much more balanced in the middle.

If the two regions are compared, it becomes clear that they score a comparable percentage on level “B”. The largest differences can be found in the “C” and “below C” scores, which shows that the continental European companies have a notable higher “lowest” score.

The companies were selected from the GRI reporters list and stock exchanges. Figure 6 shows that the companies which were selected from the GRI reporters list, score much higher than those selected from the stock listings. Especially the high “B” score is notable, for both regions well over 60%, whereas less than half the other companies (from the stock listings) reach this level. Although the continental European companies do not score A, it is remarkable that if only the GRI reporters are considered, they actually score similar to the Anglo-American companies, contrary to the overall results. This shows that there is a remarkable difference, if GRI and non-GRI reporters are considered.

Figure 6) GRI and non-GRI reporters

3.2 Reporting classification characteristics

(36)

36 only reports on employment type and region, the indicator is classified as partially. Therefore, in the results, the classifications ‘reported’ and ‘partially reported’ have been both counted as reported. Furthermore, the graphs would have become too extensive. Therefore the choice was made to display the fact if companies report, partially report, not at all or if something is not applicable, in a separate section. This is clearer and makes this extensive material better comprehendible.

In figure 7 the reporting classification characteristics of Anglo-American companies are shown. In general there is more reported than partially reported except for the stakeholder category of suppliers. Nevertheless, the partially reported classification is near the reported classification.

Figure 7) Reporting classification Anglo-American

(37)

37

Figure 8) Reporting classification continental European

3.3 Indicator frequency per stakeholder category

(38)

38 0 20 40 60 80 100 120 R e p o rt e d in % Stakeholder category

Stakeholder category reporting

Anglo-American continental European

Figure 9) Stakeholder category reporting

Figure 9 shows that in both regions, the employees, shareholder and financial partners and community categories are addressed by all companies. However, it also shows that not all stakeholder categories are addressed by all companies.

The environment, customers, suppliers, community and public authorities’ categories are not reported by all companies. In all these categories, the Anglo-American companies take the lead. The largest differences between the two regions are found in the customers and community category. Overall, 60% or more of all continental European companies addresses all the stakeholder categories and 70% or more of all Anglo-American companies. The only exception is public authorities, which is notably low.

(39)

39 3.3.1 Profit: the economic stakeholder category

The first stakeholder category is the economic one. As can be seen in figure 10, the general trend among Anglo-American companies is to report on EC1, which gives information on the direct economic value generated. All the other economic indicators are addressed by less than half of the 41 companies. Market presence is least reported, especially EC5, which stands for the range of ratios of standard level wage compared to the local minimum wage at significant locations of operation.

Figure 10) Economic reporting Anglo-American

(40)

40

Figure 11) Economic reporting continental European

3.3.2 Planet: the environment stakeholder category

(41)

41

(42)

42

(43)

43 3.3.3 People; society stakeholder categories; employees

The final group is about people and is divided in the stakeholder categories of employees, customers, suppliers, community and public authorities. First the results of human resources are presented.

The employees’ category consists of GRI’s indictors of labor and human rights. As can be seen from figures 14 and 15, in both regions LA1 and 13 are reported by almost all companies. These two indicators deal with total workforce and composition of governance bodies. All the other indicators are reported by less than half of the companies. In the Anglo-American region, least reported are LA5, 9 and 14. These stand for minimum notice period regarding operational changes, health and safety topics covered in formal agreements with trade unions and ratio of basic salary of men to women by employee category. These are also least reported in the continental European region n addition to LA12, which considers the percentage of employees receiving regular performance and career development reviews.

(44)

44

Figure 15) Labor reporting continental European

(45)

45

(46)

46

Figure 17) Human rights reporting continental European

3.3.4 People; society stakeholder categories; customers

The next categories are the customers. This category is covered by the sustainability indicators of product responsibility, which are displayed in figures 18 and 19. Again, a general trend in the companies of both regions is that they report most on life cycle stages in which the health and safety impacts of products and services are assessed for improvement and the percentage of products that are subject to such procedures. Also PR6 and 3 are in both regions the second and third most reported. These consider programs for adherence to laws, standards and voluntary codes related to marketing communications and type of product and service information required by procedures.

(47)

47

(48)

48

Figure 19) Product responsibility reporting continental European

3.3.5 People; society stakeholder categories; community

(49)

49

Figure 20) Society reporting Anglo-American

(50)

50 3.3.6 People; society stakeholder categories; Public authorities

The stakeholder category of public authorities does not correspond with a specific grouping of GRI sustainability indicators. Nevertheless, this category is concerned with compliance. These are found in several GRI indicator groups. This resulted in the following figure 22.

Figure 22) Public authorities

(51)

51 3.3.7 People; society stakeholder categories; Suppliers

Also for suppliers, there is not a specific indicator group in the GRI framework. Nevertheless, among the general indicators and food sector supplements, there are relevant indicators which deal with the supply chain. This resulted in the following figure 23.

Figure 23) Suppliers

(52)

52 3.4 Other observations

Next to the results that were found by using the GRI sustainability indicators, there were also other relevant observations.

First of all, to find the sustainability information, the websites of the food processing companies were scanned. This resulted in information on how the companies present their sustainability issues. The observations that were made with regard to reporting type are listed in table 7.

Table 7) Reporting types for sustainability information

Report type: Sustainability

report

CSR report Annual report Other

Number of Anglo-American companies (total: 41) 16 4 8 13 Number of Continental European companies (total: 39) 14 3 18 4

Less than half of all the companies in both regions publish a sustainability report. This indicates that the majority of the information on sustainability practices of companies had to come from other sources. A very small number of companies in both regions published this information in their CSR report. The biggest differences between both regions are to be seen in the last two categories. There were companies which published hardly any sustainability information or none at all on their websites or other publications and the information could only be found in the annual report, which is the case with a large part of continental European companies. Furthermore, there is also the category “other”. This contains cases in which the companies publish information only on their website, or in a combination of annual report and website, or in another type of report such as ethics report, or focus. A large part of Anglo-American companies have done this.

(53)

53 indicates that if companies want to, there are many sustainability initiatives they can be involved in. The standards, certifications and frameworks that were found are listed in table 8.

Overall, these other observations are influencing the extent of sustainability reporting towards stakeholders, because they affect transparency, quality, reliability and accessibility. This is analyzed in the discussion chapter on page 57.

Table 8) Standards, certifications and initiatives

Standards, certifications and initiatives of food processing companies 1. ISO 9002: Management packages

2. HACCP: Hazard Analysis Critical Control Points 3. GMP: systems and Good Manufacturing Practices

4. GHG:(greenhouse gas) Protocol developed by the World Business Council on Sustainable Development (WBCSD) and World Resources Institute (WRI)

5. PRC regulatory authorities

6. PRC Product Quality Law, PRC Food Hygiene Law

7. RSP0: Roundtable on Sustainable Palm Oil, an international body composed of stakeholders from throughout the palm supply chain.

8. EPA: Environmental Protection Agency’s SmartWaySM certification. The EPA characterizes SmartWaySM programs as resulting “in significant, measurable air quality and/or greenhouse gas improvements while maintaining or improving current levels of other emissions and/or pollutants.” 9. UN Global Compact: The UN Global Compact is a strategic policy initiative for businesses that are

committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labor, environment and anti-corruption

10. SA8000: Social Accountability 8000 (SA8000), a standard developed by Social Accountability International (SAI), to certain areas of its operations

11. Ethical Trading Initiative: The ETI is a unique alliance of companies, nongovernmental organizations and labor unions working together to advance good practice in business ethics, corporate responsibility and human rights

12._{ISO 14000: Management packages}

13. FDA: regulations for nutrition and ingredient labeling for all of our consumer products 14. USDA: regulations for nutrition and ingredient labeling for all of our consumer products 15._{AAFCO: regulations for nutrition and ingredient labeling for all of our consumer products} 16. GAP

17. Rainforest Alliance

18. Sustainable Agriculture Network:an international coalition of leading conservation groups. The standards address water pollution, soil erosion, pesticide use, wages and conditions for workers, wildlife and more

19. The Cocoa Livelihoods Program

20. African Cashew Initiative: provides around $50 million in cash and related support to train producers and link them with local processing facilities in Benin, Burkina Faso, Côte d’Ivoire, Ghana and Mozambique

21. United States Agency for International Development (USAID): created a program called ECHOES— an acronym for Empowering Cocoa Households with Opportunities and Education Solutions

22._{Sustainable Agriculture Initiative (SAI): Platform created by the food industry to advance sustainable} farming for a variety of commodities

23. Environmental, Health, and Safety (EHS) regulations

24. U.S. Environmental Protection Agency (USEPA) Climate Leaders™ program, a voluntary partnership challenging businesses to reduce their greenhouse gas (GHG) emissions

Marja van Os, s1387952

MA Thesis International Business & Management

Sustainability

reporting in the food

processing industry

Table of Contents

List of tables and figures

Stakeholder category reporting