IMPACT OF SUSTAINABILITY REPORTING ON
CORPORATE PERFORMANCE OF SELECTED
QUOTED COMPANIES IN NIGERIA
The principal objective of this research is to ascertain the Impact of Sustainability Reporting on Corporate Performance of Selected Quoted Companies in Nigeria. The specific objectives of this research are: to ascertain the level of impact of sustainability reporting on return on equity of companies listed on the Nigeria Stock Exchange; to examine the level of impact of sustainability reporting on return on assets of companies listed on the Nigerian Stock Exchange; to ascertain the level of impact of sustainability reporting on earnings per share of companies listed on the Nigerian Stock Exchange; to examine the level of impact of sustainability reporting on net profit margin of companies listed on the Nigerian Stock Exchange. This research employed ex-post facto design. The sample for the study was made up of 64 companies selected from 76 non financial companies quoted on the Nigerian Stock Exchange. This research utilized secondary data. A model specification based on regression model was used. The statistical technique employed in testing the hypotheses was the student t – test statistic. Findings from this study show that Sustainability Reporting impacted positively on financial performance of companies investigated. Companies are therefore encouraged to adopt this reporting system.
1.1 Background of the Study
The over all objective of any organization is to consistently grow and survive on a long term basis. Most managers are also aware that their organizations are part of a large system which has profound direct and indirect influence on their operations. This implies that if these organizations must effectively and efficiently meet their objectives, they should properly adapt themselves to their environments. Adapting organizations (especially firms) to their environments signifies a reciprocal or symbiotic relationship between the ‘duos’ as typified by systems model of viewing business. Considering the current environmental crisis, businesses must give more to their environment. The environment in which businesses operate is on an unsustainable course. We are now faced with serious challenge of environmental changes such as global warming, health care and poverty. This situation is similar to what Welford (1997:3) described as tangible environmental crises (serious water shortage across around the world, global food insecurity and decline in fish catches).
According to (Vlek & Steg 2007:3), Ezeabasili (2009:369) as human population continue to grow, material consumption intensifies and production technology further expands there is a steady decline in the quantity and quality of environmental resources. There is continuing concern about nature fragmentation and loss of biodiversity, shortages in freshwater availability, over-fishing of the seas, global warming, extreme weather events, air pollution, water pollution, environmental noise and utter neglect and disregard for the protection of the immediate environment, much more the future environment. This type of environmental unsustainability associated with continuously rising demand and a shrinking resource base now spills over into social and economic instability.
Following from the above, therefore, many are looking to business to be part of the solutions. For instance Welford (1997:5) maintains that business seems content to see the natural system on the planet disintegrating, people starving and social structures falling apart. Business is central to the problem and must be central to the solution. Indeed the expectations of corporate responsibility in areas such as environmental protection, human rights, human capital, and product safety are rising rapidly. Key stakeholders such as shareholders, employees, and financial institutions want business to be responsible, accountable and transparent. Unerman, Bebbington and O’Dwyer (2007:2) on the other hand states that human activities taking place today are regarded by some people as having a detrimental impact on the society, ecology and economy which future generations will experience. Indeed, this is a position ever more widely accepted by growing numbers of people throughout the world. For example, only a very small proportion of scientists currently argue that human activity is not a major contributory factor to the global warming which is causing wide scale environmental damage – and which is likely to cause even more damage to the ecosphere unless substantive action is taken to reduce levels of many pollutants.
Many people argue that the growing social injustice experienced by ever larger numbers of people, and the growing damage to the ecosphere, are a result of a dominant – and almost unquestioned – objective of maximizing economic growth. In these terms economic growth (characterized by energy and material-intensive production and exploitative social relations) is socially and environmentally unsustainable. (Unerman et al, 2007:2) Responding to these issues by business leaders help companies to mitigate risks, protect corporate brand and gain competitive advantage while helping to reduce poverty and improve the quality of life for many. In some extreme cases, companies may see their licenses to operate threatened overnight if their key stakeholders perceived significant discrepancies between their own and the company’s values. Unerman et al (2007:2) maintains that one way to look at these issues is in terms of
long-term need to ensure that economic activity is socially and environmentally sustainable. In the short-term it may be possible to have economic growth, while damaging society and the environment. In the long-term this is impossible. For example, businesses need a stable society in which to operate profitably (although some business might generate profit from addressing the outcomes of social conflicts,such as businesses offering security service).
Therefore, if business as a whole operates in a manner which causes damage to the society and thereby causes a break down in the social harmony necessary to provide a stable context for operation, then such business activities are neither economically nor socially sustainable. In the longer term if business activities cause a level of damage of the ecosphere such that it can not sustain human life on the scale we currently enjoy, then this is clearly neither socially nor economically sustainable as there can be no economic activities – let alone economic growth – without human life to sustain it.
There is now an increasing awareness that companies are made increasingly responsible for consequential environmental and social impact of their activities to the host communities and other stakeholders. According to Ekwueme (2011:45) the big corporations once looked upon as the exclusive concern of its owners is now viewed as being responsible to the society also. This implies that companies are no longer paying attention to the maximization of shareholders wealth alone but are embracing activities that tend to maximise the benefits accruable to all the stakeholders. This to a
larger extent means that companies are responding positively towards issues of sustainability. Thus White (2009:5) maintains that “the pressure for corporations to reassure the public of their good behaviour has increased… organisations are paying attention to their stakeholders as well as their stockholders.”
Business managers are beginning to see that this approach to conducting business has to become a part of the strategy for their companies in order to prosper in the future. There is increased expectation for all companies to be more transparent in how they treat the environment, how they handle their corporate governance issues, how they treat their employees, and how they treat their communities. According to Epstein (2008:23) corporations have become more sensitive to social issues and stakeholder concerns and are striving to become better corporate citizens. Whether the motivation is concern for society and environment, government regulation, stakeholder pressures,or economic profit, the result is that managers must make significant changes to more effectively manage their social, economic and environmental impact. Following from the above Unerman et al (2007:3) maintains that in practice, attempts to account for social, environmental and economic performance have become more common among many organizations – particularly large multinational businesses.
More broadly, the concept of sustainable development has become a central organizing theme within contemporary society, which in many ways is an astonishing achievement for an idea that is usually thought to have arrived on the public policy scene in 1987 with the publication of the Brundtland Report – a report named after Gro Harlem Brundtland, the prime minister of Norway (1981- 1986). This follows the creation by the Secretary General of the United Nations, the World Commission on Environment and Development in 1983 to investigate the extent of the problem of the growing evidence of worldwide environmental damage caused by human activity. The prime minister directed the group that became known as the Brundtland Commission. Under her direction the commission investigated environmental and economic issues around the world and found a strong international interconnection between ecology and economics. People all over the world expressed considerable concern for damage to the environment and its effects on their lives. In the Brundtland report it is clear that sustainable development is important to the future of fortunes of nations and individuals (White, 2009:2; Edwards, 2005:16-17). According to Unerman et al (2007:3) sustainability development concerns tend to focus on how to organize and manage human activities in such a way that they meet physical and psychological needs without compromising the ecological, social or economic base which enable these needs to be met.
The role of companies in this process is significant in most countries around the globe, and especially so in the industrialized West: the epicentre of the choices which drive the majority of the environmental threats to human survival. In the views of Hart (2007:101) corporations are the only organisations with resources, technology, the global reach, and, ultimately the motivation to achieve sustainability. In response to their sustainable development policies and practices, many companies claim that they recognize their social and environmental responsibilities, in addition to their economic responsibilities, and are seeking to manage and account for these activities in an appropriate manner. Corporate sustainability reporting has become such an important issue that most companies are now embracing this evolving corporate reporting system. Statistics from Global Reporting Initiative (GRI) reflect this trend in Sustainability Reporting. According to Peiyuan, Xubiao & Ningdi, (2007:3) the number of enterprises writing sustainability reports based on GRI framework worldwide increased from 150 in 2002 to 750 in 2005. “From 1 January to 31 December 2010, the number of sustainability reports registered on the GRI Reports List increased by 22 percent” (GRI, 2011:6). GRI maintains that “the Reports List is an online database that tracks all GRI-based reports that GRI is aware of, and that contain a GRI Content Index. While the List does not include the thousands more reports that follow GRI’s guidance, it does reflect wider trends in sustainability reporting.”
The use of Sustainability Reporting (a term used to describe a company’s reporting on its economic, environmental and social performance) techniques has been increasing rapidly in recent years. An understanding of the basis of this reporting system, and its impact on corporate performance is very crucial in determining the essence of its application.
MPACT OF SUSTAINABILITY REPORTING ON
CORPORATE PERFORMANCE OF SELECTED
QUOTED COMPANIES IN NIGERIA
1.2 Statement of the Problem
It is an accepted fact that most companies the world over are embracing Sustainability Reporting practices. According to Global Reporting Initiative (2011:6) “thousands of organizations worldwide now produce sustainability reports. KPMG research shows that in 2008 nearly 80 percent of the largest 250 companies worldwide issued sustainability reports, up from around 50 percent in 2005.” Similarly, KPMG International Survey of 2011 which covers 34 countries (Nigeria inclusive) shows that 95 percent of the 250 largest global companies now report on their corporate responsibility activities. Also, corporate responsibility reporting has gained ground within the Top 100 companies in each of the 34 countries (KPMG, 2011:4-9). This is in response to the demand for organisations to be more transparent in how they treat their economic, social and environmental activities as they affect their stakeholders.
Sustainability Reporting is therefore seen as impacting substantially on performance of corporate organisations. It should be noted that business leaders and most academic literature on Sustainability Reporting widely recognize that this reporting system is beneficial. Therefore, any company that is not involved in Sustainability Reporting could be considered as striving towards unsustainable development.
So far it is unclear what impact Sustainability Reporting has actually had on organisation strategies, practices and outcomes (Hubbard, 2008:2). The result of most researches conducted on Sustainability Reporting and financial performance are either inconclusive or contradictory, reporting positive or sometimes negative results. Burhan and Rahmanti (2009:271) concluded in a study that for the next researcher, due to inconsistent result it is necessary to re-evaluate other important variables that could determine company performance as well as consider longer time frame since their research covered only four years. In the light of these limitations this study is therefore set to find out the impact of Sustainability Reporting on corporate performance of selected quoted companies in Nigeria.