The role of stakeholder engagement in sustainability reporting

In a context of growing social and environmental concerns, the role of large enterprises towards sustainability is increasingly put into the spotlight. Both academic conversations and public-opinion debates more and more frequently question the extended responsibilities of firms in the frame of contemporary and inter-connected societies. In studying issues associated with the greatest challenges mankind is currently facing - from climate change to social exclusion - the scientific community today is fully aware of the necessity to account for actions and agendas of companies, especially large ones (Crane & Matten, 2016). Large firms are rising to global political actors, but with great power comes greater responsibility. Many authors agree that the historically prevailing thesis that the first and only responsibility of a firm is to maximise value for shareholders only (cf. Friedman, 1970) is becoming progressively untenable (cf. Freeman, 1984). Enterprises themselves are increasingly willing, for the more different reasons, to show their commitment towards the needs and expectations of their stakeholders (not only shareholders), their aspiration to create shared value (not only shareholders value) and to make every part of their business sustainable. Statements on this commitment, although varying case by case from being genuine to be completely rhetoric, are nowadays commonly found in sustainability reports or integrated annual reports of companies operating in various sectors, even and especially in the most impactful ones, like mining and oil and gas. Given the evolving expectations of consumers and investors, corporations nowadays face the need of communicating to internal and external stakeholders how their business model is integrated with sustainability aspects. Over the last 40 years, companies have paid growing interest towards environmental and social issues (Bagnoli, 2004); at the same time, there has been substantial growth in the research attention being devoted to social and environmental accounting topics (Deegan, 2002). This growing interest raised new questions on the real objectives of large corporations and the best ways to account for and report on the degree of achievement of these objectives. The development of social and environmental accounting and reporting over the last decades has resulted in a wide range of actual and potential accounts of organisational extended interactions with society and the natural environment: such accounts can be understood as narratives of events articulating, with varying degrees of thoroughness and misdirection, the relationships of the organisation with its stakeholders and the environment (Gray, 2010). With that in mind, we believe today is more important than ever that large enterprises can, on the one hand, take into account the opinion of their stakeholder while defining their strategies and, on the other hand, disclose material and relevant information on their ability to contribute to sustainability while delivering value for all of their stakeholders. An increasing consensus is being reached on the responsibility of large enterprises to report not only on their financial performances, but also on their social and environmental outcomes. Consequently, in practical terms, it is important to understand which are the elements organisations need to report on to provide stakeholders with relevant and comprehensive sustainability reports. In the last two decades, stakeholder dialogue and engagement have been playing an increasingly important role in defining the contents of integrated and sustainability reporting (Manetti, 2011), in accordance with the principle of materiality and relevance of information disclosed (Global Reporting Initiative, 2013c; Unerman & Bennett, 2004). According to the materiality principle, material aspects are those that reflect the organization’s significant economic, environmental and social impacts or that substantively influence the assessments and decisions of stakeholders (Global Reporting Initiative, 2013c). Stakeholder engagement can represent a powerful tool of dialogic communication and accounting (Bebbington, Brown, Frame, & Thomson, 2007; Brown & Dillard, 2014) and a channel for interactive mutual learning, capable of promoting transformative action and social change (Bebbington, Brown, Frame, et al., 2007). Moreover, stakeholder engagement is a milestone policy in social and environmental accounting because it allows the organisation to interact with its stakeholders in a two-way dialogue in which the engager and the engaged mutually learn from such cooperation, potentially revising their expectations, strategies and behaviors (Manetti & Bellucci, 2016; Manetti, Bellucci, & Bagnoli, 2016; Owen, Swift, & Hunt, 2001). Against this background, the aim of this dissertation is to contribute to the social and environmental accounting literature with a study on the role and features of stakeholder engagement in sustainability reporting. The present original contribution is structured as follows. The first chapter introduces and discusses the extended responsibilities of corporations in the frame of contemporary societies and through the opposition between shareholder and stakeholder theories. Alongside the evolution of the objectives of enterprises lies the evolution of reporting and the need to account for an integrated and broader set of information. Consequently, the concept of sustainability and the role of enterprises and accounting towards sustainability is framed in light of social and environmental accounting. The second chapter provides a literature review on sustainability reporting, materiality assessment and stakeholder engagement. There is now a variety of local and global factors that advocate social and environmental reporting: the increasing relevance of beneficial relations with stakeholders, the growing concern about business ethics and corporate social responsibilities and the mounting importance of ethical investment have all raised the need for new accounting methods through which organisations and their stakeholders can mutually tackle these topics. After having analyzed the main motivations underneath sustainability reporting, we then discuss the topic of materiality and salience of information in social and environmental reports through the lens of materiality principle and the main sustainability reporting guidelines. We also provide some insights on how the concept of social and environmental responsibility of firms is deeply rooted in the Italian school of Economia Aziendale. We then discuss how the involvement of every relevant group of stakeholders can represent the most straightforward way to produce comprehensive, relevant and material sustainability reports. The third chapter provides a theoretical framework based on stakeholder theory and the involvement of stakeholders in decision making and sustainability reporting. We introduce a review of the different definitions of stakeholder and the diverse approaches to stakeholder theory. Consequently, the process of stakeholder engagement is theoretically divided into three phases: 1) Stakeholder identification and analysis; 2) Interaction with stakeholders; 3) Evaluation and reporting. Each phase is analyzed through the contributions of the most relevant authors and our elaboration. Then we discuss the theory underneath the possible achievement of materiality of information in sustainability reports through stakeholder engagement. The last section of the third chapter is dedicated to a review of stakeholder engagement tools in practice and to a focus on social media as a tool for supporting dialogic accounting. Many theoretical tools introduced in the third chapter are then used to support our empirical analysis. The fourth chapter provides a deep, empirical focus on how sustainability reports address the topic of stakeholder engagement, the distinctive features of this process of involvement and which is the role of stakeholder engagement for assessing materiality and defining the contents of such a disclosure. In order to pursue this objective, we opted for a mixed methodology built on content analysis, a research technique based on the objective, systematic, and quantitative description of the manifest content of communication (Berelson, 1952). We analyze 81 sustainability reports of organizations operating in the mining sector prepared in compliance with the GRI G4 guidelines. We focus on the mining industry because it is a sector that presents many legitimacy concerns: organizations operating in this sector have to deal everyday with social and environmental issues and are very sensible to the interests of several groups of stakeholders. The results from this content analysis are discussed in details in the last section of the fourth chapter: a) Most of the organizations report that stakeholder engagement is used both for defining their strategies and the contents of sustainability reports; b) Nearly every organization claims that stakeholders have been directly involved to provide materiality check for the reporting process; c) Meetings, surveys and interviews are the most commonly used methods for supporting stakeholder engagement; d) employees, communities, shareholders and governments are the most frequently engaged groups of stakeholders; e) the most common level of engagement is “consultation” of stakeholders, that lies between the vary basic “information” and the very rare “empowerment”; f) Forms of dialogic accounting are still very sporadic or unreported. Through this empirical analysis we contribute to stakeholder theory literature and sustainability reporting literature with original insights on the properties of information stated in sustainability reports regarding stakeholder engagement (SE) policies and practices. Finally, conclusions summarize our contribution, offer supplementary comments on our main results and practical implications, and build on the limits of the present study to provide some ideas for further research on stakeholder engagement in social and environmental accounting. Further research could provide additional empirical evidence on the role of stakeholder engagement for sustainability reporting, the real motivations underneath social and environmental reporting and the legitimization processes behind voluntary disclosure of non-financial information. We hope to start designing theses above mentioned studies in the near future, in order to keep contributing, with passion and scientific rigour, to the literature on social and environmental accounting and the extended role of enterprises towards sustainability.