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stakeholders. If aspects are identified to be material, they are to be integrated within the sustainability report.365
4 . 4 C
R I T I C A L R E V I E W O F E C O N O M I C S U S T A I N A B I L I T Y~ 69 ~
More important subjects for the long-lasting existence of a company have been recognized to be the corporate governance including remuneration policy, risk management as well as the type of investments done or in other words the resource allocation decisions, which also includes the dividend policy. Corporate governance is also regarded by the IR and GRI frameworks. While in this respect IR also asks companies to inform their readers about how remuneration is linked to value creation in the near and long term,371 the GRI information extant on this subject is again dependent on the 'in accordance' decision made by each company. The Core option fails to oblige companies to report on remuneration and its consequence on the adherence with the strategic aims for instance.372 Moreover, the outlook on risks and risk management that influence the organization's ability for creating value is directly tackled by IR through an own section called 'risks and opportunities',373 while risks are regarded within the GRI framework for each dimension separately.374 Reporting on investment decisions and resource allocation is also linked to value creation and the overall strategy by IR within an own segment,375 while information on investments are done by GRI for each economic, social, and environmental category in part. Appealing to the dividend or profit retention policy in particular, they are considered by none of the frameworks.
Continuing the critical review with the concept of economic sustainability within the GRI framework, which is said to be based on the initial idea of the TBL,376 the reader might have already observed that it does not entail all determinants and subjects mentioned in the course of this chapter. The GRI guidelines primarily focus on ratios that indicate in how far a company has generated sustainable wealth to its societal environment and its stakeholders.377 When remembering table 1 of chapter 2, this perspective draws the conclusion that sustainability is viewed only from the external societal aspect by
371Cf. Integrated Reporting, n.a. c, p. 25, Internet: http://integratedreporting.org/wp-content/uploads/2013/12/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf
372Cf. Global Reporting Initiative, 2013a, p. 12, Internet: https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf
373Cf. Integrated Reporting, n.a. c, p. 27, Internet: http://integratedreporting.org/wp-content/uploads/2013/12/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf
374See for instance G4-EC2.
375Cf. Integrated Reporting, n.a. c, p. 27, Internet: http://integratedreporting.org/wp-content/uploads/2013/12/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf
376Cf. Global Reporting Initiative, 2013a, Internet: https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf
377Cf. Global Reporting Initiative, 2013b, p. 50, Internet: https://www.globalreporting.org/resourcelibrary/GRIG4-Part2-Implementation-Manual.pdf
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concentrating only on those questions of achieving economic prosperity of the society.378 In fact, even sustainability literature per se regards additional financial ratios, such as cash flows, liabilities, profits, ROI, dividends, etc. that also highlight the economic condition of a company, when referring to the corporate economic sustainability. It is also within this literature, where it is mentioned that sustainable economic success is about creating economic health to the company itself and its community.379 Evaluating the traditional economic representation, it becomes clear that this concept barely focuses on reporting the other side of the coin, namely internal sustainability aspects of achieving economic success.
Whereas the notion of a company being financially balanced considers stakeholders and their claims to be of crucial importance when it comes to the long-term survival of the company,380 it does however not fully integrate the idea while measuring and reporting financial data. In further consequence, it can be inferred that for an integrated view to be accumulated, these two perceptions have to be brought together.
For receiving a fundamental view of the economic content within the GRI G4 guidelines, table 11 presents the existence or absence of those components of the economic sustainability regarded and spotted within this chapter. The fulfilment ranges from the conditions of "Yes" (existent within the guidelines) over "Partly" (existence depends on certain conditions) to "No" (absent within the guidelines). In the column "Comments" it is noted where information can be found, to which conditions the subsistence is coupled and further statements on fulfilment.
Components of economic sustainability
Fulfilment within
GRI -G4 guidelines Comments
Economic indicators affecting the
external society Partly
Completeness by the companies depends on the
"in accordance" option.381 Economic indicators on corporate No Not regarded, as focus only
378Cf. Blackburn, 2009, p. 28.
379Cf. ibid., pp 23- 25.
380Cf. Guserl, & Pernsteiner, 2011, pp. 197-198, own translation.
381This information can be found under "Specific standard disclosures" - Category - Economy.While the Core option demands only one indicator for each category (economic performance, market presence, indirect economic impacts, procurement practices) to be identified, the Comprehensive option demands all indicators of each category (see table 10, chapter 4.3) to be reported on (Cf. Global Reporting Initiative, 2013a, p. 12, Internet).
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financial performance on external societal
aspects.382
Overall strategy Yes For both "in accordance"
options required.383
Corporate governance Partly
Completeness by the companies depends on the
"in accordance" option.384
Risk management Partly
Completeness by the companies depends on the
"in accordance" option.
Resource allocation Partly
Completeness by the companies depends on the
"in accordance" option.385 Products and services Yes For both "in accordance"
options required.386
Investment decisions Partly
Completeness by the companies depends on the
"in accordance" option.387 Remuneration policy Partly Only required if using the
382Ratios such as revenues or operating costs are part of the indicator G4-EC1 (Cf. Global Reporting Initiative, 2013a, p. 48, Internet). However, such numbers are only marginal or part of equations for receiving traditional economic financial ratios.
383Information on the overall strategy is required within the section of "General standard disclosures".While the Core option only requires a statement on the long to short term strategy, the Comprehensive option additionally demands at this section information on key risks and opportunities on the environmental, social, and economic level (Cf. Global Reporting Initiative, 2013a, p. 25, Internet).
384 While the Comprehensive option delivers a holistic insight into the company's corporate governance, the Core option only demands companies to report on governance structure (Cf. Global Reporting Initiative, 2013a, p.
36, Internet).
385Can be found spread under both sectors "General standard disclosures" and "Specific standard disclosures".
This information is reported for each economic, social, and environmental category in part. However, to which extent the information is presented by the companies, depends again on the "in accordance" reporting option chosen (see for instance Global Reporting Initiative, 2013a, p. 48, Internet).
386Information on products and services is required within the section of "General standard disclosures". (Cf.
Global Reporting Initiative, 2013a, p. 12, Internet)
387This information can be found under each category of the "Specific standard disclosures" sector in part.
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Comprehensive "in accordance" option.388 Dividend/profit retention policy No Not demanded.
Table 11: Critical review of GRI fulfillment of determinants of the economic sustainability
By now it must become obvious that although the guidelines offered by the Global Reporting Initiative are a good orientation for companies to report on economic sustainability data, when adhering to the information demanded, it does by far not offer an holistic picture of the economic pillar of sustainability. Additionally, giving reporting companies the option to choose the level of fulfilment through two reporting options, the information completeness and overview is blurred as demonstrated in table 11. Moreover, companies might also dedicate to "cherry picking" and choose only certain indicators to report on. In this case the statement "This report contains Standard Disclosures from the GRI Sustainability Reporting Guidelines"389 has to be included. This possibility of selecting and reporting only on information that companies want to be transparent about, is a main critics to the GRI framework.390
The circumstance of missing coherent and generally applicable indicators, when it comes to the topic of economic sustainability, is not new391 and has been also already indicated within this chapter. Consequently, given the postulation that the main function of a sustainability report is to serve as a communication tool,392 the afore mentioned conceptions are to be combined to receive an holistic perspective of an organization's economic condition in the short, medium, and long-run. It is therefore recommended for companies to report on economic requirements of the Global Reporting Initiative, traditional financial ratios and further declarations on its strategy, corporate governance and remuneration policy, risk management, investment decisions and profit and resource allocation at least, for receiving an holistic view of the corporate economic sustainability. For the last declarations regarded here, it is also advisable to take a look on those information demands, necessitated at least
for internal reporting as presented in chapter 3.4.1.
388This information is required when reporting on Governance under the section "General standard disclosures".
389Global Reporting Initiative, 2013a, p. 14, Internet: https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf
390Cf. Burckhardt, & Hamm, 2013, p. 201; Guthrie, & Farneti, 2008, p. 363; Moneva et al., 2006, p. 130.
391Cf. Elkington, 1997, pp. 76-77.
392Cf. Global Reporting Initiative, n.a. g, Internet: https://www.globalreporting.org/information/sustainability-reporting/Pages/default.aspx
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Figure 6: Integrated perspective of economic sustainability - The economic sustainability pyramid393
393According to the outcomes of chapter 4.
Overall strategy Corporate governance
Company's overall strategy and policies
Risk management Resource allocation
Liquidity ratio Cash flow statement Working Capital ratio Equity ratio Dynamic debt-equity ratio Matching maturities Gearing ratio
Company's financial performance
Return on equity ROA ROCE ROS
EPS P/E ratio Dividend yield
Economic Performance (G4-EC1 - G4-EC4)
Market Presence (G4-EC5 - G4-EC6)
Stakeholder economic prosperity
Indirect Economic Impacts (G4-EC7 - G4-EC8)
Procurement Practices (G4-EC9)
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Concluding the critical review, figure 6 aims to graphically explain how the concept of corporate economic sustainability is understood after reading through this fourth chapter. The basis is made out of the company's set and implemented strategies and policies. It is crucial for every company to previously define in which direction the company should move in order to take the right steps toward a sustainable condition.394 These previously set objectives are to be revealed and redefined continually in order to fruitfully adapt to internal and external conditions and lead to the economic health of the company and its external society.395 This is also the reason, why the boundaries of the pyramid are not drawn through, but dotted.
Additionally, the strategy and stipulated policies are surrounding the pyramid to illustrate its omnipresence. The next stage of the pyramid, again constantly interrelating with the first and third stage, is the corporate economic condition. This is, as definitions by different sources reveal,396 one of the most important determinants of a successful economic future and thus a precondition for corporate economic sustainability. If the financial performance of the company is sane, companies can and are probably more easily prone to invest in the economic prosperity of all the stakeholders involved in doing business with them (as considered by the G4 Guidelines), which is the third and last stage of the economic sustainability pyramid.397 Consequently, it is now visible, how the stipulated economic determinants relate and connect to each other to offer a holistic and integrated picture of what economic sustainability consists of according to the elaborations of this master thesis.
5 A
N A L Y S I SThis chapter first starts with a theoretical description of the research method before going into unfolding which results the analysis has come to. Subsequently, subchapter 5.2 generally reveals how the analysis was undertaken and which selection criteria were considered for the outcomes. According to this, the financial sector, the public service sector and the machinery production/engineering sector are analysed in more detail. In further consequence six companies have been chosen for the comparison of the three sectors, two for each branch. In order to apply the findings of the previous chapter 4, the bellow depicted tables are used for each closely regarded company. Each of the tables represents one stage of the afore presented economic sustainability pyramid and is supposed to give an insight, in
394Cf. Hunger, & Wheelen, 2014, p. 5.
395Cf. Blackburn, 2009, p. 23.
396Cf. Wöhle et al., 2011, p. 28, own translation; Blackburn, 2009, p. 21; Doane, & MacGillivray, 2001, p. 3.1.2.
397Attention: Assumption!
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how far these aspects have been looked upon within the sustainability reports. The concluding review of the analysis is summing up the findings of subchapters 5.2 and 5.3 and commenting on the limitations came upon as well.
Economic Aspects
Specific Economic
Standard Disclosures
Additional Specific Economic
Sector Disclosures
398
Existent within the sustainability
report yes/no/partly
Reference to other published
reports
Economic Performance
G4-EC1 G4-EC2 G4-EC3 G4-EC4 Market Presence G4-EC5 G4-EC6 Indirect Economic
Impacts
G4-EC7 G4-EC8 Procurement
Practices G4-EC9
Table 12: Analysis criteria for specific economic indicators according to G4 and where they can be found399
Traditional Economic Indicators/
Financial ratios
Existent within the sustainability report
yes/no/partly
Reference to other published reports
Liquidity ratio
Cash flow statement Working Capital ratio Equity ratio
Dynamic debt-equity ratio
398Based on Global Reporting Initiative, 2013c, Internet: https://www.globalreporting.org/resourcelibrary/GRI-G4-Financial-Services-Sector-Disclosures.pdf
399Based on table 10, chapter 4.3
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Gearing ratio Return on equity ROA
ROCE ROS EPS P/E ratio Dividend yield
Table 13: Analysis criteria for traditional economic indicators and where they can be found400
Additional disclosures
Existent within the sustainability report
yes/no/partly
Reference to other published reports Overall strategy
Corporate governance Risk management Resource allocation Products and services Investment decisions Remuneration policy
Dividend/profit retention policy
Table 14: Analysis criteria for additional disclosures according to outcomes of chapter 4.4