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Concept Paper Approval Sheet

The Impact of Sustainability Reporting on Selected Companies’ Financial Performance: Analysis of Sustainability Report for year 2011-2017

Proponents:

Aquino, Myka Patricia L. Dimaapi, Arrianne Zeanna R.

Jimenez, Bonnard Jomari E. Resurreccion, Diandra Mae A

Evaluator 1 __________________________________________________________________________________________

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Approved

Disapproved

Evaluator 2 __________________________________________________________________________________________

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Approved

Disapproved

Evaluator 3 __________________________________________________________________________________________

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Approved

Disapproved

Title of the Proposed Study:

The Impact of Sustainability Reporting on Selected Companies’ Financial Performance

Area of Study:

Sustainability Accounting, Accounting standards, Sustainability report, Sustainability report disclosure

Background of the Study:

According to Mangangey and Sadashiv (2010), it is becoming more evident that businesses that behave in an environmentally, socially and ethically responsible manner improve not only the sustainability of the environment but their very own sustainability. The operations of the different companies have been continuously contributing to the change of the world’s environment. Some of the well-known companies turn to non-financial disclosure regulations as a tool to increase their corporate transparency about social and environmental issues and sustainability reporting allows companies to make profitable and wise decisions that leads to sustainable businesses. In the Philippines, corporate sustainability has also been growing steadily as evidenced by the increasing number of companies now aligning corporate social responsibility (CSR) particularly sustainability in its strategic components. Even in the absence of a regulatory requirement in the Philippines, over 10% of publicly-listed companies (PLCs) have embarked on sustainability reporting. Sustainability reporting requires the commitment of significant resources and this necessitates a periodic evaluation not only to identify what needs to be improved but also to ensure that resources invested in these reports derive optimal benefits for the organization (Hohnen & Potts, 2007) .

Financial accounting for an organisation’s performance is a mandatory requirement whereas sustainability reporting is at the moment a voluntary activity. However, organisations are rapidly reporting aspects of their social and environmental performance in order to gain competitive advantage and thus secure the future of the organisation. According to Bouten and Hoozée, they have investigated how environment-related management accounting practices and environmental reporting may interact in the process of responding to disturbances of the natural environment. This demonstrates that sustainability reporting is the way forward and will likely become a mainstream business practice in the country.

Statement of the Problem:

  • 1. What is sustainability reporting and its effect on selected companies’ financial performance?

  • 2. What is the impact of each sustainability report component (economic, social, and environmental) on the financial performance of the firm?

Objectives of the Study:

  • 1. To understand sustainability reporting and determine its effect on selected companies’ financial performance.

  • 2. To analyze separately the impact of each sustainability report component (economic, social, and environmental) on the financial performance of the firm.

Hypotheses:

H01: The number of overall sustainability disclosures in the GRI Index that companies submit is related with the

company’s performance. H02: The number of economic performance indicator disclosures in the GRI index that companies submit is related with the company’s performance. H03: The number of environmental performance indicator disclosures in the GRI index that companies submit is related with the company’s performance. H04:The number of social performance indicator disclosures in the GRI index that companies submit is related with the company’s performance.

Literature Review:

(1) Aggarwal,

P..

(2013).Impact of Sustainability Performance of Company on its Financial Performance: A

Study of Listed Indian Companies – The article discussed whether sustainable companies are more profitable and examined the impact of sustainability rating of company on its financial performance in an Indian context using secondary data. This can be used as a guide for analyzing the sustainability reporting practices of companies and how they impact the performance of a company in long run and in short run because it provides data for the study of the same theoretical framework.

(2)

Jamali, D., Mezher, T. & Bitar, H. (2006). Corporate social responsibility and the challenge of triple bottom line integration: insights from the Lebanese context – According to this article, the findings suggest that organisations in a developing country context report challenges in maintaining a sustainable performance on the three dimensions, respectively the Triple Bottom Line (TBL) integration. This literature will help gain information about TBL as a systematic approach to managing the complete set of a company’s responsibilities, this term is used to refer to a framework for measuring and reporting corporate performance against economic, social and environmental parameters.

(3) Ogundare, E.A (2013). The Impact of Sustainability Reporting on Organisational Performance – The

Malaysia Experience - In this article, the

study is about embedding sustainability reporting culture into

organisational activities and whether it can impact significantly on an organization's performance. This

article is useful for determining the effect of overall sustainability reporting and the use of individual performance indicators including economic, social and environmental disclosures to the performance of companies.

The study to be used as a basis is the thesis work of Tia Mare L. Ebdane entitled, The Impact Of Sustainability Reporting On Company Performance: The Philippine Perspective. Based on the findings of three sustainable dimensions (economic, social and environmental), results showed that control variables like company age and size when considered, impacts the company’s performance. To explore it further, a quantitative research featuring the same thesis will be applied in The Impact of Sustainability Reporting on Selected Companies’ Financial Performance. The required data would be collected from the selected companies published sustainability reports from 2013-2017.

Framework:

article is useful for determining the effect of overall sustainability reporting and the use of individual

There are three major theories, namely, Legitimacy Theory, Stakeholder Theory and Agency Theory, which suggest that companies should be sustainable and should incorporate sustainability in their core strategic goals. The companies should disclose their sustainability performance in a proper sustainability report. These theories primarily suggest positive relationship between corporate sustainability and company performance.

Stakeholders Theory Apart from issues relating to the attempt to appear legitimate, another view reflected in the literature is that organisations will respond to the demands of the stakeholder groups that control resources required for their operations (i.e. powerful or influential stakeholders), and will tend to ignore the concerns of the groups without power (Belal & Owen 2007; Deegan & Blomquist 2006). Satisfying the implicit expectations of stakeholders improves a company’s reputation to citizens in a way that has a positive effect on its financial performance attracting the interest of investors and other stakeholders’ bodies (Brammer

and Pavalin, 2006; Weber et al., 2008), whilst disappointing stakeholders may have negative consequences on the financial performance (Makni et al., 2009; Preston and O’Bannon, 1997). Legitimacy Theory

Legitimacy theory posits that the legitimacy of a business entity to operate in society depends on an implicit social contract between the business entity and society. Companies can lose their license to operate in society by breaching society’s norms and expectations. Accordingly, legitimacy theory predicts that companies adopt environmental and social responsibility reporting to legitimise their operations when society’s norms and expectations of the business entities change or the business entities perceive themselves in breach of existing norms and expectations of society (Deegan 2002; Deegan & Blomquist 2006; O’Donovan 2002). Agency Theory The agency theory is generally concerned with the relationship between the agent and the principal (De Villiers, et al., 2011). The theory defines the separation problem between a firm’s ownership and control. The agency theory also posits that the board is responsible to monitor management’s sustainable policy and strategy (environmental and social policy, strategic CSR, environmental investment, and information availability). It is also evident that social and environmental investment is generally a long-term goal and management may be reluctant to invest in sustainable areas because there is no immediate benefit (Chan, 2014).

Proposed Research Design, Methods and Procedures

The proponents will use the required data from the selected companies published sustainability reports from 2013-2017 to measure the financial performance of the selected companies. The companies are selected based on the companies who prepared and have published sustainability reports from the year 2013-2017. The dimensions of sustainability reporting were determined, and their level of exercise was measured, based on analyzing the content of these reports and the financial indicators of financial performance.

Bibliography

Aggarwal, P. (2013). Impact of sustainability performance of companies on its financial performance: A study of

listed Indian companies. Global Journal of Management & Business Research Finance , Vol. 13 (11),

61-70.

https://poseidon01.ssrn.com/delivery.php?ID=pdf

Belal, A. R., Owen, D. L. (2007). "The views of corporate managers on the current state of, and future prospects for, social reporting in Bangladesh: An engagement-based study", Accounting, Auditing & Accountability Journal, Vol. 20 Issue: 3, pp.472-494, https://doi.org/10.1108/09513570710748599

Bouten, L., & Hoozée, S. (2013). “On the interplay between environmental reporting and management accounting change”. Management Accounting Research, 24(4), 333–348.

Brammer, S.J. and Pavelin, S. (2006). “Corporate reputation and social performance: the importance of fit”, Journal of Management Studies, 43(3), pp. 435-455.

Chan, M.C.C.; Watson, J.; Woodliff, D. (2014). “Corporate Governance Quality and CSR Disclosures”, J. Bus. Ethics 2014, 125, 59–73

Deegan, C. (2002). “The legitimising effect of social and environmental disclosures – a theoretical foundation”, Accounting, Auditing, & Accountability Journal, vol.15, no.3, pp. 282-311.

Deegan, C & Blomquist, C 2006, “Stakeholder influence on corporate reporting an exploration of the interaction between WWF-Australia and the Australian minerals industry”, Accounting, Organizations & Society, vol.3, no.4-5, pp343-373.

De Villiers, C.; Naiker, V.; van Staden, C.J. (2011). “The Effect of Board Characteristics on Firm Environmental Performance”, J. Manag., 37, 1636–1663.

Ebdane, T.M. (2016). “The Impact Of Sustainability Reporting On Company Performance: The Philippine

Perspective”, .Journal of Asia Entrepreneurship and Sustainability; Tauranga Vol. 12, Iss. 1, 34-76.

Hohnen, P. & Potts, J. (2007). Corporate Social Responsibility: An Implementation Guide for Business. International Institute for Sustainable Development. Retrieved: June 2015:

http://www.iisd.org/pdf/2007/csr_guide.pdf

Jamali, D., Mezher, T. & Bitar, H. (2006). Corporate social responsibility and the challenge of triple bottom line integration: insights from the Lebanese context

https://pdfs.semanticscholar.org/1036/753546bf6995eec5216d1be86bbb50aaf7ef.pdf

Makni, R., Francoeur, C. and Bellavance, F. (2009). Causality between corporate Social performance and financial performance: Evidence from Canadian firms, Journal of Business Ethics, 89(3), pp. 409-422.

Preston, L.E. and O’Bannon, D.P. (1997). The Corporate Social-Financial Performance Relationship A Typology and Analysis, Business Society, 36(4), pp. 419-429.

Sustainability Disclosure Database. Retrieved from: http://database.globalreporting.org/search/

Truant, E., Corazza, L. & Domenico, S. (2017). Sustainability and Risk Disclosure: An Exploratory Study on Sustainability Reports.

Companies in the Philippines that have published Sustainability Reports

Ayala Land - 2007-2008 SR; 2009-2010 AR; 2011-2016 AR & SR Fujitsu Philippines - 2000-2013 SR; 2014 ER Manila Water - 2004-2010 AR&SR; 2011-2014 SR; 2015-2016 AR&SR Land Bank of the Philippines - 2012-2016 First Philippines Holding Corporation - 2016-2017 PLDT - 2015-2017 Yokogawa Philippines - 1999-2005 ER; 2006-2017 SR Samsung Philippines - 2004-2005 Green Management. Report; 2006-2007 Environmental & Social Report; 2008-2018 SR Maynilad Water Services Inc. - 2011-2017

Kia Motors’ Philippines - 2009-2016 Nickel Asia Corporation Philippines - 2013-2017 Globe - 2013-2017 Petron - 2008-2010; 2012-2013 SM Investments Corporation - 2013-2016 ESG Report; 2016-2017 SR Development Bank of the Philippines - 2008-2013