Concept of Social and Environmental Accounting Information Disclosure
The concepts of social and environmental disclosure have been defined by different scholars. Guthrie and Matthew (1985) defined corporate social disclosure as the provision of financial and non-financial information relating to an organization‟s interaction with its physical and social environment, as stated in its corporate annual reports or its separate social reports. This means social and environmental disclosure could be integrated into a company‟s annual reports. Alternatively, it could be presented separately through other medium of communication such as stand-alone report, environmental report. Hassan (2010) explained that the extent of companies‟ corporate disclosure is dependent primarily on external and internal factors facing the companies. The external factors which include media pressure and Non-Governmental Organizations (NGOs) determine the degree of social pressure facing the firms, while the internal factors such as corporate governance attributes and ownership structure determine the strategy adopted by the firms in response to social pressure.
Barako (2007) defined corporate environmental disclosure as discretionary release of social information that has economic effect on the activities of the companies through annual reports over and above mandatory requirement either with regards to International Accounting Standards (IAS) or any other relevant regulatory requirement. It could be deduced from the above definition that disclosure could either be mandatory or voluntary. The information to be mandatorily disclosed in the annual report is extensively spelt out in IAS 1. The aim of voluntary disclosure is to promote accountability and transparency among companies beyond the traditional role of proving a financial accounting to the owners of the capital. Annual financial reporting is an important platform for communicating companies‟ financial and non-financial information. It has been documented in quite a number of researches that, improved disclosure by companies reduces the gap between management and outsiders, allow companies to gain competitive advantages, improved corporate image, enhance the value of stocks in the capital market, and reduce cost of capital (Kanda, 1999; Dye, 2001).
Social and environmental disclosure could also be described as a vehicle for transmitting social and environmental effect of organizations‟ economic action to particular interest groups within the society at large. Haron, Ismail and Yahya (2008) noted that corporate social disclosure gives information to the public regarding a company‟s activities that relates to the community. This means a socially responsible firm is expected to take step forward by adopting policies and business practice that go beyond the minimum legal requirements and thereby contributing to the welfare of its key stakeholders. Hassan (2010) argued that corporate social disclosure has developed mainly as a result of attention that has been paid to three other concepts in the business world, which are: corporate social responsibility, sustainable development and socially responsible investment. The European Commission as reported by Babalola (2012) defined corporate social responsibility as a concept whereby companies integrate social and environmental concern in their business operation and in their interaction with their stakeholders on a voluntary basis. It encompasses a variety of issues revolving around companies‟ interaction with society. The sorts of issues covered include ethics, governance, social activities such as philanthropic and community involvement, product safety and environmental activities (Idowu, 2009; Babalola, 2012). Idowu (2009) further opined that, when corporate social responsibility is considered from the perspective of accounting profession, such consideration is necessarily and inextricably linked with social and environmental reporting or accounting. The concept of sustainable development was launched by the “Our Common Future” report under the lead of Gro Harlem Bruntland, Director of United Nation World Commission for Environment and Development (WCED). The report provides the definition of sustainable development as “development that meets the need of present without compromising the ability of future generation to meet their own need” (Ngwakwe, 2009). Therefore, it is essential for firms to develop ways to meet those needs that do not disregard the future. The concept of sustainable development is mainly used to motivate various political, legal and economic initiatives which seek to resolve the social, environmental and economic concerns found by individual organization and government (Hassan, 2010).
It seeks to achieve societal and environmental equity while in pursuit of economic gain. The concept of socially responsible investment (SRI) as opined by Steurer, Margula and Martinuzzi (2008), is an application of corporate social responsibility and sustainable development principles in investment decision. The SRI related investment decision can focus on social issues, environmental issues, ethical issues or the combination of the three approaches. It is the practice of making investment decision based on both financial and social performance. The SRI strategy asserts that investing is not value neutral and that there are significant ethical and social, as well as economic consequence in how the money is invested (Shapiro, 1992) as cited in Steurer, Margula and Martinuzzi (2008). Therefore, it can be argued that, generation of long term sustainable returns is dependent on stable, well-functioning and well governed social, environmental and economic system. Hassan (2010) noted that, socially responsible investment encompasses how investors might use their power as shareholders to encourage better environmental and social behavior from companies they invest in. The concept of SRI is closely related to that of corporate social responsibility and sustainable development. In corporate social responsibility, the focus is on ethical, social and environmental activities of companies. Sustainable development on the other hand takes into cognizance the impact of companies‟ activities on wealth of next generation. On its part, socially responsible investment influences both social responsibility and sustainable development. There are no clear definitions of what constitute social and environmental information (Aburaya, 2012). However, Social and environmental disclosure as noted by Uwuigbe (2012) encompasses a range of items that can be categorized into various social and environmental related information, energy usage information, research and development related information, employee health and safety information and community involvement information. Hassan (2010) and Aburaya (2012) indicated that absence of definite social and environmental information has motivated initiatives to develop a comprehensive framework for social and environmental disclosure such as Global Reporting Initiatives (GRI) and Accountability AA1000 Assurance Standard. GRI is aimed at disseminating globally applicable sustainability reporting guidelines to enable organizations to voluntarily disclose the social, environmental and economic dimension of their activities (GRI, 2002). AA1000 Assurance Standard is an ethical performance framework introduced by the Institute for Social and Ethical Accounting (ISEA, 1999). In light of the above, social and environmental disclosure is measure in two ways. These are quantitative and qualitative disclosure measurements. Each of the two is discussed below.
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