Sustainability Reporting and BHP Billiton

Keywords: CSR model and theories and firm engagement, Stakeholders interest and mapping, CSR reporting and stakeholder engagement, Theories of CSR disclosure, Sustainability Reporting Assignment Writing

Introduction

Corporate social responsibility (CSR) has become dominant concept in business reporting and consequently, companies are concerned with CSR policies and engage with stakeholder through annual reports. CSR is concept in which companies integrate environment and social concerns in relation to their business operations as well as manage voluntary interaction with stakeholders. CSR reporting of firm is voluntary actions which focus on the social and environmental information and also known as ‘sustainability reporting’ (Clapp and Rowlands, 2014).

The objective of this report is two-folded. First, it analyses why firms engage in CSR reporting in the light the CSR theories. Secondly, it uses Mitchell framework to examine sustainability and discuss interest of stakeholders for an urgent catastrophe of ‘Bento Rodrigues’ Dam Disaster.

CSR reporting and stakeholder engagement

Conceptualisation of Corporate Social Responsibility (CSR)

Friedman (1962) proposed CSR as a narrow economic perspective to increase shareholders wealth. The only objective of business is to maximise profits with boundaries of legal framework of country. Moreover, Carroll (1979) elaborated CSR as economic, legal, ethical as well as discretionary responsibility of organisation. Preuss (2013) stated that organisation defines its role in the society and develop plans to implement social, legal, ethical and responsible standard (Carroll, 2015).

In addition, Tai and Chuang (2014) added that CSR involves how organisation creates positive impact on society through taking into account the quantity and nature of impact from its activities. Moreover, Gokulsing (2011) added that organisation has responsibility towards the interest of customers, shareholders, employees and communities to address the ecological consideration from their actions (Luc, 2016).

CSR model

Carroll (1979) stated that business encompasses legal, economic, discretionary and ethical expectation that society expects from organisation. Economic responsibility pertains to underlying goal of business which is profitability. Legal responsibilities ensure that business activities meet laws and discretionary actions are voluntary engagement of business and not required by law. Moreover, legal and economic responsibilities should concurrent with ethical responsibilities. Ethical responsibilities embrace practices, activities and behaviours expected by society but not codified into law.

Carroll (1991) model provides useful linkage between idea of CSR and organisation stakeholder. Wood (1991) evaluated the basic CSR approach Carroll model and stated that business and society are interlinked rather independent and distinct entities and thus, society has certain expectation for business outcomes and behaviour. Furthermore, it states that companies use three main processes to put principles into actions which are environmental assessment, stakeholder management and issues management (Schwartz and Carroll, 2003; Carroll, 2008).

corporate social responsibility (csr) pyramids

Theories of CSR disclosure

According to Idowu, Capaldi and Zu (2013) companies should not only engage in CSR initiatives but also make available desire information to stakeholders. The need of inclusion of non-financial information is important because financial statement omits salient information on firm activities and practices. The goal of inclusion of non-financial information is to increase transparency relating to social and environmental actions of organisation. Huang and Watson (2015) added that voluntary disclosure of information reduces the information asymmetry between stakeholders, management and management through assessing corporate performance comprehend information relating to society at large (Cho et al., 2015).

Legitimacy theory

Fernando and Lawrence (2014) stated that legitimacy theory relies upon the concept that social contract exists between society and organisation in which operates. Social contract represents the expectation of society for organisation how it should conduct its operations. Companies are an integral part of society like other social institutions and i.e. must accept norms and bonds of society to act in a responsible manner. The difference between the social expectation and corporate performance result in legitimacy gap.

Company try to legitimise their actions through CSR reporting to get society approval and ensure their existence and address legitimacy gap. CSR reporting practices have become the important tool to manage business complexities (Cohen and Simnett, 2014).

Bhattacharyya (2016) companies engage CSR activities into risk management to maximise the positive impact of CSR activities. CSR reporting includes the sustainability information could position firm as ‘good employer’ and attract high-quality staff, reduce staff turnover and enhance employee loyalty.

Robert (1992) asserts that CSR reporting allows the firm to access capital and increase shareholder value by meeting the expectation of shareholders. CSR disclosure increases corporate reputation and investor prefers to invest in the firm with high level of CSR based on improving social and environment conduct (Unerman, Bebbington and O’Dwyer, 2010).

Stakeholder theory

Freeman et al (2010) analysed that stakeholder theory suggests the needs of shareholder are difficult to satisfy without considering the needs of other stakeholder groups and thus, look beyond profit maximisation approach. In the light of stakeholder theory, organisation is expected to manage and integrate interest of wider stakeholders across boundaries and acknowledge duty of care towards both traditional stakeholder and salient stakeholders such as community and environment.

Clapp and Rowlands (2014) stated that employee invests their intellectual capital and time, shareholder invest money, communities infrastructure and customers invest trust and revenues and thus, organisation must play active role in society it operates. Stakeholder management approach integrates the groups with stake in organisation into managerial decision making.

Stakeholder Analysis - Stakeholder Mapping

Cordeiro and Tewari (2015) highlighted that stakeholder theory can be used in three different ways. First is the descriptive approach to explain corporate behaviour and characteristic. The second approach is instrument in which identification of connection and gap analysis is conducted between achievement of corporate objectives and stakeholder management. The third approach is normative in which activities of organisation is mapped based on identification of ethical and moral guide that should be followed during management of business.

Bhaduri and Selarka (2016) added that CSR reporting in stakeholder context is based two important branches which are ethical and managerial perspectives. In the light of ethical perspective, CSR reporting should include all the information related to social environmental implication of its activities. On the other hand, managerial perspective for CSR reporting highlights that organisation respond to stakeholders who have economic impact on activities of organisation.

Institution theory

Saka‐Helmhout, Deeg and Greenwood (2016) added that institution theory of CSR explained that organisation is influenced by its institutional context and it is rational based on widespread social understanding. Contingency theory proposed that firms can shape their institutional context but institution theory rejects the idea. Institutional theory proposes ‘surface isomorphism’ (Meyer and Rowan) and state that organisation incorporates procedures and practices from prevailing rational concept in light of institutional in society. Isomorphism means CSR reporting will become homogenous and meet expectation of wider institution environment (Wu and Salomon, 2016).

Coercive IsomorphismMimetic IsomorphismNormative Isomorphism
CSR reporting based on stakeholder pressureCSR reporting through copying other organisationCSR reporting based on industry norms and standards

 

Decoupling is known as detachment between publicly announcement and actual organisation practices. It involves symbolic management through highlighting differences between performance and disclosure. The institutional context based on socio-cultural system and engagement of companies.

CSR reporting in institutional context involves institution as rationalised myths. For example, in a cross-culture environment, different countries have different values which result in different behaviour. Thus, socially responsible behaviour has different behaviour for different people at different times. CSR engagement and activities depend upon specific institution setting within the particular society (Haack and Schoeneborn, 2015).

Using Mitchell et al (1997) framework

Mitchell et al (1997) proposed framework for stakeholder identification based three important concepts of legitimacy, power and urgency (stakeholder attributes). The degree to which manager give priority towards the stakeholder claims is known as stakeholder salience. Power is the ability of to which stakeholder impose upon their relationship. Legitimacy defines the actions and claims in the context of social system. Urgency defines the degree of stakeholder believe in terms of urgency of claim. The diagram below shows the relationship between stakeholders and attributes (Hebb, 2011).

BHP sustainability report 2016

BHP Billiton is global resource company and primary engaged in business of exploration, development and product of oil and gas as well as processing of minerals. Company is listed on the stock exchange with market cap of $80 billion. Company explore minerals such as iron ore, coal and potash and its head office located in Australia (BHP Billiton, 2016).

Impression management refer to technique used by organisation for public communication and psychical market in order to influence the perception of audience. Impression management by means of public communication includes CSR report, annual reports and press releases. BHP publish its sustainability report annual focus on number of social and environment variables such as code of ethics, social responsibility and information on assets (Giacalone and Rosenfeld, 2013).

Solomon et al (2013) added that company sustainability report clear and concise in terms of presentation and enclose information on risk and accident experienced by the company to resource activities and assets. Obfuscation involves producing a document which is difficult to read in terms readability and draw attention away from bad news. BHP report presents Fundao dam disaster at start of report in terms of its impact and action taken by the company.

Carroll (1979) elaborated CSR as economic, legal, ethical as well as discretionary responsibility of organisation. BHP annual report discusses initiatives such as biodiversity, environment safety, restoration and water program and sustainable development. Impression management using symbolic action involves giving impression that company compliance with social norms and rules for appropriate social conduct. Sustainability report discusses the socio-economic actions from perspective of multiple stakeholders.

Gokulsing (2011) added that organisation has responsibility towards the interest of customers, shareholders, employees and communities to address the ecological consideration from their actions. In term of stakeholder engagement, BHP annual addresses the concern of multiple stakeholders (BHP Billiton, 2016).

BHP annual report address stakeholders interest Based on power and urgency to manage dangerous such employee company report discuss responsibility for people safety (AR), Page 14). Likewise to address the concern of dependent stakeholder in term of urgency and legitimacy, it addresses the challenges and action for local communities (page 17).

Similarly, BHP annual report discuss the implication for dominant stakeholder such as department and regulatory body to address and power and legitimacy challenges ethics and integrity as well as responsibility for managing resilient environment is review in annual report (page 30).

Company try to legitimise their actions through CSR reporting to get society approval and ensure their existence and address legitimacy gap. BHP annual report analyse the factors discuss are infrastructure development, economic contribution, education and health in global context. Accountability is concerned with organisation recognition the impact of its actions of external environment (Freeman et al., 2010).

Idowu, Capaldi and Zu (2013) highlighted that descriptive approach is useful to explain corporate behaviour and characteristic. BHP report comprehensive cover the bad information such loss of life from Fundao Dam incident along actions to address such issues. Environmental reporting is useful tool to provide information to stakeholder in terms of environment issues and performance of organisation. Environment reporting is voluntary disclosure and thus quality and quantity of environment information depend upon source of information.

BHP report present in-depth information and detail on people safety, challenges and action for local communities. Institution theory states that organisation incorporates procedures and practices from prevailing rational concept and BHP report covers ethics and integrity and resilient environment review which represent Normative Isomorphism (Hebb, 2011; Wu and Salomon, 2016).

Bento Rodrigues’ Dam Disaster and stakeholder mapping

BHP Billiton and Brazilian iron ore giant Vale operate the Samarco Mineracao under the joint venture. The spread of iron ore polluted Local River as well as effect water for local residents. Brazil water agency report minerals has polluted local water  result in killing much aquatic life in 500 Km stretch as well as water not fit human consumption anymore. Moreover, wastage has destroyed biodiversity along the river. The incident has result in shaper decline in share price of BHP by 14% and wipe off £8 billion from its market value.

BHP received fine of $US 66 million and company needs to pay lawsuit and compensation. Local magazine reported the estimated legal cost could between $US 1.4-2.6 billion. BHP local producer Minas Gerais has lost its licence which results in loss of 5% iron ore and 3% group revenues. In response to Brazilian mining regulations, company acknowledge the dam safety regulations were in need of revision and catastrophic event is like to cause significant damage along the coast of state of Espírito Santo as well as local attorney general calling for exemplary punishment for negligence (Douglas, 2015).

Stakeholder mapping

Stakeholder TypeStakeholder and BHPStakeholder interest and polices, practices and performance
Definitive·       Brazil Government

·       President of Ibama

·       Brazil Mining regulation agency

Legitimacy theory stated that companies their actions through CSR reporting to get society approval and ensure their existence and address legitimacy gap. Definitive stakeholders have interest in BHP policies how it tackle damage as well as practices to manage the long-term consequences of event. For example, regulator agency would interest in the BHP approach towards future safety of site whereas Government concern for immediate action to address social and environment challenges.
Dominant·       Attorney-general, Sandra Cureau,

·       State of Espírito Santo

 

Stakeholder theory suggests the needs of shareholder are difficult to satisfy without considering the needs of other stakeholder groups. The social and environment damage along the coast of state and attorney call for punishment is matter of concern. These two stakeholders expected to see quick result through putting plans into action to address the damage to local communicates and environment damage for each group.
Dangerous·       Employee

·       Shareholder

·       Brazil’s national water agency

Institutional theory proposes that organisation incorporates procedures and practices from prevailing rational concept in light of institutional in society. The losses of life raise employee concern for health and safety policy and require company to take immediate action to address the design issues with Dam. Shareholder wants actions to restore market trust and avoid drop in share price. National water agency would concern for aquatic life loss as well as drinking water issues related to site. The design flaws represent decoupling situation for CSR report of BHP.
Dependent·       Minas Gerais

·       Brazilian iron ore giant Vale

Managerial perspective for CSR reporting highlights that organisation respond to stakeholders who have economic impact on activities of organisation. Both companies do business with BHP and concern for policies to tackle the damage from accident. The restoration of licences (mining) and lawsuit future impact is serious matter of concern.

Conclusion

The three theories of CSR reporting present different approach and perspective. Legitimacy theory looks at the society as whole; stakeholder theory is concern with address specific of particular group based on their interest and power and institutional theory consider that CSR reporting is shaped through formal and informal rules and norms of society.

Carroll (1979) stated that business encompasses legal, economic, discretionary and ethical expectation that society expects from organisation. The principles of CSR are public responsibility, principle of legitimacy and principles of managerial discretion. BHP sustainability report is an example of Normative Isomorphism and addresses interest of wider stakeholders. Institution literature focuses on rules, formal law and regulation as well as paying attention to norms, culture and value.

BHP report present in-depth information and detail on people safety, challenges and action for local communities. The Bento Rodrigues’ Dam Disaster claim nine lives and result in spread of toxic waste causing social and environment damage and requires policies and practices to immediately respond to stakeholders.

 

 

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