Chapter 14 Corporate Social Responsibility

Financial Information Analysis2 Copyright 2006 John Wiley & Sons Ltd Corporate Social Responsibility Recent developments globalization ‘green’ agenda stakeholder theory social responsibility Financial reporting responding ‘Attitude not techniques’ Seeks qualitative as well as quantitative expression Addresses issues such as environmental impact Some pioneer companies, e.g., Body Shop, BT

Financial Information Analysis3 Copyright 2006 John Wiley & Sons Ltd CSR ctd. Broader responsibilities of reporting function The Corporate Report e.g. wider range of users investors employees community customers, etc Takes emphasis off numbers and puts it onto ‘qualitative’ information

Financial Information Analysis4 Copyright 2006 John Wiley & Sons Ltd CSR ctd. Potent force for positive action e.g. oil companies / political action Resistance from some, e.g., some MNEs Power struggle between business and others Part of broader social agenda Narrative disclosures likely to increase Range of reports will expand

Financial Information Analysis5 Copyright 2006 John Wiley & Sons Ltd Triple Bottom Line (TBL) TBL is one response to information demands of CSR Measures performance under: Financial; Social; and Environmental OFR

Financial Information Analysis6 Copyright 2006 John Wiley & Sons Ltd Environmental Reporting and accounting for the environment Sub-set of CSR Area of greatest impact on accounting Response to ‘green agenda’ Environmental Reports now produced by many large companies e.g., Shell genuine or propaganda? Increased disclosures: contingent liabilities for environmental damage

Financial Information Analysis7 Copyright 2006 John Wiley & Sons Ltd Sustainability Sustainability: ‘capacity to sustain service without diminishing critical capital’ Central concept in overall approach One accounting response distinguishes between: Capital: Man-made / Natural Natural: Critical / Non-critical This imposes notion of ‘social costs’ on business businesses ‘charged’ for use of critical resources most businesses would be making losses if charged

Financial Information Analysis8 Copyright 2006 John Wiley & Sons Ltd What can accounting do? Accounting theoretically ill-equipped to deal with many challenges of new agenda Variety of options do nothing charge IS for cost of critical capital consumed incorporate narrative report include financial charge/provision Important for accounting to take initiative

Financial Information Analysis9 Copyright 2006 John Wiley & Sons Ltd Summary Accounting is a social science and can respond to social agenda Social and environmental concerns are now of more concern to users of ARs How should accounting respond? do nothing be more proactive and imaginative Because it is a social issue it is also political CSR also likely to be advanced in overall governance context