Evaluation of the disclosure data of sustainability reports in the context of industry 4.0: A case study in seven countries

Nội dung text: Evaluation of the disclosure data of sustainability reports in the context of industry 4.0: A case study in seven countries

1. EVALUATION OF THE DISCLOSURE DATA OF SUSTAINABILITY REPORTS IN THE CONTEXT OF INDUSTRY 4.0: A CASE STUDY IN SEVEN COUNTRIES Tran Nhat Minh, MA. Chu Tuan Vu, MA. National Economics University Abstract The paper introduces a popular measure to evaluate the quality of the information disclosure of companies’ sustainability reports and apply to the case studies of large enterprises operating business in the forest and paper industry from seven countries: Brazil, Canada, Japan, Finland, South Africa, Sweden, and the United States. The Clarkson et al’s (2008) scale is the main tool used to evaluate the disclosure quality of data. The writers also use the mean of scores in each category and country to make the comparisons. Hard disclosure and soft disclosure are also used to evaluate the performance in publishing information of enterprises. The paper reports that there are substantial differences between comprehensiveness between countries. The preferences of each company to what kind of data they reveal most are also distinctive. There are numbers of explanations to justify those differences, which include the cultural variety, and the legislation system in each nation. Above all, we find that companies who are better equipped with smart 4.0 technology (1) use energy more efficiently; (2) are better in waste and disposal management; (3) reduce greenhouse emissions and (4) cause to a lesser extent the impacts on protected and unprotected areas high in biodiversity. Meanwhile, there is also a positive relationship between environmental performance indicators and countries that own higher percentage of smart technology utilization with Japan on top and South Africa at the bottom. Finally, there are also similarities in the popular adoption standard ISO 14001, and the hesitation of the most firms analysed in disclosing information related with the social aspects. 1. Introduction The raised awareness of people about the role of environmental protection as well as current social problems has brought the information relevant to sustainable development, in the association with both natural and social environments, to the interests of the public. People start to recognize that industrial companies need to play an important role not only in creating jobs and profits, but also in conserving the natural environment and contributing to local social benefits in the long term. The publishing of sustainability reports can be compared with an active reaction of global firms with the raised interests of stakeholders about the environment. It is the first step to gradually integrate the original purpose of business, which is to create profit, with the sustainable development of society despite the fact that they may conflict each other. As explained by the United Nations in Sustainability framework (2011, p.5), sustainability is “the sustainable development is development that meets the needs of current generations without compromising the ability of future generations to meet their own needs”. In the past, 514
2. before the implications of globalization with the environmental and social aspects drew so much attention, sustainable development had possibly been an ambiguous term with quite many people. However, recently, when harmful consequences of industrialization and globalization gradually affects the daily life of people in an increasingly direct way, the term “sustainable development” has been a hot topic for many politicians, scientists, academic researchers. The creation of sustainability report proves the efforts of managers and board of directors to consider the environmental and social benefits in the decision-making process. Sustainability reports are accounts that firms issue to communicate their efforts and commitment to sustainability. Sustainability reports provide stakeholders with non-financial information that may be their interest because it will affect the sustainable development of the firm. It is similar to the existence of principles that financial reports have to comply with, the sustainability reporting also needs a set of guidelines in order to help increase the integrity and reliability of information that industrial firms in various sectors can give to readers. This is the reason why an organization named General Reporting Initiative (GRI) created sustainability reporting standards. It is a popular set of guidelines consisting requirements of both the environmental and social information. This framework is conducted on the basis of voluntary practice of the companies. However, even with the application of GRI guidelines, another concern may be raised about the accuracy of information published by the firms. Consequently, a new room for the job of auditors may appear, even the sustainability reports which have been audited are not the majority. The level of implementation of sustainability reporting in the business community probably varies greatly with many factors, such as the size of the firm, the sector, the legal and social requirement of the nation in which the firm is located. The sustainability reporting is often presented with an order of categories as in GRI guidelines. Firstly, it should be started with the message or a letter from the most senior manager of the company. Then several categories will be added. They consist of information about general corporate governance, economic, environment and lastly, social data. GRI guidelines are quite sufficient and easy to follow. Although the guideline’s criteria about the information published in sustainability reporting is excessively clear, it does not mean the company will totally comply with the guidelines, even the majority state in their reports that the manner they prepare the reports is parallel with the GRI standard. When the first sustainability report appeared 30 years ago, many researchers have tried to ask the governments to impose law on companies so that they will have to issue reports on environmental information (Bansal. P and Bogner. W, 2002). However, until now, there are only some countries which have regulations about compulsory reports on sustainable development. Moreover, according to the result of a research implemented in 2014 by Loannis George Serafeim, even without the regulations on mandatory adoption of assurance or specific guidelines, the enterprises that are willing to publish those reports still try to assure the comparability and credibility of the data. 515
3. This paper analyses the quality of information disclosed in the sustainability reports of companies in the forest and paper industry. The analysis is conducted with the sustainability reports of 28 firms from seven countries: Brazil, Canada, Finland, Japan, South Africa, Sweden, and the United States. All reports are published based on the data in 2013. Forest and paper industry supplies consumers with a range of products made from wood: pulp, paper, paper for sanitary purposes, labeling paper, all of which are necessities in the daily life of people. The primary raw material of this sector is from forest, one of the most limited natural resources of the world. In addition, according to the data of United Nations, they are also one of the industries that produce the highest emission and waste. The sustainability reports of firms in this sector can be a useful tool for stakeholders and policy makers to understand about the effects that this industry can cause on the environment. These reports also provide information about the efforts that those enterprises have made to limit the negative impacts their production can cause to the environment, and the contribution they have tried to limit such negative effects. In addition, the appearance of context of industry 4.0 has have an impact on business sustainability and business development by changing business activities such as communication, energy consumption and logistic by linking through value chain, which is beneficial to the development of the forest and paper industry. 4.0 technology is based on five platforms: smart equipment, networking and connectivity, value chain integration, smart products and data analytics. Smart equipment is defined as a machine, a production tool having capable of automating and interacting with others and with the operators. Networking and connectivity is based on IT systems. It exists in all manufacturing processes, which creates a connection environment between applications and devices. Production cycles are also connected through this system, from logistic to design and manufacturing. "Value chain integration takes place with the integration of IT systems, including customers and suppliers across the value chain in order to improve information flow" (Paper industry 4.0 report (2015)). In other words, it is a combination of IT system and automation. "Smart products are products that participate in the production process by providing data to equipment on next steps, requirements, etc" (Paper industry 4.0 report (2015)). Smart products can be considered as an intermediary product to find the needs of customers quickly. Data analytics is the work of processing large amounts of real-time signals to improve maintenance and production activities. According to paper industry 4.0 report (2015), the pulp and paper industry has many opportunities to develop in the context of industry 4.0 as launching new markets by identifying and finding newly-launched customer needs by global digitization. On the cost side, 4.0 technology optimizes the use of available resources and power by smart equipment and big data analysis. For example, low operating efficiency, underperforming production and high raw materials and energy costs can be solved by smart equipment which improves the efficiency of paper machine. The report calculated that smart equipment can reduce energy consumption by up to 35% and the use of additive by 1.24 Mio € per year. EOS - Energy Optimization System based on big data analytics follows data about energy 516
4. consumption to calculate the lowest cost of power used and reduce energy costs and other production costs Consequently, this is the reason why we chose to conduct an analysis of the quality of information disclosure in the corporate social responsibility reports in the forestry and paper industry in the context of 4.0 technology. The analysis has shown that the quality of reports depends largely on both the located nation of firms’ headquarters, and differences in the preference of information disclosed between companies. 2. Methodology One of the most vital elements in the quality of the report is to design the investigation, based on which we can conduct the analysis of reports. There are three main steps to design the investigation. First of all, the writers decides to measure the social and environmental information reported by a group of big firms in the forest and paper sector. There are several reasons to justify the choice of this sector. First of all, apparently, this is one of the industries that consume the largest amount of wood in the world. Even the demand for paper and wood products in the world showed a slight decrease in 2013 (PWC, 2013) due to the downturn of the financial situation in the world, this industry remained to be one of the largest sectors in the global economies. In addition, there are a number of primary environmental issues concerning the forest and paper companies. For example, the sustainability of forest resources is an element deciding the development of this industry. If companies only focus on the short-term benefits but ignore the long-term conservation, a shortage of primary inputs is predictable. On the other hand, a conventional criticism levelled at these companies is the changes and negative impacts on biodiversity and habitats of animals and plants, as well as the pollution and waste of water. There might be many other activities in the operation which probably cause harm to the environment, such as the transportation to and from paper mills, bleaching and other chemicals, Illegal logging and laundering of wood through plantation supply pulp for the paper industry. The social effects of the manufacturing paper are also undeniable, since forests are the main source of income in many local communities. Regarding the growth performance of the industry, 2013 was not a year with an excellent economic advancement when the global economy was still struggling with the aftermath of financial crisis happening in 2008, marked by the collapse of Lehman Brothers – the biggest bank in the United States. Consequently, it was not an easy time with most industries, not excluding the forest and paper industry. Absolutely, in the limit of this report, it is impossible to implement an analysis of forest and paper industry in all countries. Therefore, we will only choose seven countries: Brazil, Canada, Finland, South Africa, Sweden, and the United States. The selection of those nations is attributable to their contribution to the world production of paper products, as well as the level of public information that their corporations provide. Another important factor which 517
5. we focus on is the diversity of geography in which the headquarters of enterprises are located in, so that the objectivity and variance of analysis may be improved. Among those nations, one is from South America (Brazil), two are in North America (Canada and the United States). There are two countries located in Europe (Finland and Sweden). There is one representative in Africa (South Africa) and Asia (Japan). All of those countries are in top producers of papers based on the amount of products. In fact, China, Canada, and the United States are top three countries with the highest amount of production of paper in the world. Among them, China is a potentially emerging market, when its manufacture and demand of paper is growing rapidly. However, most of large Chinese companies are owned by states, and their lack of transparent information prevents the writers from including China in the analysis, because most of their reports are in Chinese and not published in English, and there are only two big companies from this nation is following GRI guidelines (according to GRI database). Although seven countries selected do not have the same level of development, but they are still the most advanced representatives in their continents. While the Canada, Finland, Japan, Sweden, the United States are developed nations, with high level of advanced technology, Brazil and South Africa are emerging nations and among the most dynamic economies in the world. As shown in the survey of national geographic, Sweden people tend to recycle and use renewable energy much more than South African people All companies selected are large or multi-national ones, to assure that they represent the true situation of their countries. According to the report Global forest paper and packaging industry survey in 2013, carried out by Price Water house Cooper Corporation, 22 over 28 firms are ranked in the list of the 100 biggest firms in the forest and paper industry. The writers also made the best effort to choose at least 3 to maximum 5 companies in each country, to avoid the lack of balance in the analysis. 3. Overview of Clarkson et al’s (2008) The modified version of Clarkson et al’s (2008) scale consists of 38 indicators divided into six categories: 1. Governance and structure management 2. Sustainability initiatives 3. Environmental performance indicators 4. Social performance indicators 5. Compliance spending 6. Vision and strategy claims Each category is one set of indicators that represent the information of various aspects, ranging from management, general sustainability, to social benefits, environmental indicators. In the specific case of performance indicators, a score from 0 to 6 is assigned following Clarkson et al. (2008). Accordingly, “a point is awarded for each following items: 518
6. (1) performance data is presented; (2) performance data is presented relative to peers/rival or industry; (3) performance data is presented relative to previous periods (trend analysis); (4) performance data is presented relative to targets; (5) performance data is presented both in absolute and normalised form; and (6) performance data is presented at disaggregate level (i.e., plant, business unit, geographic segment)” (Clarkson et al. 2008:313). The performance categories is also appreciated in the impact of 4.0 technology. In 6 categories, the second indicator: environmental performance indicators (EPI) shows the impact of 4.0 technology on the efficiency of resource and power used. This category is divided into 8 indicators showing power use efficiency, waste generation, waste treatment . We will also concern about the application of 4.0 technology on environmental indicators in performance data: do they use smart equipment, networking and connectivity, value chain integration, smart products and data analytics to improve environmental performance? In this publication, we will not use all the indicators and simplified the model slightly to suit better with the conditions of the evaluation. We examine the level of disclosure of environmental and social information separately by calculating the average scores that companies in individual nations achieve. The limitation is due to the small size of the samples, which only consists of 3-5 enterprises in each nation, this result is probably unable to attain excessively high level of accuracy. Despite of this fact, in our opinion, it is still necessary to take it into the analysis, because each firm in the samples has relatively large scale in the selected sector (according to the list of the 100 biggest corporations in the forest and paper industry and the GRI database). The relative similarity in size of enterprises may ensure the consistency of data and give us a reasonable look at the comparison of information disclosure quality between large firms of seven countries. The small size of samples limits the tools which the writers can use to analyse the data. We will not use the variance or correlation, because it is not necessary and cannot show a high accuracy with some companies. The industrial index will not be utilized for the reason that it represents the mean of a large number of companies, with a wide variety of sizes, while this report only focuses on analysing the large companies. On the other hand, we will calculate the average scores of all indicators, and average scores of individual nations. The mean of scores in the category (3) and category (4) will be used to compare the disclosure quality related to environmental and social information. In addition, the analysis is based on the distinction between soft and hard disclosure will be employed to build a deeper look at the quality of disclosure. Soft disclosure relates to information which is difficult to check the accuracy, while hard disclosure is clearer and it is easy to verify. To illustrate, the level of energy savings or air emission can be checked by scientific measures quickly because they are quantitative factors. Similarly, it is likely that the fee paid for non-compliance with regulation of a company is verified easily by the authorities. When such information is ubiquitous, it can be regarded as hard disclosure. In contrast, even a CEO commits strongly about the environmental protection, it is difficult and can cost much time and money to verify his/her commitment in reality. This is a type of soft disclosure. The table below demonstrates 519
7. the comprehensiveness of firms according to Clarkson scale, in terms of soft and hard disclosure. 4. Reporting tables and results Table 1. 1 The soft and hard disclosure quality calculated by Clarkson et al’s (2008) Percentage of Average Indicator firms disclosing scores of the indicator the item Hard disclosure items 100% 45.29 (1) Governance structure and management systems 100.0% 3.07 (Max score is 7) 1. Existence of a Department and/or un management 78.6% 0.79 positions for environmental management (0-1) 2. Stakeholder involvement in the policies’ establishment in 92.9% 0.93 the organization (0-1) 3. Implementation of ISO 14001 at the plants and/or the 82.1% 0.82 company (0-1) 4. Implementation of ISO 26000 at the plants and/or the 14.3% 0.14 company (0-1) 5. Implementation of ISO 8000 at the plants and/or the 0.0% 0.00 company (0-1) 6. Implementation of EMAS at the plants and/or the 7.1% 0.07 company (0-1) 7. Executive compensation is linked to social, economic and 32.1% 0.32 environmental performances (0-1) (3) Environmental performance indicators (EPI) (Max 100.0% 21.64 score is 48) 10. EPI by weight and volume (0-6) 67.9% 1.96 11. EPI on energy use and/or energy efficiency (0-6) 100.0% 3.64 12. EPI on water use and/or water use efficiency (0-6) 100.0% 3.21 13. EPI on impacts on protected or unprotected areas high in 96.4% 2.75 biodiversity (0-6) 14. EPI on greenhouse gas emissions (0-6) 96.4% 3.54 15. EPI on waste generation and/or management (recycling, 100.0% 3.39 re-use, reducing, treatment and disposal) (0-6) 16. EPI on environmental impacts of products and services 60.7% 1.54 (0-6) 520
8. 17. EPI on compliance performance (e.g. exceedances, 75.0% 1.61 reportable inicidents) (0-6) (4) Social performance indicators (IRS) (Max score is 96.4% 15.89 84) 18. SPI on the total number and rate of employee turnover 42.9% 1.25 by age group, gender, and region (0-6) 19. SPI on rates of injury, occupational diseases, lost days, 85.7% 3.32 and absenteeism (0-6) 20. SPI on average hours of training per year per employee 39.3% 1.25 (0-6) 21. SPI about the composition of governance bodies and 85.7% 2.43 breakdown of employees per category (0-6) 22. SPI about the ratio of basic salary of men to women by 10.7% 0.32 employee category (0-6) 23. SPI on the percentage and total number of significant investment agreements that include human rights clauses (0- 10.7% 0.11 6) 24. SPI of the total number of incidents of discrimination 32.1% 0.29 and actions taken (0-6) 25. SPI about freedom of association (0-6) 46.4% 0.54 26. SPI about significant risk for incidents of child labour 42.9% 0.46 (0-6) 27. SPI on percentage of significant suppliers and contractors that have undergone screening on human rights 60.7% 0.86 and actions taken (0-6) 28. SPI about forced or compulsory labour (0-6) 46.4% 0.54 29. SPI about the impacts of operations on communities(0- 10.7% 2.25 6) 30. SPI on total number of business units analysed for risks 50.0% 0.75 related to corruption (0-6) 32. SPI about the type of product and service information 35.7% 1.54 required by procedures and the requirements (0-6) (5) Compliance spendings (Max score is 3 ) 96.4% 1.61 34. Non-monetary sanctions as a result of infringements of 64.3% 0.64 environmental law (0-1) 35. Non-monetary sanctions as a result of infringements of 50.0% 0.50 social law (0-1) 521
9. 36. Significant sanctions as a result of infringements of 46.4% 0.46 norms about the supply and use of the products(0-1) Soft disclosure items 96.4% 2.07 (2) Sustainability initiatives (Max score is 3) 71.4% 1.11 8. Internal environmental audits (0-1) 43% 0.43 9. Protocols to cope with accidents at works (0-1) 68% 0.68 (6) Vision and strategy claims (Max score is 2) 96% 0.96 37. CEO statement on environmental performance in letter 96% 0.96 to shareholders and/or stakeholders (0-1) As illustrated in the table, the hard disclosure’s total scores, calculated on the average of 28 companies, are 45.29. This number of scores is equivalent to the 31.89% of the maximum scores that a company can gain for the hard disclosure. The soft disclosure’s total scores, on average, are 1.11, equivalent to 0.69% of the soft disclosure’s maximum scores. The percentage of firms participating in the soft and hard disclosure is quite similar. The following tables summarise the scores of each country analysed in Clarkson scale: Table 1. 2 The summary of scores in each category and total scores of Brazil Brazil Disclosure items Celulose Cenibra Duratex Fibra (1) Governance structure and management 5 3 4 4 systems (Max score is 7) (2) Sustainability initiatives (Max score is 2) 1 1 1 2 (3) Environmental performance indicators (EPI) 26 20 27 24 (Max score is 48) (4) Social performance indicators (IRS) (Max 26 19 26 26 score is 84) (5) Compliance spendings (Max score is 3 ) 2 3 3 3 (6) Vision and strategy claims (Max score is 1) 1 1 1 1 TOTAL MARKS OF INDIVIDUAL FIRM 61 47 62 60 AVERAGE MARK OF THE COUNTRY 57.5 522
10. Table 1. 3 The summary of scores in each category and total scores of Canada Canada Disclosure items Canfor Catalyst Kruger Timber (1) Governance structure and management 3 3 3 2 systems (Max score is 7) (2) Sustainability initiatives (Max score is 2) 1 2 1 0 (3) Environmental performance indicators 22 30 16 18 (EPI) (Max score is 48) (4) Social performance indicators (SPI) (Max 10 16 5 6 score is 84) (5) Compliance spendings (Max score is 3) 2 1 3 3 (6) Vision and strategy claims (Max score is 1) 1 1 1 1 TOTAL MARKS OF INDIVIDUAL FIRM 39 53 29 30 AVERAGE MARK OF THE COUNTRY 37.75 Table 1. 4 : The summary of scores in each category and total scores of Finland Finland Stora UPM- Disclosure items Alhstrom Martela Metsa Eso Kymmene (1) Governance structure and management systems (Max score 6 3 3 4 3 is 7) (2) sustainability initiatives (Max 2 1 2 2 0 score is 3) (3) Environmental performance 26 15 28 29 24 indicators (EPI) (Max score is 48) (4) Social performance indicators 18 16 23 26 22 (SPI) (Max score is 84) (5) Compliance spendings (Max 3 3 3 3 0 score is 3) (6) Vision and strategy claims 1 1 1 1 1 (Max score is 1) TOTAL MARKS OF 56 39 60 65 50 INDIVIDUAL FIRM AVERAGE MARK OF THE 54 COUNTRY 523
11. Table 1. 5 The summary of scores in each category and total scores of Japan Japan Hukuetsukish Disclosure items Nippon Oji u (1) Governance structure and management 1 4 4 systems (Max score is 7) (2) sustainability initiatives (Max score is 3) 0 2 2 (3) Environmental performance indicators 19 25 31 (EPI) (Max score is 48) (4) Social performance indicators (SPI) 0 14 12 (Max score is 84) (5) Compliance spendings (Max score is 3 ) 0 2 0 (6) Vision and strategy claims (Max score is 1 1 1 1) TOTAL MARKS OF INDIVIDUAL FIRM 21 48 50 AVERAGE MARK OF THE COUNTRY 39.66 Table 1. 6 : The summary of scores in each category and total scores of South Africa South Africa Masonite Disclosure items Mondi Nampak Sappi Africa (1) Governance structure and management systems (Max score is 2 4 3 4 7) (2) Sustainability initiatives (Max 0 2 2 2 score is 3) (3) Environmental performance 6 30 15 23 indicators (EPI) (Max score is 48) (4) Social performance indicators 9 15 17 30 (SPI) (Max score is 84) (5) Compliance spendings (Max score 0 3 3 0 is 3 ) (6) Vision and strategy claims (Max 0 1 1 1 score is 1) TOTAL MARKS OF INDIVIDUAL 17 55 41 60 FIRM AVERAGE MARK OF THE 43.25 COUNTRY 524
12. Table 1. 7 The summary of scores in each category and total scores of Sweden Sweden Disclosure items Billerud Holmen SCA (1) Governance structure and management 3 2 3 systems (Max score is 7) (2) sustainability initiatives (Max score is 3) 1 0 2 (3) Environmental performance indicators 22 12 21 (EPI) (Max score is 48) (4) Social performance indicators (SPI) (Max 20 16 16 score is 84) (5) Compliance spendings (Max score is 3 ) 3 0 0 (6) Vision and strategy claims (Max score is 1 1 1 1) TOTAL MARKS OF INDIVIDUAL FIRM 50 31 43 AVERAGE MARK OF THE COUNTRY 42.3 Table 1. 8 The summary of scores in each category and total scores of the United States The United States Clearwat New Weyer Disclosure items MWC Verso e Paper Page houser (1) Governance structure and management 1 1 1 3 4 systems (Max score is 7) (2) Sustainabiliy initiatives (Max score is 3) 0 0 0 1 1 (3) Environmental performance indicators 22 16 20 16 23 (EPI) (Max score is 48) (4) Social performance indicators (IRS) 9 6 8 9 25 (Max score is 84) (*) (5) Compliance spendings (Max score is 3 ) 0 0 1 1 0 (6) Vision and strategy claims (Max score is 1 1 1 1 1 1) TOTAL MARKS OF INDIVIDUAL FIRM 33 24 31 31 54 AVERAGE MARK OF THE COUNTRY 34.6 According to the data analysed, the first thing we can see is Brazil has the highest average mark of disclosure quality (with 57.5 marks), while the United States is the country having the lowest one (34.6 marks). However, the firm providing the most transparent information is a Finnish one, Stora Enso group, gaining 65 marks in total. The second position belongs to two Brazilian companies, Duratex and Cellulose, with 62 and 61 marks, respectively. The firm with the least information disclosed is located in South Africa, which 525
13. is Masonite African. It has only 17 marks, with a sustainability report lasting only 7 pages. The average mark of all firms is 44.28 marks. Overall, the disclosure quality of social performance is much lower than that of environmental performance. Regarding the social indicators, the ranking is quite different with the comparison of all indicators. The country gaining lowest scores remains to be Japan (9 marks), while the one achieving the highest information sufficiency is still Brazil (26). The most transparent level of social information belongs to a South African company, Sappi (30 marks), while the Japanese company, Hokuetsu Kushu Paper did not publish anything in the context of social responsibility. As specified in the GRI guideline, the social indicators can be divided into a range of sub-categories: labour practices and decent work; human right; society; Product responsibility. Among four sub-categories, most of the firms mentioned, but not in details, the items related to human rights while the labour practices and decent work attracted the most attention from all companies. Although the environmental items are only allocated the maximum of 48 scores in the scale, much lower than that of social indicators (96 scores), there are 27 over 28 enterprises having equal or even higher marks in environmental information than in social information. Almost firms show data in this item, which suggests that the application of 4.0 technology in improving energy use efficiency to the paper industry has been widespread in the surveyed countries. It also shows the substantial imbalance of the disclosure between social and environmental information. It is so surprising that the country with the best quality of environmental data is Japan (with 25 marks), followed by Brazil and Finland with 24.25 and 24.4 mark. While South Africa is marked at the lowest score in nations researched is not too surprised, a rather surprising thing is US is one of the country having lowest score (19.4 point) if we know that US is one of the two leading nations with the virtue of applying technology 4.0 (Industry 4.0 in a Global Context report (2016)). This suggests that the pulp and paper industry in the USA does not adapt 4.0 technology reasonably in comparison with other industry sectors. In addition, the score of environmental items is not too high, which can be explained by firms do not adapt 4.0 technology in all indicator such as water volume used. We will suggest some solutions in the conclusion part. In terms of the performance indicators evaluated on the scale of 6 marks maximum, the clear information is the energy use and energy efficiency. All companies published specific data about the energy consumption, with no firm gaining less than 3 marks. In contrast, among 35 items selected, the information associated with “SPI on the percentage and total number of significant investment agreements that include human rights clauses” has the lowest quality of disclosure. Most of the companies did not show any data or only said something very general about this criterion. Only three companies mentioned, but no firms reached more than 1 mark for this item. In general, it reflected the same trend of the indicators associated with human rights. Most enterprises committed firmly that they comply with their conduct of ethics, which 526
14. totally respect all aspects of human rights. Some firms mentioned about the strict prohibition of the use of illegal labours (including child labour and forced labour), as well as state the attitude against discrimination and support of freedom quite clearly. Nevertheless, the rest only said about human rights in a general manner. This leads to the fact that the scores of these indicators are quite low. Another point worth mentioning is the ratio of basic salary between men and women was not revealed by most of the firms. There were only three exceptional cases which are Cellulose Irani (in Brazil), Canfor (in Canada), and Sappi (South Africa). Further, Canfor reached 4 marks in this criterion with the highest level of details when comparing the ratios in a variety of years and operating positions. Another indicator included in the labour sub-category is rate of injury, occupational diseases, lost days, and absenteeism. The analysis reveals that this is the social indicator which is disclosed most carefully and sufficiently, with the highest average score in the social category (approximately 3.2 marks). Three countries gaining the best evaluation of this item are Finland, South Africa, and Sweden. Especially, Holme, a Swedish firm, achieved the only maximum score of six for the quality disclosure in the rate of injury, occupational diseases, lost days, and absenteeism. In addition, the contributions to local economies and communities play a vital role in many enterprises’ reports. In the aspects of governance and structure management, there are four marks to evaluate the implementation the international standards, such as ISO 14001, ISO 26000, ISO 8000, EMAS. The most popular standard is ISO 14001, being implemented by slightly more than 82% of firms. In the contrast, ISO 26000 and EMAS are applied by few companies, with only about 14% and 7% respectively. There is no application of ISO 8000 in 28 companies. On the other hand, the positive point is the number of companies having departments and/ or management positions for environmental management is quite high (22 over 28). Furthermore, the existence of CEO statement on environmental performance in letter to shareholders and/or stakeholders in the majority of corporations is a sign showing that the corporations are paying increasing attention to the sustainable development of companies and society. As an overall, among the 6 criteria used to evaluate the performance of indicators in the Clarkson et al’s scale, the most difficult one to achieve is “performance data is presented relative to peers/rival or industry”, followed by the score for “performance data is presented both in absolute and normalized forms”. The final remarkable point is about 43% of the evaluated enterprises has an internal control management system of environmental information with the assistance of internal auditors. All the 27 companies had executive compensation linked to economic performance, but only 32% of them considered remuneration based on the social and environmental performances. 527
15. 5. Baseline analysis Regarding the soft and hard disclosure of information, according to the article by Jeremy Bertomeu and Iv´an Marinovic (2011), the dishonest CEOs (Chief executives of operation) tend to certify the information with hard disclosure, while the truthful ones tend to certify the soft ones, because they know they have the confidence about their data, and they can ensure the accuracy of such information. In the context of this paper, there are not so many differences between the two categories, soft and hard disclosures. Consequently, we cannot justify any explanation, even when there are sources of literatures discussing this problem. The case of South Africa has similarities with Brazil, an emerging economy in South America. The firms in this country have made strong effort to converge with the global trend of sustainability reporting. In 2010, the numbers of Brazil companies publishing reports about sustainable development information ranked in top three of the world (GRI, 2010). High public debt, the severity of corruption and the demand for a democratic reform may lead to the requests for more transparent information published by companies, the main driver of economic development. The corporate social responsibility reports at least can provide a deeper look into the operation of companies and their impacts on the sustainable development of society. In the cases of Finland and Sweden, we can see the clear contrast between the disclosure qualities, although they share many characteristics in common. Both of them are located in North Europe and have the similar level of economic and social development. According to an article by A. Kolk (2005, p.35), Sweden used to be one of the nation’s pioneering in the trend of publishing corporate social responsibility reporting in the 1970s. It started to implement the voluntary reports on site level in 1990, and since 1999, the environmental information appeared in the annual reports. Surprisingly, when the trend of sustainability reporting has become stronger than ever before since 2002, Sweden’s growth of information disclosure began to slow down. The article written by A. Kolk (2005, p.38) also mentioned a number of reasons for reporting social and environmental information. One of the most vital drivers is to encourage the progress of social development and raising the awareness of corporations about environmental protection. However, with a level of social development at the top of the world, it is likely that the stakeholders in Sweden felt it unnecessary to have specific sustainability reports. Reasonably, when there is no mandatory regulation from the government and customers do not pay too much attention to the environmental and social information disclosed by the companies, they have no motivations to invest time and money in producing sustainability reports with high quality. The story of Finland is a little different. The social corporate sustainability report started to appear in Finland since the 1980s. Corporations in Finland used to have different approaches in presentation of social and environmental information. Along with time, the integrity of sustainability reports in Finland increased and it became one of the nation’s 528
16. leading in integrating the environmental performance and financial performance (Matias Laine, 2009). One of the primary reason may be Finland is a stakeholder of GRI and participating extremely active in this organization. In other words, we can say Finland has been successful in movements towards an environment-oriented business. The study of Hannu Schadewitz and Mikael Niskala (2010) also confirmed that the inclusion of corporate social responsibility information in annual reports improved the communication between Finnish companies and stakeholders, and therefore increase the value of firms. Stora Enso is a typical example of how a Finnish firm, after getting acquainted with corporate social responsibility, now has considered it as an inevitable goal of business rather than a pure responsibility. According to Matias Laine (2009), in Stora Enso Sustainability Report, 2005, p. 6, the company defines sustainability as ‘an umbrella term to describe responsible business operations that include economic, environmental and social responsibility’. North American companies in this report have the lowest scores among seven countries in the analysis. Regarding the United States, the downturn of the economies and the puzzle of financial crisis that originated from this country probably attracted more attention from stakeholders than the social corporate responsibility. The goal of sustainable development had to be put after the profit growth and economic operating efficiency. Therefore, reacting with the demand stakeholders, especially the shareholders, is likely to be the most reasonable explanation for the low quality of disclosure of American companies. This argument may be supported by a study of Giacomo Boesso (2006) which shows that the complexity of the market is one of the factors influencing the sustainability reports of American companies. In term of environmental performance indicator, the case of USA should be concerned because of its low point. Obviously, the insignificant application of 4.0 technology makes US companies less “confident” to show data on this indicator. The low scores that Japanese companies gain in the scale seem to be a surprise, because Japan is one of the most active participants in the trend of sustainability reporting. According to data updated by GRI in 2010, the number of sustainability reports in Japan following GRI scheme was in the top four of the world, accounting for 7% of the total reports globally. However, the cultural differences between Japan, an Asian conventional country and European nations, created the different manner and approach to sustainability reports. The hesitation to reveal operating data in social aspect is not only popular in the forest and paper industry, but is the general situation in all Japanese sectors (A. Kolk, 2005, p.41). As the data in this report reveal, Japanese companies tend to focus more on environmental issues rather than social problems. This is not unexpected because Japan has always been a technology early adopter of improving resource efficiency, recycling and minimizing waste. Another reasonable explanation may be because Japanese people, as many other Asian countries, have the tradition of not showing too much about the internal problems, in a family, or a corporation, to outsiders. The sensitive issues, such as the gender equality, can be mentioned in the reports, but rarely with specific data. The traditional culture prevents Japan from the complete convergence with the global trend, despite of the growing number of 529
17. Japanese companies following Europe and the United States to publish sustainability reports (Kanji Tanimoto and Kenji Suzuki, 2005). 6. Conclusion The paper concentrates on analysing the disclosure quality of information in the sustainability reports of the largest firms in seven countries in the forest and paper industry in 2013. The limitation of the sample’s small size is unavoidable due to the limited choices of large firms publishing sustainability reports in 2013. On the other hand, there are some vital implications which still can be withdrawn, and they are not limited only in the sector of forest and paper industry. Firstly, we can see that higher level of development of social and environmental awareness in a country does not accompany with the disclosure quality. The best illustrations are Sweden, Canada and the United States. The only developed nation, revealing the high quality in corporate social responsibility reports, is Finland, which can be deemed to have reached a real success to some extents in integrating the sustainable development with the core business. Among seven countries, Japan seems to be affected mostly by conventional culture. Although it is one of the economies following the trend of sustainability reporting most enthusiastically, Japan still has a long way to go to apply sustainability reporting usefully. In the context of the forest and paper sector, due to its nature of depending largely on natural resources and relating closely with local communities, sustainability reporting plays an extremely necessary role in evaluating the impacts on environment of business operation. The large corporations probably understand this thing clearly, and they use the most of their sustainability reports revealing the advanced technology, new applied standards, investment in projects to support the local communities. It may be a positive sign, but people should not be too optimistic about what is shown in the data published by them. Due to the voluntary nature of corporate social responsibility reports, it is reasonable to believe that most of the businesses only show what they want the public to know. Another meaningful conclusion is that the increasing quantity of sustainability reports does not ensure the high quality of information disclosed. As a big picture, there is an imbalance between social and environmental data shown in the reports. The social issues disclosure is being deemed as a compulsory responsibility, which must be included in the report, rather than a necessary and useful part. The gender equality, as one of the most unclear aspects of the sample reports, is a typical illustration. In fact, this social issue has been a conventionally debated issue in all sectors, and the forest and paper manufacturing is not an exception. It is not easy to find a solution to this problem, simply because it has been mentioned for a long time, but still appears in almost every nation, every sector in the world, in spite of strong efforts of activists, governments, and people against the sexual discrimination. However, from our point of view, the stronger regulation on the requirements of data disclosure may be an appropriate approach to some extents. The biggest hurdle is 530
18. possibly the disapproval of business communities with the excuse that the salary is not the only indicator of gender equality. On the other hand, if the governments could mandate firms to publish data on salary differences between men and women, it would be a vital turning point. As a manager answered the interview in the paper of Kate Grosser and Jeremy Moon (2008, p.12): “If you uncover something, you have to put it right”. The pressure from stakeholders, such as customers and non-government organization, will be the motivation for firms to improve the performance of gender equality. And this is when the original purpose of sustainability reporting is really achieved. Nevertheless, the mandatory regulation is not the only applicable answer. More than any official law, the high awareness of important stakeholders, such as customers and shareholders, is the strongest driver to make companies disclose data and try to reduce sexual discrimination. The answer to this puzzle must be a combination of efforts from all parties, and the target of equal treatment in working place cannot be reached in the short term. Last but not least, the pulp, paper and forest industry is still at an early phase of developing and participating in Industry 4.0. In order to take advantage of the key future opportunities, companies should take some of the following steps first. The industry players ought to seek greater collaboration with suppliers, customers and other stakeholders in the development of their jointly-funded Industry 4.0 pilot projects. In other words, 4.0 strategies should be set up not only at one firm, but also in the whole value chain. Firms should unfold their accumulated skills and experiences and clearly communicate with other participants in the whole value chain. Finally, firms should be proactive to identify the opportunities related to Industry 4.0, integrating smart technologies into their strategic management. To conclude, the trend of sustainability reporting has been motivated by a number of drivers. Its positive effects on the disclosure of social and environmental information are undeniable, but the achievement of optimal usefulness is still in progress. It is apparent that any firm making applying sustainability reporting hopes to raise their credibility with stakeholders. However, the key point is whether they provide accurate information or not. The assurance of auditors can partly verify the accuracy of data, but one should bear in mind that even with financial auditing with a much longer history, the result is only relatively objective. Furthermore, not all firms accept to increase operating expense to employ external auditors. Next, it is crucial that the corporations themselves use sustainability report scheme to improve their performance in promoting sustainable development. Finally, we offer some of the 4.0 initiatives that firms should implement to become paper and forest market leaders in the age of automation and digitalization. 531
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